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School of Accountancy

Week 7 Lecture 2

21.1 Who is a director? Section 126. gives an extended meaning to the term director in order that the persons who actually run the company are liable as such in law. 126 Meaning of “director” (1) In this Act, director, in relation to a company, includes—

A person occupying the position of director of the company by whatever name called; and In the recent case of Clark v. Libra Developments Ltda the Supreme Court held that even where a person who had been declared bankrupt continued to manage the affairs of the company, he was held to be a director although disqualified under s151(2)(b) as a result of the combined effect of s126(1) and s158 which provides:— 158 Validity of director's acts The acts of a person as a director are valid even though— (a) The person's appointment was defective; or (b) The person is not qualified for appointment.

In Debt Relief (NZ) Limited (In Liquidation) v. A E Wycherleyb one issue raised in the case was whether the defendant had been a director of DRNZL while he was subject to a banning order under s111 Insolvency Act 1967. The defendant was not registered as a director nor did his name appear as such in the company documentation. He claimed that that he provided consultancy services for the company, payments for which, were subject of the claim by the liquidators.c In finding that summary judgment should lie against the defendant on the basis that he had acted as the director of a company in breach of the banning order the court relied on affidavit evidence of an interview with M, the nominal director of the plaintiff company. [2007] 2 NZLR 709 (CA & SC); [2007] NZSC 16 [2008] NZHC 90 c On the basis that they were made under an illegal contract since W was acting as a director in breach of the banning order. Company & Partnership Law © Massey University 19 April 2000 hubbard Page 159 21/08/2008 b


You are officially the Director of Debt Relief. Yes So what director’s duties did you perform. Strangely enough the owner, Alan Wycherley performed mainly those sort of duties. I felt like notwithstanding that title I was an employee.

….. Q So what other things would Alan do in relation to the Company? A He was the marketing guy, he was the leader of the company, the entrepreneur the salesman, the employer of people, the interviewer of people. It was his (Alan’s) company as far as we were all concerned Q Despite your name being on it and his not A That’s right. Q In terms of guiding the direction of the Company, who would do that? A Alan’s plan for the future, that’s what he would do. He would often get us together and talk about what he was going to do with New Phone and Debt Relief …”.

Although much of this was later contradicted by M, the judge accepted that it probably represented the reality of the situation and that the defendant was in terms of s126(1) a director of the company in breach of the banning order.

For the purposes of sections the duties of a director Use of information obtained as, and share dealings by, a director Powers of the liquidator in relation to transactions with or by directors for inadequate consideration Power of the Court to set aside certain securities or charges Power of the Court to order persons to repay money or return property on the application of the liquidator, a creditor or a shareholder.

131 to 141, 145 to 149, 298,

299 301

director includes: A person in accordance with whose directions or instructions a person who is appointed as, or who occupies the position of a director is required or is accustomed to act; and The extent to which this provision has changed the law in this matter may be judged by looking at a case from before the 1993 Act was passed....
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