In a recent Australian case (Southern Cross Interiors Pty Limited (in liquidation) & Anor v Deputy Commissioner of Taxation & Ors), a wife who was a director of her husband’s company but had no involvement in the company, was found to not be liable for breaches of her duties as a director.

The wife successfully defended the claim for breach of duty as a director, on the basis that she only became a director at the behest of her husband, and she completely trusted her husband to tell her if she had any duties as a director. Her husband told her nothing of the company’s affairs or her duties and she took no part in the running of the company.

The wife claimed that she had a defence available to her under s588FGB(5) and s588H(4) of the Australian Corporations Act 2001 (Cth). The relevant wording provided:
‘If the person was a director of the company at the time the debt was incurred, it is a defence if it is proved that, because of illness or for some other good reason he or she did not take part at the time in the management of the
company.’

The Court held that a good reason included any legal principal, and relied on the principal of a further Australian case Garcia v National Australia Bank Limited for finding a ‘good reason’ why Mrs Clarke (the director concerned) had taken no part in the running of the company. Garcia was a guarantee case, where a female director of a company claimed that her husband had asked her to sign a guarantee and misrepresented the effect of the guarantee. The Bank never required Mrs Garcia to obtain independent advice. The Court found that Mrs Garcia was a well-presented, educated professional (she was a physiotherapist) but that she had nonetheless been coerced by her husband who had continually called her a ‘fool’ in money matters and coerced her to sign the guarantee at a time when Mrs Garcia was anxious to save her marriage.

The Court further held that the notice of possible coercion could be visited on the Bank in circumstances where it knew the parties were married, knew Mrs Garcia had no part in the running of the company and did not require her to seek independent advice. Actual duress by the husband was not required.

Applying Garcia, the Court in Southern Cross held that the fact of the marriage meant Mrs Clarke had a good reason at law not to take part in the running of the company because she trusted her husband and relied on his lack of advice.

Could a similar finding be made in New Zealand? The NZ Companies Act does not have any clause analogous to s588H(4) of the Commonwealth Act, however the wording of the NZ Act does not completely exclude the possibility that a similar argument could be run in New Zealand. However, a wife who agrees to act as a director of her husband’s company in New Zealand should not rely on the defence applying so as to exclude her duties as a director.

This is a general summary only and should not be taken as a substitute for specific advice.

For further information contact Rochelle Hume:
rochelle.hume@phillipsfox.com

Web site: Phillips Fox