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Farrar, John; Tennent, Doug --- "The unfitness of directors, insolvency and the consequences - some comparisons" [2005] CanterLawRw 11; (2005) 11 Canterbury Law Review 239


John Farrar and Doug Tennent[*]

I. Introduction

The Long Title to the Companies Act 1993 states that its object inter alia is '(d) to encourage efficient and responsible management by allowing directors a wide discretion in matters of business judgment while at the same time providing protection for shareholders and creditors against abuse of management power'. A key concept is the maintenance of solvency which is defined in s 4( 1) of the Act in terms of commercial solvency and balance sheet solvency and there are in addition specific responsibilities to keep proper accounting records in accordance with the terms of the Financial Reporting Act 1993. Apart from this there is no test of fitness for directors and directorship is not a profession or calling. The problem for the law is to determine what level of unfitness justifies intervention and the imposition of personal liability.

New Zealand, like other Commonwealth countries, inherited the rather unsatisfactory English case law on the duty and standard of care of company directors. Re City Equitable Fire Insurance Co Ltd[1] represents a fairly lax approach to the standard of care. The case preceded Donoghue v Stevenson[2] by seven years and has often been interpreted as authority for a subjective standard of care. Shortly after Re City Equitable the English legislation introduced the provisions on fraudulent trading. These were similarly ineffective. New Zealand, like Australia, has legislated on the duty of care and the failure to prevent insolvent trading. In the United Kingdom there are now provisions on wrongful trading and the courts' power to disqualify directors has been extended to unfitness but there is still no statutory duty of care. The purpose of the Australian provisions on both the duty of care and failure to prevent insolvent trading is for civil penalty proceedings which results in a financial penalty, compensation and disqualification. In New Zealand there are now a number of provisions in the Companies Act 1993 which are relevant. These are s 137 (duty of care), s 135 (reckless trading), s 136 (duty in relation to obligations), s 301 (power of court to make orders for directors to repay or return assets), s 382 (prohibition from management), s 383 (power of court to disqualify), s 384 (liability for breach of ss 382 and 383), s 385 (Registrar's power to prohibit), and s 386 (liability for contravention of s 385). The result is that New Zealand has rather too many provisions and they are not particularly effective. This raises general questions of what level of unfitness by directors should be penalised and how it should be dealt with. The purpose of this paper is to analyse the provisions, make comparisons with the UK and Australia and then suggest reform.

II. The Statutory Duty of Care

Section 137 of the Companies Act 1993 provides that a director of a company, when exercising powers or performing duties as a director, must exercise the care, diligence, and skill that a reasonable director would exercise in the same circumstances taking into account, but without limitation, the nature of the company; and (b) the nature of the decision; and (c) the position of the director and the nature of the responsibilities undertaken by him or her. The wording of the section makes it clear that the standard is objective although it allows the circumstances of the company, the decision and the director to be taken into account. In addition s 138 allows a director to rely on reports, statements and financial data and information supplied, and on professional or expert advice given, by (a) an employee whom the director believes on reasonable grounds to be reliable and competent, and a professional advisor or expert, and (c) his or her co-directors. Reliance is only allowed if the director acts in good faith, makes proper inquiry where the need for inquiry is indicated by the circumstances, and has no knowledge that such reliance is unwarranted. Section 137 read in conjunction with s 138 lays down the general duty and standard of care. In spite of the order of the sections it is supplemented by ss 135 and 136 which deal specifically with solvency questions.

III. Approaches to Reckless Trading

Traditionally the law has said little about the purpose of the Board of Directors except to say that it is to manage. The modern view, however, as reflected by s 128(1) of the Companies Act 1993 is that the role of the Board is to direct or supervise management. This involves the monitoring of the company's performance and there are statutory provisions requiring the keeping of accounts. Clearly monitoring solvency is an important function of the Board.[3] It is sometimes said that limited liability is a privilege[4] and the corollary is a duty to monitor solvency. The problem is how to balance the foreseeable risk of harm against the potential benefits that could reasonably be expected to occur to the company from the conduct in question.

