This book is only available in PDF format

Authors: Sebastian Bisley, Tim Smith
Published: 20 March 2024
Pages: 31

Introduction

Section 135 of the Companies Act 1993 (Act) provides:

A director of a company must not—
agree to the business of the company being carried on in a manner likely to create a substantial risk of serious loss to the company’s creditors; or cause or allow the business of the company to be carried on in a manner likely to create a substantial risk of serious loss to the company’s creditors.

Section 136 of the Act sets out a separate but related obligation:

A director of a company must not agree to the company incurring an obligation unless the director believes at that time on reasonable grounds that the company will be able to perform the obligation when it is required to do so.

A claim for a breach of ss 135 and 136 (and for other breaches of directors’ duties) can be brought under s 301(1) of the Act:

If, in the course of the liquidation of a company, it appears to the court that a person who has taken part in the formation or promotion of the company, or a past or present director, manager, administrator, liquidator, or receiver of the company, has misapplied, or retained, or become liable or accountable for, money or property of the company, or been guilty of negligence, default, or breach of duty or trust in relation to the company, the court may, on the application of the liquidator or a creditor or  shareholder,—
(a) inquire into the conduct of the promoter, director, manager, administrator, liquidator or receiver; and
(b) order that person—
(i) to repay or restore the money or property or any part of it with interest at a rate the court thinks just; or
(ii) to contribute such sum to the assets of the company by way of compensation as the court thinks just; or
(c) where the application is made by a creditor, order that person to pay or transfer the money or property or any part of it with interest at a rate the court thinks just to the creditor.

This webinar is concerned with the approach of the Supreme Court approach to those sections in Yan v Mainzeal Property and Construction Ltd (in liq) [2023] 1 NZLR 296 (Mainzeal). Of course, they do not exist in isolation. (Continued...)

Content outline

• Mainzeal – the facts
• The lower courts: a tabulated summary
• Section 301(1): analysis
• Section 135: liability analysis
• Section 136: liability analysis
• Implications for the future
• Quantum: analysis
• Familiar themes – a lack of boardroom professional scepticism
• Lack of scepticism and corporate failure: a New Zealand pattern?
• The American behavioural science literature
• Guidance from the Institute of Directors

Content outline