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Director Liable for misleading conduct

January 8, 2018

A warning for directors and even shareholders: Directors, and shareholders for that matter, can’t assume that they can hide behind their companies if they engage in misleading or deceptive conduct in trade.

The following details have been taken from a recent Commerce Commission media release:

  • A former director and owner of the now-defunct Christchurch Lightweight Concrete Limited (Christchurch Lightweight) was fined $151,875 for misrepresenting that autoclaved aerated concrete cladding panels (AAC panels) that it supplied were the Australian-made “Hebel” brand. The director pleaded guilty to 9 charges under the Fair Trading Act for his misrepresentations.
  • The District Court held that the director’s conduct was deliberate.
  • The case is still in progress against 3 other defendants

There may be circumstances where a director’s conduct is to be treated as being the company’s, with no personal liability falling on the director and the director simply being seen to be a conduit for the provision of company information. But it’s likely that in many, if not most cases, a director will have personal liability if they engage in misleading or deceptive conduct in trade on behalf of their company e.g. by making misrepresentations intended to induce customers to act in reliance on them.

Liability could also fall on the shoulders of shareholders who engage in such action e.g. where they misrepresent to creditors that the company is financially sound when it isn’t.

This article isn't legal advice – if you need legal advice on any business law or commercial law issue, please contact me. I'm business lawyer (commercial lawyer) in Auckland who provides advice on a wide range of business law or commercial law issues.

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