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charge or property of the company to be transferred to any person. In addition to
the criminal liability imposed by the section, insolvency law regards these
circumstances to be voidable transactions which can be set aside under the Act. 203
Section 380(3) of the Act was inserted as a result of the amendment to the
Companies Act in 2006. 204 The section provides that “every director of a
company commits an offence and is liable on conviction to penalties set out in
section 373(4) who with intent to defraud a creditor or creditors of the company
does anything that causes material loss to creditors.” 205 It should be noted that
there is a resemblance to section 135 which refers to “…business carried on in a
manner likely to create a substantial risk of serious loss to creditors.” In section
135, a director will be liable if the action taken causes a substantial risk which
resulted in serious loss to creditors, and courts have made a distinction between
legitimate and illegitimate risks in deciding whether the action is reasonable or
not. 206 Section 380(3), on the other hand, deals with directors‟ action which
results in material loss to creditors where these directors have a dishonest
intention to defraud them. The usage of the words „does anything‟ in the section,
indicates a positive action on the part of the directors and this will exclude any
omissions on their part. The significant difference between the two sections is in
relation to directors‟ intention to defraud which must be present in section 380
and not in section 135.
It is submitted that despite the difference in the terms used in both sections,
material loss in section 380 and serious loss in section 135, they both refer to the
same thing. The court will look at whether the directors have the intention to
defraud creditors through their action and consequently whether it causes
material loss to creditors. Material loss in this aspect could be interpreted as a
loss which is more than the ordinary or usual loss the creditors generally expect
203 See section 292 – section 296 of the New Zealand Companies Act 1993.
204 The section was inserted by virtue of section 33 of the Companies Amendment Act 2006.
205 See section 380(3) of the New Zealand Companies Act 1993.
206 See Re South Pacific Shipping Limited (in liq); Traveller v Lower (2004) 9 NZCLC 263,570
and Mason v Lewis [2006] 3 NZLR 225.
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