Director Duties – Duty of Good Faith

New Zealand is a developed economy and a member of the OECD, it is neither listed as a offshore jurisdiction or a tax haven. To maintain the high-standing reputation of the country and companies incorporated in New Zealand, national law outlines, with high detail, the duties of the directors of New Zealand companies.

Subject to the Companies Act 1993, directors of a New Zealand company “… must act in good faith and in what the director believes to be the best interests of the company.” The director is required to act in the benefit of the company as a whole, and not for the benefit of their own personal interests or a particular set of shareholders.

If the director’s actions are brought into question within a court of law, a test of subjectivity will be applied to judge whether the director’s choices were made in good faith to the company. Examination will center on whether the director had reasonable grounds to believe that the actions were indeed in the best interest of the company.

If the director is found to have acted outside of good faith towards the company, they may be held liable for the losses incurred by the company. Generally the arising liabilities are owed by the director to the company, and not the shareholders. However, in some limited circumstances action could be brought against the offending director by the shareholders or another director.

March 10th, 2011