The legislation - currently before a commerce select committee – would see directors face five years in prison or fined up to NZ$200,000 (US$162,000) for a ‘serious breach’ in their obligation to act in the best interest of a business and protect it from risk of serious loss, reports The New Zealand Herald.

Taking risks

However, Wellington-founded firm Chapman Tripp has said the reforms are unnecessary and the cost of implementing would outweigh any potential benefits. The firm added that discouraging directors from taking risks would not boost innovation, productivity or growth.

‘The basic flaw in the rationale behind the bill is the notion that it is possible to eliminate 'egregious' misconduct without adversely impacting on the incentives or decision-making of honest and diligent directors. This idea is unrealistic,’ said the firm in a submission on the bill.

Accidental behaviour

Commerce Minister Craig Foss said he was unable to comment on the bill while it was before the committee, but did downplay fears that accidental behaviour would be criminalised.

‘The offences will require the prosecution to prove that the director knew that their behaviour would be seriously detrimental to the interests of the company or would result in serious loss to the company's creditors, depending on the particular breach of duty,’ Mr Foss said.