Dead Beat Directors

This is an idea I got from a Greeny mate of mine who used to work in the Department of Labour. The idea involves prohibiting Directors from managing companies if they've seriously breached the Health and Safety in Employment Act or the Resource Management Act.

A reasonably simple amendment to the Companies Act is required. Section 382 prohibits certain persons from managing companies. Currently, the prohibitions apply to "a person…convicted on indictment of any offence in connection with the promotion, formation, or management of a company; or a person…convicted of (certain) offences under (the Companies Act) or any crime involving dishonesty as defined in (the Crimes Act).

Section 382 could be amended to add a new (c) to 382(1) which would basically say:

"a person has been convicted of an offence under section 49 of the Health and Safety in Employment Act 1992 (ie likely to cause serious harm) or section 338(1), (1A) or (1B) of the Resource Management Act (which I understand are the serious ones). It should also be noted that section 56 of the HSE provides that the sins of the company can be sheeted back to its managers!

This is an extremely simple way of making Directors take serious their actions under the HSE and RMA. Fines and even the threat of imprisonment can be too esoteric to be truly frightening. But the prospect of not being able to continue in their role would definitely send shivers up Boardrooms' spines.

Couple of potential issues: The prohibitions in the Companies Act relate directly to company type stuff and this amendment would introduce a new dimension to this section. An argument would be: why just HSE and RMA why not other corporate malfeasance? I guess I take the view that not harming people or the environment are absolutely central to corporate responsibility - more so than any other malfeasance.

I am also wondering about the perceived "double jeopardy"/natural justice aspect. To be in frame for this prohibition you will have already been prosecuted. Could being barred from managing a company for 5 years be seen as unduly punitive? My view is that it's not punitive it's about mitigating risk. If you've presided a failure that brings you into this space you've already proven yourself to be a dangerous person and you should be barred for a period presumably so you can become older and wiser. There is also an ability for a court to grant relief against a prohibition subject to whatever conditions they see fit. Well, a condition could be the Director goes on health and safety and environmental awareness courses.

I guess the big sell here is that, I suspect such a Bill would never survive the parliamentary process. But it could have the benefit of opening a vigorous debate about Directors' responsibilities/duties and that is not a bad thing in itself.

What do others think?

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