Actions advocated against directors

Press, 20 September 1977, Page 11

Actions advocated against directors

PA Auckland Civil proceedings for the recovery of funds, together with damages, are perhaps, the best action that can be taken against company directors in default, according to the Assistant Secretary for Justice and head of the Commercial Affairs Division of the Justice Department (Mr B. C. McLay). Throughout the world attempts to bring criminal responsibility against company directors had been thwarted by extremely difficult standards of proof, and long, involved trials, he said in a paper prepared for a seminar jointly organised by the Auckland Chamber of Commerce and the Institute of Directors. Moreover, there was the likelihood that the director would not be convicted, or that, if he was convicted, the criminal sanction would be minor.

“In those circumstanies. I suggest we forget about trying to prove the nearly mpossible." said Mr M< Lav. Instead of tryin; to mil oi fine the offender. per bafs the court; would prefer the discretion to award exemplary or punitive damages ir. civil proceedings. “There seems little dcubi this would be felt as a real punishment and deterrent for ’he offending director. Mire important, such funds as he hao might then lino their v.av back to the persons wronged.” The best thing that could be done in a company collapse was to get the money back to where it came from if there had been fraud, negligence or other misfeasance. Mr McLay asked these questions: “If the court holds a director responsible by his negligence for a loss sustained by his companv. should not the director be liable in damages to the company, its shareholders, or its creditors? “When a company's records are in a chaotic state and a director, being unable to know the company's true position because of that fact, fails to have them put right, should an action in damages be possible against him if a loss results?” Mr McLay said he favoured that latter class of action because of the inability of an individual to prove his right to be a

plaintiff, the itnpossibditv for him to establish even a small proportion of the tacts needed for proof, the nigh financial resources necessary to match the corporation's finances, and the simplification of pro ceedings — which would in any case he complex and l<‘*6g The prospects appeared ■.o lie better if the p ro feeding- could be authoi i sea to be taken by an independent commission, whicn would have the ra parity and the authority acquire the information neeoed to establish whether or not there wa« a reasonable case. Such a commission vyould also have the capacity of an established agency in dealing with a yveahhy corporation or individual as> delendant. He advocated the same procedure in case- where people lost money as a re suit of "insider" trading in the sharemarket — a practice not yet prohibited in Neyv Zealand by law, “although it probably will be at a future date." Except where existing, well-acknowledged criminal practices were involved. the offending director was most likley to be a "non-recidivist,” for whom the best punishment could well be the disgorging of profits, the payment of damages, the carrying of the costs of investitation and proceedings and the public display of his commercial ineptitude or skulduggery, said Mr McLay.