The Law Commission in its original Report No. 9 on Company Law Reform and Restatement thought that s 320 of the Companies Act 1955 went too far towards inhibiting the use of the company form as a vehicle for taking business risk.[5] Clause 105(1) of the original draft Companies Bill prohibited a director of a company entering into a contract or arrangement or acting in any manner unless he or she believed at that time on reasonable grounds that the act concerned did not involve an unreasonable risk of causing the company to fail to satisfy the solvency test.[6] The solvency test survived in s 4 of the Companies Act 1993 but the Law Commission's recommendation was not followed. Instead the legislation enacted an odd compromise which was based in part on the s 320 case law.

Section 135 provides that a director of a company must not '(a) agree to the business of the company being carried on in a manner likely to create a substantial risk of serious loss to the company's creditors; or (b) cause or allow the business of the company to be carried on in a manner likely to create a substantial risk or serious loss to the company's creditors.' Section 320 of the Companies Act 1955 only applied in winding up whereas s 135 applies before winding up. Recklessness which was an integral part of s 320 now only appears in the heading of s 135. With regard to the interpretation of s 320(1)(b), Bisson J said in Thompson v Innes:

Was there something in the financial position of this company which would have drawn the attention of an ordinary prudent director to the real possibility not so slight as to be negligible risk, that continuing to carry on the business of the company would cause the account of serious loss to creditors which [the former section 320(1)(b) of the Companies Act 1955] was intended to prevent?[7]

Sections 135 and 136 were strongly criticised by Dr Roderick Deane in his paper, 'Besieged by Duties - Will the new Companies Act Work for Directors?'[8] He pointed to the two elements in business decisions - risk and return. The balancing of risk and return is part of every investment decision for creditors as well as directors and the sections show no reflection of the need for that balance. That view was criticised by Tompkins J in his Stace Hammond Grace Lecture in Commercial Law at the University of Waikato.[9] In His Honour's view if the risk of loss is reasonably balanced by a prospect of gain the risk could not be characterised as substantial. In assessing the degree of risk the courts are likely to take an attitude which is commercially realistic. He thought that the wording of the s 135, 'a substantial risk of serious loss', read in conjunction with the Long Title to the Act would justify such an interpretation.[10] On the other hand he thought that it would have been better if the legislation had spelt the matter out expressly. In an interesting article, Bryan Gould[11] refers to Tompkins J's lecture and seems to agree with it possibly for slightly different reasons. He thought that the use of the word 'likely' fills the role that Tompkins J would have attributed to 'substantial', freeing that word for its role of specifying the probability of the net expected risk, while 'serious' specifies the size of the net expected loss. He thought that a plaintiff cannot prove contravention merely by showing that a particular action or inaction did not of itself contain sufficient prospect of gain to balance the risk of loss. Rather a plaintiff must take issue with the conduct of the business as a whole. Section 135 therefore is concerned with the manner in which the business is carried on in contrast to s 136 which in its terms is concerned with particular transactions.

As regards the interpretation of 'substantial risk' and 'serious loss', Mike Ross in his useful work, Corporate Reconstructions - Strategies for Directors, states

The first phrase, (substantial risk), requires a sober assessment of directors as to the company's likely future income stream. Given current economic conditions, there are reasonable assumptions underpinning the directors' forecast of future trading revenues. If future liquidity is dependant upon one large construction contract or a large forward order for the supply of goods and services, how reasonable are the director's assumptions regarding the likelihood of the company winning the contract? Even if the company wins the contract, how reasonable are the prospects of performing the contract at a profit? Creditors are likely to suffer 'serious losses' if future cash outlows exceed cash inflows the same period. If there is no profit margin on goods being sold or services provided, the company will reach a stage where shareholders' risk capital has been exhausted and directors are instead continuing to trade at a time when the company cannot meet all creditors' claims. Those creditors who are paid get preferential treatment, to the exclusion of others. In these circumstances, the company should have stopped trading: to continue is to risk creditors' money.[12]

Turning to the case law, Re Wait Investments Ltd[13] was a decision under s 320(1) of the Companies Act 1955. This was a case of a property development company unconditionally entering into an agreement to purchase a property without any condition about finances. The Court held that although the directors had acted honestly they could be personally liable as no ordinary and prudent director would have entered into such a transaction without finance. An honest optimism that finance would be obtained within a limited time was no defence.

