Significant risk in criminalising breaches of directors' duties

Using criminal sanctions for breach of directors’ fiduciary duties is wrong and may even be counter-productive to the cause of strengthening New Zealand’s governance culture, Chapman Tripp argues in its submission to the Companies and Limited Partnerships Amendment Bill.

Issues we identify with the proposal include:

• that it will have an adverse effect on legitimate director incentives, leading to undue risk aversion that is contrary to the objective of boosting economic growth and innovation
• that it is inconsistent with other jurisdictions and does not provide an appropriate basis for the stigma of criminal convictions
• that loading criminal liability on to existing civil remedies for reckless trading creates a real risk that solvent reconstructions and workouts will become practically unviable, and
• as the procession of former finance company directors through the courts demonstrates, criminal remedies are already available for crimes of deliberate dishonesty.

In contrast to the process that gave us the Companies Act in 1993, this reform is ad hoc and has been presented without any substantial analysis of the gap that it is intended to fill or the risks it creates to legitimate commercial activity in New Zealand.

We hope that these provisions will be removed from the Bill.

The Companies and Limited Partnership Amendments Bill is an omnibus piece of legislation which also introduces changes to company registration provisions and to the treatment of amalgamations by companies which are subject to the Takeovers Code.

Chapman Tripp has presented separate submissions on each of these matters.  The submission concerning directors’ duties can be viewed here. All submissions can be accessed on our website www.chapmantripp.com.