Corporations and Business Associations Law
Corporations and Business Associations Law
When companies are suffering from failed business and insolvency, the banks as the financiers for them and other creditors may try to get involved into the management and operations of the business in the way of giving advice and providing assistance to the directors of those distressed companies so as to protect their interests as much as possible. But as a result, the banks and creditors might be at a risky situation where they could be liable as shadow directors which could be captured by the sections in Companies Act 1993. This essay will talk about the risks for banks and creditors deemed as shadow directors and the rationale of the approach Act captures them. Further, some problems and uncertainties with New Zealand current law will be addressed and also the factors the Court considers to decide whether a particular banks or creditor is a shadow director or not.
As it is shown in s 126 of Companies Act 1993, the definition of director is:
In this Act, director, in relation to a company, includes- (a) a person occupying the position of director of the company by whatever name called; and (b) for the purposes of sections 131 to 141, 145 to 149, 298, 299, 301, 383, 385, 386A to 386F, and clause 3(4)(b) of Schedule 7, -
(i) a person in accordance with whose directions or instructions a person referred to in paragraph (a) may be required or is accustomed to act; and
(ii) a person in accordance with whose directions or instructions the board of the company may be required or is accustomed to act; and
(iii) a person who exercises or who is entitled to exercise or who controls or who is entitled to control the exercise of powers which, apart from the constitution of the company, would fall to be exercised by the board; … (Krtolica v Westpac Banking Corporation [2008] NZCCLR 24 (HC) at [181])
Referring to the definition of director in the Companies Act 1993, when the banks or creditors provide advice or
When companies are suffering from failed business and insolvency, the banks as the financiers for them and other creditors may try to get involved into the management and operations of the business in the way of giving advice and providing assistance to the directors of those distressed companies so as to protect their interests as much as possible. But as a result, the banks and creditors might be at a risky situation where they could be liable as shadow directors which could be captured by the sections in Companies Act 1993. This essay will talk about the risks for banks and creditors deemed as shadow directors and the rationale of the approach Act captures them. Further, some problems and uncertainties with New Zealand current law will be addressed and also the factors the Court considers to decide whether a particular banks or creditor is a shadow director or not.
As it is shown in s 126 of Companies Act 1993, the definition of director is:
In this Act, director, in relation to a company, includes- (a) a person occupying the position of director of the company by whatever name called; and (b) for the purposes of sections 131 to 141, 145 to 149, 298, 299, 301, 383, 385, 386A to 386F, and clause 3(4)(b) of Schedule 7, -
(i) a person in accordance with whose directions or instructions a person referred to in paragraph (a) may be required or is accustomed to act; and
(ii) a person in accordance with whose directions or instructions the board of the company may be required or is accustomed to act; and
(iii) a person who exercises or who is entitled to exercise or who controls or who is entitled to control the exercise of powers which, apart from the constitution of the company, would fall to be exercised by the board; … (Krtolica v Westpac Banking Corporation [2008] NZCCLR 24 (HC) at [181])
Referring to the definition of director in the Companies Act 1993, when the banks or creditors provide advice or