The Companies (Directors Duties) Amendment Bill

In early May, a Select Committee issued its report on the Companies (Directors Duties) Amendment Bill, which proposes amendments to section 131 of the Companies Act 1993. Section 131 currently provides that a director has a duty to act in good faith and in what the director believes to be the best interests of the company. The Bill proposes to expand the section to provide a non-exhaustive list of other “recognised” environmental, social and governance matters beyond the maximisation of profit that a director may consider “to avoid doubt”.  Five factors are currently listed – principles of Te Tiriti O Waitangi; reducing adverse environmental impacts; upholding “high standards of ethical behaviour”, fair and equitable employment practices; and the “interests of the wider community”. 

The proposal has been met with substantial criticism. Its detractors argue that such changes are unnecessary, because the law as it stands currently does not limit directors’ ability to consider these broader factors. The Supreme Court in Debut Homes v Cooper [2020] NZSC 100 confirmed that the legislative test in section 131 is a subjective one, allowing directors to consider all these factors. It therefore simply restates the current law but may give rise to ambiguity and confusion.  In light of this discord, the Select Committee was unable to recommend that the Bill should pass.  The Committee unanimously recommended that the proposed new section could be shortened and made clearer by simply stating that “a director may consider matters other than maximisation of profit”.  It is hoped this would achieve the same purpose without the confusion associated with a non-exhaustive list of factors.

The New Zealand Law Society has also opposed the Bill, labelling the proposed changes as “ad hoc”.  It submitted at length about the unintended and unconsidered consequences such changes could have.  

The House were similarly divided on the merits of the Bill at the Second Reading stage. It will be interesting to see what happens next, as the Bill has potential implications for cover under Directors and Officers liability insurance policies.

By Angus Wakeman and Morgan Fee

Angus Wakeman is a Special Counsel at fee langstone

Morgan Fee is a senior associate at fee langstone