The High Court will soon consider whether directors' duties outside those contained in the Companies Act 1993 ("Act") can arise at common law, or whether the Act is a complete code of the duties imposed upon company directors.

In these proceedings a company owed sums of money to a creditor under a services contract. The company went into liquidation, and the creditor brought an action against the company's directors alleging reckless trading, and the incurrence of obligations that the directors could not have believed the company could satisfy.

In this proceeding the directors applied to have the creditor's claims struck out. The creditor sought to add a further cause of action, namely that the directors owed duties, both at common law and as fiduciaries, not to allow the company to obtain credit from it in circumstances where the directors could not reasonably anticipate that the company could satisfy the debt. The directors then also sought to have the creditor's additional cause of action struck out on the basis that the Act provides a complete code of directors' duties, so that no duties can exist outside those prescribed in the Act.

Master Thomson struck out the creditor's original causes of action under the Act. However, he decided it was not appropriate to determine the issue of whether the Act is a code in respect of directors' duties in proceedings to dismiss a creditor's petition. Accordingly, the Master allowed the question to be decided at a full hearing.

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

Russell McVeagh, Auckland law firm
Web site: Russell McVeagh

March 2001