Directors not indemnified for breaches

Friday 20th April 2001

By Graeme Hunt

Air New Zealand directors and management could be held personally liable for the company's dramatic plunge in value if it can be shown they were negligent over Ansett Australia's safety problems.

Although they are indemnified against normal trading losses or being sued in "the course of their duties," civil or criminal lawbreaking is not covered.

"Specifically excluded are certain matters such as penalties and fines which may be imposed for breaches of law," the company's 2000 annual report says.

The 1993 Companies Act allowed corporations for the first time to provide indemnity cover for directors but insurance companies generally void claims where serious civil or criminal breaches have occurred. Failure to meet airline safety regulations comes into this category.

If Air New Zealand's loss in value proved permanent, shareholders could bring an action against directors or officers but they would have to show the defendants were negligent or reckless over safety. This would be easier to prove against officers responsible for safety if it was found they ignored safety warnings or instructions for Australia's Civil Aviation Safety Authority.

The test for directors would be much tougher: there would have to have been intent on their part to "go slow" on safety or to circumvent safety regulations. Acting in good on faith on officers' safety reports that later proved wrong or misleading would be an insufficient ground for a damages action to succeed.

The rule in these matters is what a "reasonable director should have known." Poor judgment alone by directors is not the ground for holding them personally liable.

Most actions against directors in recent years have involved misleading accounts or false prospectuses. Suits against present or former directors or officers of Air New Zealand or Ansett Australia would break new ground.

Comments from our readers

No comments yet