In Re Nippon Express (NZ) Ltd v Woodward,[14] the managing director carried on the company's business fraudulently and directors who were not fraudulent and who had not acted in bad faith were nevertheless held to be personally liable as they had failed to make proper enquiry where circumstances required it.

In Re BM & CB Jackson Ltd (in liquidation); Benchmark Building Supplies Ltd v Jackson,[15] husband and wife directors who allowed a company to continue trading in worsening circumstances were held liable by Wild J. His Honour assessed the husband's culpability in increasing order of blameworthiness - unrealistic optimism, confusion, lack of professional advice, misrepresentation and unreliability. However, overall he assessed this at the lower end of the range.

In Re Hilltop Group Ltd (in liq); Lawrence v Jacobson,[16] the company acquired the business of a former partnership on disadvantageous terms without independent valuation which led to insolvency and Potter J held that no reasonably prudent director would have done so. In Re Group Hub Ltd (in liquidation); The PC Company v Sanderson,[17] a director was held liable for some of the debts owing by the company to its sole supplier where the supplier had commenced business in competition to the company. Priestley J held that a company with nominal capital can only avoid the risk (which must be substantial) of serious loss to its creditors if it is able to trade profitably from its inception. This seems a very strict approach and would make it impossible for many small companies to trade. In Fatupaito v Bates[18] a business advisor to the company purporting to act as receiver made a decision to carry on trading believing that the company would benefit from the completion of contracts. O'Regan J held that the director was in breach and was liable. He said that the test in s 135 is objective and the section appears to impose a stringent duty on directors to avoid substantial risk of serious loss to creditors and does not appear to allow for balancing risk and reward, even where the potential for great rewards exists where the company has little or no equity. When a company has negative shareholders' funds the decision to keep trading necessarily involves risk for both existing and future creditors. While there may be circumstances where continued trading is justified by the prospect of collecting pre-existing debts or generating significant income from a reasonably minor expenditure, directors must be very cautious before embarking on that course.

In Re Gellert Developments Ltd (in liquidation); McCullagh v Gellert,[19] directors were held liable for authorising payments to themselves of excessive amounts as salaries which jeopardised the solvency of the company. In Re South Pacific Shipping Ltd (in liquidation); Traveller v Lower[20] a shipping company continued to trade at a time when the shipping routes on which it operated became increasingly competitive. Although it was under capitalised it was able to obtain payment from its debtors quicker than it paid its creditors and because of flexibility over charter arrangements. Lower, a director and controlling shareholder, had a conflict of interest as a director because of his personal connection with some of the companies from which the company chartered its ships. The company continued to trade at a loss and eventually Lower was held personally liable by William Young J under proceedings taken under s 320. His Honour said that while directors do not have to cease trading when a company becomes insolvent there are limits as to how long the company can continue trading in the hope that things will improve. Directors are required to act in accordance with orthodox commercial practice.

Lower was motivated to have the company continue trading because of the collateral benefits he obtained through his business associations. The creditors were not aware of the risks involved. Lower was held personally liable and the decision was upheld by the Court of Appeal in a decision that largely turned on technical arguments about the transition between s 320 and the present section.

On the face of it there seems to be a difference of opinion between O'Regan J in Fatupaito and William Young J in the South Pacific case. O'Regan J thought that in situations where a company has little or no equity (as was true in that case), the directors need to consider very carefully whether continuing to trade had any realistic prospects of generating cash which will allow for the servicing of pre-existing debt and the mode of commitments which such trading will attract. William Young J in South Pacific who agreed with the approach of Tompkins J in his lecture said that no-one suggests that a company must cease trading the moment it becomes insolvent in a balance sheet sense. Such a cessation of business might inflict a serious loss to creditors and where there is a probability of salvaging such loss can fairly be regarded as unnecessary. However, he thought that there were limits to the extent to which directors could trade while they are insolvent in the balance sheet sense in the hope that things will improve. In most cases he thought that the time allowance has been limited, a matter of months. He also thought that the conduct of the director in question must be measured in accordance with orthodox commercial practice.

