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instead, enacted section 135 253 in the Companies Act 1993. Section 135 prevents
directors from agreeing, causing or allowing a company to carry on business which
is likely to create substantial risks of serious loss. The said section applies equally to
both solvent and insolvent companies and the effect of such is a high probability that
the shareholders or creditors will use the section to restrain the company from
engaging in risky investments in the first place. 254
Another provision proposed by the commission was adopted in section 136 of the
Companies Act 1993. These two sections have been incorporated into the director‟s
duties provision and not into the insolvency provisions as suggested. Fraudulent
trading remains in the 1993 Act under the offences and penalties provisions. 255
4.4.3 Directors and Disqualification
In addition to imposing personal liability on directors to contribute to compensating
the loss incurred by creditors in insolvency, there is also a great concern over the
inability of the law to curb directors who have been found responsible for the
company‟s insolvency from being directors in another company. 256 The concept of
disqualifying directors was first established in the Companies Act 1929 and the
disqualification was made on the basis of the director‟s status as a bankrupt. The
provision that a bankrupt person is disqualified from becoming a director was
253
Section 135 of the New Zealand Companies Act 1993 provides: " A director of a company must
nota)
agree to the business of the company being carried on in a manner likely to create a substantial
risk of serious loss to the company‟s creditors: or
b) cause or allow the business of the company to be carried on in a manner likely to create a
substantial risk of serious loss to the company‟s creditors.
254 See discussion by Justice Sian Elias, „Company Law After Ten Years of Reform‟ in The Company
Law Conference of the New Zealand Law Society (1997) at [9-10.1].
255 Section 380 of the Companies Act 1993.
256 Cork Report n 74 above at[1813].
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