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interpretation of these provisions. 16 Courts have imposed on directors a duty to
make proper enquiries and to monitor as well as to supervise the company. They
cannot excuse themselves from liability by relying totally on third parties. The
court in Mason summed up the directors‟ position in the company by stating "the
days of sleeping directors with merely investment interests are long gone: the
limitation of liability given by incorporation is conditional on proper compliance
with the statute.” 17
10.2.2 Who has the Right to Enforce?
The right to enforce the duty depends on when the liability arises. In the UK, only
the liquidator has the right to bring an action against the directors, for liability
only arises when the company is wound up. In New Zealand, in addition to
liquidators, creditors and shareholders have the right to bring actions under
section 135 and section 136.
In Australia, the right is normally exercised by the liquidators. However,
creditors can bring an action under section 588G provided they obtain the consent
from the liquidator. 18 Alternatively, after six months from the date of winding up,
creditors can give notice to the liquidator of their intention to take action against
the director, in which case, the liquidator has to either give consent or an
explanation in writing for refusing. 19
10.2.3 Elements to be Proven
Under the New Zealand reckless trading provision, a director has a duty to
prevent a company from being carried on in manner likely to create substantial
16 See the decisions in Mason v Lewis [2006] 3 NZLR 225; Re Nippon Express (New Zealand)
Ltd v Woodward (1998) 8 NZCLC 261 at 765.
17 Mason v Lewis [2006] 3 NZLR 225 at 237.
18 See section 588R of the Australian Corporations Act 2001.
19 See Section 588S of the Australian Corporations Act 2001. If neither consent nor explanation is
given within three months, the creditors can proceed with the action-section 588T(1) of the
Australian Corporations Act 2001.
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