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Companies Act 1993

Directors and their powers and duties - Directors' duties

131: Duty of directors to act in good faith and in best interests of company

You could also call this:

“Directors must make decisions in the company's best interests”

When you’re a director of a company, you must act in good faith and do what you think is best for the company when you’re making decisions or doing your job.

If you’re a director of a company that’s completely owned by another company (called a wholly-owned subsidiary), you can act in a way that’s best for the parent company, even if it might not be the best for your company. But this is only allowed if the company’s rules say it’s okay.

If you’re a director of a company that’s partly owned by another company (called a subsidiary), you can act in a way that’s best for the parent company, even if it might not be the best for your company. This is only allowed if the company’s rules say it’s okay and if the other shareholders (not including the parent company) agree to it first.

If you’re a director of a company that’s working together with its shareholders on a project (called a joint venture), you can act in a way that’s best for one or more of the shareholders, even if it might not be the best for the company. This is only allowed if the company’s rules say it’s okay and only when you’re working on the joint venture.

When you’re thinking about what’s best for a company, you don’t just have to think about making the most money. You can also think about other things that might be important, like how the company affects the environment or how it treats people.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM320657.

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Part 8 Directors and their powers and duties
Directors' duties

131Duty of directors to act in good faith and in best interests of company

  1. Subject to this section, a director of a company, when exercising powers or performing duties, must act in good faith and in what the director believes to be the best interests of the company.

  2. A director of a company that is a wholly-owned subsidiary may, when exercising powers or performing duties as a director, if expressly permitted to do so by the constitution of the company, act in a manner which he or she believes is in the best interests of that company's holding company even though it may not be in the best interests of the company.

  3. A director of a company that is a subsidiary (but not a wholly-owned subsidiary) may, when exercising powers or performing duties as a director, if expressly permitted to do so by the constitution of the company and with the prior agreement of the shareholders (other than its holding company), act in a manner which he or she believes is in the best interests of that company's holding company even though it may not be in the best interests of the company.

  4. A director of a company that is carrying out a joint venture between the shareholders may, when exercising powers or performing duties as a director in connection with the carrying out of the joint venture, if expressly permitted to do so by the constitution of the company, act in a manner which he or she believes is in the best interests of a shareholder or shareholders, even though it may not be in the best interests of the company.

  5. To avoid doubt, in considering the best interests of a company or holding company for the purposes of this section, a director may consider matters other than the maximisation of profit (for example, environmental, social, and governance matters).

Notes
  • Section 131(4): amended, on , by section 11 of the Companies Act 1993 Amendment Act 1997 (1997 No 27).
  • Section 131(5): inserted, on , by section 4 of the Companies (Directors’ Duties) Amendment Act 2023 (2023 No 43).