The District Court finding of not guilty in the Feltex director case will provide some welcome and timely comfort to directors who acquit their duties honestly and diligently, Chapman Tripp Partner Roger Wallis said today.
The directors accepted that the half year results issued in February 2006 did not meet the applicable reporting standards required by the Financial Reporting Act but had relied upon specialist accounting advice in the preparation of the documents.
The crux of the decision is at paragraph 54 where Judge J M Doogue states:
“[Directors] must pay attention and give appropriate consideration to material placed before them. They are entitled to impose trust in others so long as they take reasonable steps to ensure that such trust is warranted and are not alerted to reasons why the trust may be misplaced”.
“In other words, directors can rely on professional advice in complex technical areas such as financial reporting,” Mr Wallis said.
“This will provide some reassurance to the directors in the Lombard and Nuplex cases.”
Mr Wallis said it was good that the Ministry of Economic Development and the Securities Commission (and, in the future, the Financial Markets Authority) enforce the statutory requirements imposed on directors in appropriate cases as strong enforcement is necessary to maintain investor confidence.
“But it is also important that directors can be confident that they will not be penalised for decisions taken after full consideration of the issues and after seeking expert guidance. This is especially so as the Securities Law Review is considering criminal penalties for breach of directors’ duties.
“Investors will not be well-served if, in attempting to protect their interests, the legal risks for directors become such that talented and well-intentioned people are deterred from taking on directorships,” he said.