A recent case was a timely reminder about a Director’s duties and obligations to those “outside” the company.
The High Court recently found the Director of MJ Pidgeon Building Ltd liable for the total loss incurred by the company. The Court granted the IRD’s claim for compensation for breaching of Director’s duties under the Companies Act 1993.
MJ Pidgeon was the sole shareholder and Director of the building company. It ceased trading in October 2015. The company defaulted in relation to their tax obligations starting from 2011 including failure to account for PAYE and other taxes.
The company was placed into liquidation in November 2015 by the IRD by filing a nearly $200,000 claim relating to debt owed.
In coming to the decision the High Court held that while Mr Pidgeon was obliged to act in good faith and in the best interest of the company, he breached his duty and care when he let it continue to trade wrongfully despite the accumulating debt and insolvency. As a result both the company and its creditors suffered loss.
The morale of the story is that even a company structure wouldn’t necessarily provide protection where there is a breach of duty and care by the Directors. Sections 131-138A contain specific rules under The Companies Act 1993 that relate to Director’s duties and obligations and cases like this provide a timely reminder about your obligations as a Director of a company.