The latest case is Mountfort v Tasman Pacific Airlines ofNZLtd[21] which was a claim for a pooling order under s 272(2) in the aftermath of the Ansett collapse. Baragwanath J granted a pooling order after an elaborate analysis of the 1993 Act. He said that solvency had replaced capital maintenance and saw it as an overarching duty, not limited to particular sections. While he paid lip service to the business judgment rule he thought that insolvency in either sense was the watershed. Solvency was the prerequisite of unconditional entitlement to trade; after that the emphasis was on the creditors. He, therefore, seemed closer to William Young J than O'Regan J in his analysis. His view of legitimate risk is what a reasonable director would believe amounted to a reasonable business prospect. His Honour thought that this was analogous to that applied in medical negligence, namely compliance with professional standards unless they are shown to be wholly unreasonable. The only problem, with respect, is that there are no such professional standards for directors.

What these cases and commentary illustrate is that the matter is not well settled but that the section is likely to be interpreted in an objective and conservative way; risk and return are not easily balanced where the company has little or no equity; and this exposes the director of a small company to considerable personal risk even in the absence of breach of fiduciary duty or fraud. As William Young J indicated in the South Pacific case:

As drafted the section is capable of misapplication by commercial inexperienced but cautious judges bringing hindsight judgment to bear in circumstances very different from those which confronted the directors whose actions are challenged.[22]

There are a number of specific instances of conduct pointing to unfitness which have been considered in the UK legislation and its interpretation which might be of use in arguing a case falling under s 135. These are:[23]

IV. Duty in Relation to Obligations

Section 136 provides that a director must not agree to the company incurring an obligation unless the director believes at that time on reasonable grounds that the company will be able to perform the obligation when it is required to do so.

Whereas s 135 deals with debts on revenue account, s 136 deals with obligations on capital account such as major investments and focuses on a particular transaction rather than the general conduct of the company's business.

In Re Wait Investments Ltd (in liquidation),[24] a shell company was used to enter into an unconditional contract for the purchase of a building for $1.6 million. The company defaulted, the vendor resold and claimed the shortfall. The directors were held liable. A similar result occurred in the undefended hearing in Ocean Boulevard Properties Ltd v Everest[25] where a shell company entered into an agreement for a lease which it did not complete. It was held that the directors had no basis for believing that the company would be able to pay the rent.

In Fatupaito v Bates[26] the defendant was in breach of s 136 because he was aware that the company was insolvent and it was not reasonable for him to believe that obligations incurred would be able to be met as they fell due.

V. Absence of Defences

Unlike the UK and Australia sections, ss 135 and 136 contain no specific defences although it is arguable that the directors can rely on the general provision about delegation and use of information and advice in ss 130 and 138.

VI. Causation Issues

In Re Bennett, Keane and White Ltd[27] Eichelbaum J held in connection with a declaration under s 320 of the Companies Act 1955 that the factors of particular relevance were causation, culpability and duration. This approach, although criticised by Noonan and Watson,[28] has been adopted in a number of cases. Thus the sections seem to have a punitive as well as compensatory aspect. In particular what is not clear is whether equitable or tort principles are to be applied or the matter is sui generis because of the broad scope of s 301(1) of the Companies Act 1993 which covers a range of potential claims. If equitable principles are to be applied the liability will be strict. McGrath J said in Lower v Traveller[29] that the element of causation is concerned with the link between the carrying on of the company's business to the knowledge of the impugned director and the indebtedness of the company for which it has sought to impose personal liability. This involves an assessment of how much the liabilities of the company were increased because of the legitimate delay in its ceasing to trade and the identification of a point in time when the director knew that continuing to trade would be reckless. The resulting figure is no more than a relevant consideration for the court although the amount of the directors' liability should not exceed the sum identified as caused by the trading to the extent that calculations of the deficiency are uncertain and the Court should be conservative in its approach.[30] In contrast the approach in Australia to statutory compensation under s 588J of the Corporations Act 2001 is strict.

