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section 138. In Mason v Lewis, 53 the Court of Appeal implied that section 138,
which provides a defence to a director who reasonably relies on the advice of a
third party when discharging his or her duty, could be used for reckless trading.
In this case, the court concluded that the directors could not depend on the section
because there were clear indications at the time that the company was insolvent
and any reasonable director would not have agreed for the company to continue
to trade. It is important for directors who wish to rely on section 138 to make
sure that the advice given by the third party will not cause substantial risks of
serious loss to creditors. The decision in the case can also be presumed to be
equally relevant in regard to a directors‟ duty under section 136. 54 Moreover,
section 138 appears under the general heading of director‟s duties, which also
includes both sections 135 and 136. 55
In the UK, in order to escape liability, directors must take positive actions to
minimise creditors‟ losses. However, the section is silent on the position of
directors who are not able to take any action due to illness or any other reasons
which prevent them from taking part in the management of the company. This
differs from Australia which has a specific defence for directors who are absent
due to illness or for any other good reason. 56 It is submitted that in the light of the
wording of the section which requires „steps‟ to be taken to minimise losses, it is
probable that directors who fail to take any affirmative action may be held liable
by the court regardless of the reasons for failing to do so. 57
53 [2006] 3 NZLR 225 at 237.
54 Neil Campbell and David Cooper Company Law Update (New Zealand Law Society Seminar,
2008) at 45
55 Ibid.
56 See section 588H (4) of the Australian Corporations Act 2001. Section 588H(4) of the
Corporations Act 2001-„ If a person was a director of the company at the time when the debt
was incurred, it is a defence if it is proved that, because of illness or for some other good
reason, he or she did not take part at that time in the management of the company.‟
57 See Re Brian D Pierson [2002] BCLC 275.
240