View/Open - Research Commons - The University of Waikato

from the carrying on of the business. It should also be noted that the use of the
word „material‟ in the section which indicates the degree of quantum of loss is
important before a directors can be said to have committed an offence under the
Act. This shows that the legislature recognises that business ventures involve
risks and loss to creditors and liability should be imposed only when the act taken
is unreasonable (or illegitimate as interpreted by the court under section 135, and
the loss suffered is material. In light of this, it is submitted that there is the
tendency of the court to interpret the new subsection (3) similarly to the
interpretation in section 135.
Section 380 of the New Zealand Act imposes criminal penalty of imprisonment
for a term not exceeding 5 years or a fine not exceeding $200,000 if a person is
convicted under the Act. 207
10.5 Duty of Directors under Australian Law
10.5.1 Introduction
Australia has seen many changes to its insolvent trading provision since it first
adopted the English model of fraudulent trading in 1931 which remained until
1961. 208 From the 1960s onward, Australia has departed from the English
influence and developed its own version of Companies legislation which is more
suitable to its conditions. 209 One of the main shortcomings of the earlier
legislation in the area has been the lack of appropriate remedies available to
creditors. The focus of the provisions has been on the criminal aspect, namely
punishing the directors by imposing fines, imprisonment or disqualifications. 210
Although the remedies may have some impact on deterring directors from
207 See section 373(4) of the New Zealand Companies Act 1993.
208 Rob McQueen “Limited Liability Company Legislation-The Australian Experience” (1991)
AJCL 22 at 24. ALRC R45 Vol 1 1988 above n7 at 278
209 Farrar above n22 at 16-19.
210 ALRC R45 Vol 1 1988 above n7 at [278- 279].
277