VII. The Significance of a Creditor's Knowledge[31]

The wording of ss 135 and 136 give no guidance on the relevance of knowledge by a creditor of the company's insolvency but some judges have taken it into account in determining loss and contribution. Knowledge of a creditor of the company's state of solvency is potentially relevant in terms of waiver, acquiescence or contributory negligence by a creditor. Waiver or acquiescence is relevant to a creditor's claim against the company in contract or tort but contributory negligence is only relevant where there is a claim against the company or a direct claim by a creditor against the director for negligence.

For courts to go beyond this in considering knowledge is problematic and can lead to injustice.

VIII. Consequences

In New Zealand the two main consequences are a claim against the director under s 301 of the Companies Act 1993, and disqualification. Section 301(1) provides that if in the course of the liquidation of the company a director has misapplied or retained or become liable or accountable for money or property of the company or been guilty of negligence, default or breach of duty or trust in relation to the company the Court, on the application of the liquidator or a creditor or shareholder, may enquire into the conduct and order the director to restore the money or property or contribute such sum by way of compensation as the Court thinks just. Section 301(1)(c) provides that where the application is made by a creditor the Court may order payment to the creditor. Section 301(2) provides that the section has effect even though the conduct may constitute an offence. Section 382 provides for automatic disqualification on conviction of certain offences. Under s 383(a) the Court has power to disqualify a director where he or she has:

Breach of ss 135 and 136 would fall within s 383(1)(c)(iii).

The Court has power to disqualify a person for a period not exceeding ten years.

Under s 385 the Registrar is given certain powers. This section applies in relation to a company

This would cover breach of ss 135 and 136.

Under s 385(3) the Registrar is given power by notice in writing published in The Gazette to prohibit that person from being a director or involved in the management of a company for a period not exceeding five years. There are provisions in ss 384 and 386 for liability for contravening ss 383 and 385.

Few applications are made to the Court. Section 385 is used more frequently and if a person has been a director of two or more failed companies he or she must satisfy the Registrar that mismanagement did not cause the failures or it would not be just and equitable for the power to be exercised. If there has only been one failure the onus of proving mismanagement, under s 385(4), is on the Registrar. The wording is not very clear but this is how it is interpreted by the Registrar in practice. Section 385(7) envisages appeal or judicial review but again does not specify a clear procedure.

IX. Comparisons with the UK

Section 214 of the Insolvency Act 1986 (UK) deals with wrongful trading.[32] This applies where a company goes into insolvent liquidation and sometime before commencement of the winding up the directors concluded or ought to have concluded that there was no reasonable prospect that the company could avoid going into insolvent liquidation. As with the New Zealand sections, the test is objective.

A director will escape liability if he or she could show that they took every step with a view to minimising loss to the creditors after they had concluded or should have concluded and that the company could not have avoided insolvent liquidation.[33] The Cork Committee[34] recommended that directors should have powers to apply to the court for anticipatory relief and for permission to continue trading for a specified period. These provisions were not introduced.

The Company Directors Disqualification Act 1986 (UK) contains a number of provisions for disqualification but the main one is a general ground of unfitness.[35] Unfitness is undefined in the legislation except that there are provisions in Parts 1 and 2 of Schedule 2 to the Act for determining unfitness of directors. These include any breach of fiduciary or other duty and the failure to keep accounting records. In addition as already indicated there is developing case law which identifies a number of situations which are relevant to a determination of unfitness.[36]

X. Comparisons with Australia

The approach of the Corporations Act 2001 is more comprehensive than the New Zealand and UK legislation. Section 588G deals with a director's duty to prevent insolvent trading.[37] Under s 588G(1) the section applies if a person is a director at a time when a company incurs a debt and the company is insolvent at that time or becomes insolvent by incurring that debt at a time there are reasonable grounds for suspecting that the company is insolvent or would so become insolvent. The breach of the section gives rise to a civil penalty. This is a financial penalty of up to $200,000, disqualification and a civil compensation order.

