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10.2.1 Who will be Liable?
Unlike the earlier statutes, only directors will be subjected to liability in respect
of wrongful trading, insolvent trading or reckless trading. Directors in this
context include shadow directors although anyone who gives advice in his
professional capacity is excluded. 13 Due to directors‟ extensive powers and
authority on the management and the company‟s future, the law demands that
they be responsible and accountable for their actions. This modern concept of
responsibility and accountability, however, are polar opposites to the two main
principles of company law, namely, the separate legal entity and limited liability,
and there is no way to reconcile one with the other.
The decision to exclude managers from this duty is to compel directors to be
more responsible and accountable in the company, for they are considered to be
the minds of the company. 14 The decisions in HL Bolton (Engineering) Co Ltd v
TJ Graham & Sons Ltd 15 indicate that managers are also considered as the brain
of the company and it is submitted they should be included in the duty. It will
benefit all parties, including creditors, if those who make decisions on company‟s
direction were to be held liable and accountable because they will then have to be
cautious and meticulous.
It also means that directors can no longer use lack of knowledge or information
as the basis to avoid liability, for the courts have been very strict in the
13 See section 126 (4) of the New Zealand Companies Act 1993; section 251(2) of the UK
Insolvency Act 1986; section 9 (part 1.2) of the Australian Corporations Act 2001.
14 However, see the judgment of Lord Denning MR in the case of HL Bolton (Engineering) Co
Ltd v TJ Graham & Sons Ltd [1957] 1 QB 159 at 172; His Lordship stated “ A company may
in many ways be likened to a human body. It has a brain and nerve centre which controls what
it does. It also has hands which hold the tools and act in accordance with directions from the
centre. Some of the people in the company are mere servants and agents who are nothing more
than hands to do the work and cannot be said to represent the directing mind or will. Others are
directors and a manager who represents the directing mind and will of the company, and
controls what it does. The state of mind of these managers is the state of mind of the company
and is treated by the law as such.” The decision indicates that managers are also considered
the brain of the company and therefore should not be excluded from liability.
15 [1957] 1 QB 159.
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