Warning To Sleeping Directors: Liability For Reckless Trading Is Costly!

To those directors not actively engaged in the management of or with an eye on the financial affairs of their company - beware. The recent quantum decision of the High Court in Mason v Lewis [2008] NZHC 1535, following the earlier decision of the Court of Appeal on liability, provides a strong warning for sleeping directors. In particular, the case highlights to directors that the courts will not be shy to impose very substantial penalties on them for breach of duties.

Mr and Mrs Lewis were directors and shareholders of a printing company. The Lewises had failed to ensure that proper accounts of the company were kept, relying instead on the financial advice of others rather than making proper enquiries themselves. They had even left the overall management of the company to the company's manager, Mr Grant who later turned out to be a fraudster. Having discovered Mr Grant's fraudulent activities and the woeful financial status of the company, it was still some time