Directors Liability - Farewell to Immunity
Business owners have long been protecting themselves from personal liability by conducting their business under the protection of a limited liability company.
However, a recent High Court leaky home case has significantly changed the liability landscape for company directors and potentially exposed them to unlimited personal liability.
In the decision, the High Court reviewed all the competing principles for and against personal liability for company directors and determined that Mr McDonald, the director of an Auckland building company, Hobson Swann Construction Ltd, could not hide behind the company structure he had established and operated within and that in addition to the company being liable he was also personally liable to the owner of the house and, if the house was ever sold, to all future owners as well.
The case clearly states that building company directors who carry out work will be personally liable as will all other employees who carry out work.
In Mr McDonald's case he had personally "swung the hammer" and was responsible on that basis.
However, he would likely still have been liable if he "controlled" the operations of the company or if he had instructed his employees on what to do and those instructions turned out to be incorrect.
However, the case is likely to extend beyond builders and have implications for anyone who provides services or advice to others.
Already the case is being used against directors of other trades, such as, plasterers, designers and architects.
There seems no real reason why the decision will not be used to bring claims against building assessors, surveyors, accountants, engineers, planning consultants and other professional advisers.
Directors in any of these companies should be looking to protect their position with appropriate insurance and asset protection structures such as a family trust.