Director Liability and Governance Disputes: What Businesses Need to Know

Governance disputes and director liability are making headlines, and for good reason. As regulatory scrutiny increases and business pressures mount, directors are finding themselves under the spotlight. Whether you're running a company, sitting on a board, or advising one, it's essential to understand where the risks lie and how to manage them.

‍The role comes with responsibility

Directors in New Zealand have clear legal duties under the Companies Act 1993. These include acting in good faith and in the best interests of the company, exercising care and diligence, and avoiding reckless trading. Breaching these duties can lead to personal liability, even if the director believed he/she was doing the right thing at the time.

We’re seeing more cases where directors are being held accountable for decisions made under pressure, especially in areas like financial oversight, employment disputes, and health and safety. The courts are looking closely at how decisions were made, what advice was taken, and whether directors fulfilled their obligations.

‍Governance disputes are on the rise

Disputes between directors, shareholders, and management are becoming more common. These often stem from unclear decision-making processes, poor communication, or disagreements over strategy. In closely held companies, especially family-run businesses, personal relationships can complicate matters further.

Without a clear governance framework, disputes can escalate quickly. We’ve seen situations where directors are removed, shareholder relationships break down, and the business suffers as a result. Having robust governance documents, such as shareholder agreements, board charters, and dispute resolution clauses, can help prevent these issues or resolve them more efficiently.

Personal liability is real

One of the biggest misconceptions is that directors are protected simply because they act through a company. In reality, directors can be personally liable for things like:

• Failing to keep proper financial records.

• Trading while insolvent.

• Breaching health and safety obligations.

• Misleading conduct under the Fair Trading Act 1986.

• Failing to disclose conflicts of interest.

Insurance can help, but it’s not a silver bullet. Directors and Officers (D&O) insurance policies vary widely, and exclusions can leave gaps. It’s important to understand what’s covered - and what’s not!

What you can do:

• Review your governance documents - make sure roles, responsibilities, and decision-making processes are clearly defined.
• Understand your duties - if you're a director, take time to understand your legal obligations and seek advice when needed.
• Keep good records - document decisions, advice received, and board discussions. This can be critical if a dispute arises.
• Get the right insurance - review your D&O cover and check for exclusions.
• Plan for disputes - include dispute resolution processes in your constitution or shareholder agreement.

Being a director isn’t just about leadership, it’s about accountability. As governance disputes become more common, the risks are real and the consequences can be serious. If you’re unsure about your obligations or want to strengthen your governance framework, we’re here to help.

At Treadwell Gordon, we work with directors, boards, and shareholders to manage risk, resolve disputes, and protect what matters.