Directors private information safe from liquidators

Liquidators cannot examine directors to obtain private financial information on which to judge their worth as prospective defendants.

This position was reinforced by the Court of Appeal in a recent decision.

The context

The liquidators applied to the Court for an order requiring a director to provide personal tax returns, bank statements, loan documents, a list of assets, and trust information so that they could assess the potential financial benefit of pursuing the director for an alleged breach of directors' duties.

The decision

The question before the Court of Appeal was whether the Court's powers under section 266 could be used for this purpose. The Court found that:

the disclosure provisions in the Companies Act (sections 261 and 266) are restricted to matters "relating to the business, accounts, or affairs of the company" information about a director's personal financial position cannot be construed as a matter relating to the company's affairs, and any intention to harmonise New Zealand's commercial law with Australia's did not override the fact that our Court lacks jurisdiction to order examination of a prospective defendant on their judgment worthiness. Separately, the Court considered the matter through the lens of the Privacy Act 1993. It found that reasonable expectations of privacy underpin the usual information-gathering powers available to litigants and that, even if it was within its power to order disclosure, it would have refused to exercise its discretion out of privacy concerns.

A particular consideration was that, if the application were allowed, the liquidators would be free to conduct an examination of the director's private information at a creditors' meeting.

Chapman Tripp...