Section 588H sets out four specified defences. These are reasonable grounds to expect insolvency (s 588H(2)); reliance on information as to solvency from another person (s 588H(3)); where the director did not take part in the management of the company because of some illness or some other good cause (s 588H(4)); or, the person took all reasonable steps to prevent the company from incurring the debt (s588H(5)). In determining whether a defence under s 588H(5) has been proved the matters to which regard is to be had include but are not limited to any action the person took with a view to appointing an administrator of the company under the voluntary administration procedure. Although there were few cases under these provisions for some years there is now developing a body of case law interpreting the legislation.[38] The courts have taken into account matters such as access to credit in determining whether there is a breach of the provisions.[39] In addition to these provisions there are further general provisions about disqualification in Part 2D.6.[40] These are automatic disqualification under s 206(B); the court's power of disqualification for contravention of civil penalty provision under s 206(C); the court's power of disqualification for insolvency and non payment of debts under s 206(D); the court's power of disqualification for repeated contraventions of the Act; and the Australian Securities and Investments Commission's power of disqualification under s 206(F). The power of ASIC under s 206(F) is an administration power which does not require application to the court. There is an appeal from this to the Administrative Appeals Tribunal with limited further appeal on a point of law to the Federal Court. In addition to civil penalty there is the possibility of a criminal penalty under s 588G(3) where dishonesty can be proved.

XI. Levels of Incompetence

The courts have traditionally been reluctant to second guess honest business judgment operating what can be called a Business Judgment Doctrine, if not a Business Judgment Rule in the strict sense.[41] The policy reasons for this reluctance are (1) lack of knowledge and experience to exhume business judgments; (2) respect for the principles of separate legal personality and limited liability; (3) the wish not to discourage able people from being directors; and (4) the need to encourage entrepreneurism. This traditional reluctance as we have seen is now beginning to be departed from because of the objectivity in the new statutory duties of care, the extension of the old fraudulent trading provisions to reckless and wrongful trading and, in the United Kingdom, the general ground of unfitness in the disqualification provisions. Under the emerging new regimes in all three jurisdictions the following seem to be evolving as badges of incompetence requiring redress:[43]

XII. Conclusion

The New Zealand provisions in ss 135 and 136 are somewhat confused and unsatisfactory. They do not provide an adequate basis for confident professional advice in a liquidity crisis. In particular with the possible exceptions of ss 130 and 138 there are no specified defences. The consequences of personal liability are potentially draconian and of uncertain scope. On the other hand, the New Zealand provisions on disqualification are inadequate and underused. The UK provisions on wrongful trading are not much better than ss 135 and 136 but the power of the court to disqualify on grounds of unfitness is much more extensive than the New Zealand provisions. The Australian provisions in ss 588G and 588H of the Corporations Act 2001 are on the whole are better drafted and the civil and criminal penalty provisions mainly enforced by ASIC are more effective. In recent years ASIC has received extra government funding to develop a more comprehensive enforcement programme.[44] At the same time the general provisions on disqualification are more extensive. The administrative power of ASIC to disqualify under s 206(F) of the Corporations Act, like s 385 of the 1993 Act, is a low cost remedy being increasingly used. It has a clearer appeal procedure than s 385. There are lessons that New Zealand could learn from both the UK and Australia but on balance there is more to be learned from Australia.

[*] John Farrar is Professor and Dean of Law at the University of Waikato and Doug Tennent is a Lecturer in Law at the University of Waikato.

[1] [1925] Ch 407.

[2] [1932] AC 320.

[3] See further J H Farrar, Corporate Governance: Theories, Principles and Practice (2nd ed, 2004) 91.

[4] See Cooke J in Nicholson v Permakraft (NZ) Ltd (1985) 2 NZCLC 99,264, 99,270.

[5] New Zealand Law Commission, Company Law Reform and Restatement, Report No 9 (1989) 52.

[6] Ibid 241-2.

[7] (1985) 2 NZCLC 99,463, 99,472. See also D Goddard, 'Directors' Liability for Trading While Insolvent: A Critical Review of the New Zealand Regime' in I M Ramsay (ed) Company Directors' Liability for Insolvent Trading (2000) 169; M Bos & M. Wiseman, 'Directors' Liabilities to Creditors' [2003] New Zealand Law Journal 262; C Noonan & S Watson, 'Rethinking the Misunderstood and Much Maligned Remedies for Reckless and Insolvent Trading' (2004) 21 New Zealand Universities Law Review 26; M Berkahn & L Trotman, 'Protection Against Reckless Trading: In Defence of Section 135 of the Companies Act 1993 (NZ)' (2005) 23 Company and Securities Law Journal 136.

[8] Paper presented at the New Zealand Law Society and the New Zealand Society of Accountants Company Law Conference, 1994.

[9] 'Directing the Directors: The Duties of Directors Under the Companies Act 1993' [1994] WkoLawRw 2; (1994) 2 Waikato Law Review 13, 27.

[10] Ibid.

[11] 'Directors' Personal Liability' [1996] New Zealand Law Journal 437.

[12] (1999) 40.

[13] [1997] 3 NZLR 96.

[14] (1998) 8 NZCLC 26,765.

[15] (2001) 9 NZCLC 262, 612. Compare the unreported judgment of Salmon J in Re Global Print Strategies Ltd (in liq) (High Court, Auckland, 25 November 2004) and noted by Lynne Taylor in (2005) 13 Insolvency Law Journal 122.

[16] (2001) 9 NZCLC 262,477.

[17] (unreported, High Court, Hamilton, 1 November 2001, Priestley J).

[18] [2001] NZHC 401; (2001) 9 NZCLC 262,583.

[19] (2002) 9 NZCLC 262,942.

[20] (2004) 9 NZCLC 263,570.

[21] [2005] NZHC 514; (2005) 9 NZCLC 263,864. See the useful note by Lynne Taylor, 'Pooling provisions in the Companies Act 1993 (NZ) - Mountfort v Tasman Pacific Airlines of NZ Ltd' (2005) 13 Insolvency Law Journal (forthcoming).

[22] (2004) 9 NZCLC 263,593.

[23] See A Walters & M Davis-White QC, Directors' Disqualification and Bankruptcy Restrictions (2005) ch 5.

[24] [1997] 3 NZLR 96.

[25] (2000) 8 NZCLC 262,289.

[26] [2001] NZHC 401; (2001) 9 NZCLC 262,583.

[27] (1988) 4 NZCLC 64,317

[28] Noonan & Watson, above n 7, 31-33.

[29] [2005] NZCA 187; (2005) 9 NZCLC 263,889.

[30] See, also, Re Bennett, Keane and White Ltd [1986] NZHC 102; (1986) 3 NZCLC 99,794, 99,811.

[31] See Noonan & Watson, above n 7, 54-58.

[32] See L S Sealy, 'Personal Liability of Directors and Officers of Insolvent Companies: A Jurisdictional Perspective (England)' in J Ziegel (ed), Current Developments in International and Comparative Corporate Insolvency Law (1994) ch 20; R Mokal, 'An Agency Cost Analysis of the Wrongful Trading Provisions: Redistribution, Perverse Incentives and the Creditors' Bargain' (2000) 59 Cambridge Law Journal 335.

[33] See J Payne & D Prentice, 'Civil Liability of Directors for Company Debts Under English Law' in I M Ramsay (ed) Company Directors' Liability for Insolvent Trading(2000) 190, 204.

[34] Ibid 206-7.

[35] Walters & Davis-White QC, above n 23. Disqualification is by court order or undertaking.

[36] Ibidch4&5.

[37] Ramsay, above n 33.

[38] See A Herzberg, 'Why are there so few Insolvent Trading Cases?' in I M Ramsay (ed), Company Directors' Liability for Insolvent Trading (2000) ch 6. 39 See R P Austin & I M Ramsay, Ford's Principles of Corporations Law (12th ed, 2005) paras 20.080 et seq., 20.109.

[40] See Farrar, above n 3, ch 20.

[41] Ibid ch 13.

[42] Ibid 140.

[43] Walters & Davis-White QC, above n 23, 227.

[44] Farrar, above n 3, 159-160.

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