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CorporateGovernance

Consequences of ‘accidental directorship’

Business Law, Company Law, Corporate Governance, Directors’ Duties, StartupAdvice, Startups, Venture Capital
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Caution for investors, startup advisers and board observers

Startup companies often rely on advisers, investors and board observers to help guide their new businesses. This is a good thing, but it carries hidden risk.

If you are in one of these roles, in some circumstances, you can be treated as a director, even if you never formally agreed to the appointment. If this happens, it can expose you to personal liability.

 

Directors vs advisers: What’s the difference?

Directors are responsible for the overall governance and strategic direction of the business.

Directorship also comes with legal compliance under the Companies Act 1993. There are significant consequences for directors if things go wrong.

On the other hand, advisers and board observers typically provide strategic, non-binding guidance for the directors to take into consideration when making decisions.

In theory, this is a clear distinction. The line, however, can become blurred. What matters is what you do in practice, rather than your title.

 

How do people become accidental directors?

This is common in startups, where governance structures are still evolving and roles are often informal. Having said that, this is still a real risk for any company. Courts tend to focus on how you are fulfilling your role as an adviser or observer in practice. Warning signs include:

  • The board of directors regularly following your instructions or directions
  • Being involved in decision-making on the same level as directors, and/or
  • Exercising authority normally reserved for directors.

If these patterns develop, you may be seen as a deemed director.

 

Personal liability

Directors’ duties are personal. If a company gets into financial trouble, the directors are exposed to personal liability, and in some instances may be required to personally contribute to company debts. This risk doesn’t just apply to those formally appointed. If you are treated as a director in substance, you may carry this risk without even realising you’ve taken it on.

 

A risk area

Board observers and startup advisers are particularly exposed because their role sits very close to the line. For example, an observer may:

  • Attend meetings and receive board papers
  • Provide input on strategy or decisions, and/or
  • Represent investor interests.

 

That’s fine, but the risk increases where:

  • You participate in decision-making on significant matters
  • The board tends to follow your recommendations
  • Your role is not clearly recorded as ‘observer only,’ and/or
  • You (or your investor) have significant control or approval rights.

Over time, what starts as ‘advice’ can start to look like decision-making.

 

This is one of those areas where things can drift without anyone noticing. Everyone is acting in good faith, wanting the business to succeed, but the legal position gradually shifts. If you are involved in a startup as an adviser, investor or observer, it’s worth asking yourself:

  • Am I just advising, or am I influencing decisions?
  • Does the board treat my input as optional or as direction?
  • Is my role clearly documented and understood?

Small changes in how you operate can make a big difference.

 

Be careful

Being an adviser or board observer is often valuable and rewarding, and is of great benefit to startups. However, there are real risks with these roles that are not always obvious. If your involvement crosses the line into decision-making or control, the law may consider you as a director, exposing you to all the responsibility and possible personal liability that comes with that title.

It pays to be clear about your role from the outset and to keep checking that your involvement hasn’t crept further than intended. If you’re not sure where that line sits in your situation, it’s a good time to get legal advice to help avoid unintended consequences.

 

DISCLAIMER: All the information published in Fineprint is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of Edmonds Judd. Articles appearing in Fineprint may be reproduced with prior approval from the editor and credit given to the source.
Copyright, NZ LAW Limited, 2026.     Editor: Adrienne Olsen.       E-mail: [email protected]     Ph: 029 286 3650 

New Zealand’s criminal cartel regime

Competition Law, Corporate & Commercial, Criminal Law, Public Procurement, Regulatory & Compliance
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Lessons from the MaxBuild and Mardom prosecutions

While New Zealand’s criminal cartel regime has been in effect since 2021, it has only recently moved beyond theory into action.

The Commerce commission has now completed the country’s first criminal cartel prosecution with two sentences imposed in the High Court in Auckland on construction companies MaxBuild Limited (MaxBuild) and Mardom Limited (formally Chelsea Contracting Limited) (Mardom), with both companies pleading guilty to bid-rigging offences.

This enforcement marks a watershed moment for competition law in New Zealand, and sends a clear message to all businesses engaged in tendering, procurement and competitor interaction.

Criminal conduct

The prosecutions arose from alleged bid-rigging in relation to NZ Transport Agency’s Northern Corridor Improvement Project and Auckland Transport’s Middlemore Bridge Refurbishment Project; two publicly funded infrastructure projects.

The Commission’s investigation revealed that MaxBuild’s director, Munesh Kumar, colluded with Mardom’s director, Dominic Sutherland, by agreeing that Mardom would submit artificially high tenders (‘cover pricing’) to allow MaxBuild to win the contracts with lower bids. This practice undermines competitive tendering, harms procuring agencies and potentially loads costs onto taxpayers.

The scheme was accidentally uncovered when a spreadsheet containing details of the illicit arrangement was inadvertently included in tender documents sent to the project’s overseers. This triggered a formal Commission investigation and, ultimately, criminal charges.

Sentencing

In December 2024, the High Court sentenced MaxBuild’s director to six months’ community detention and 200 hours’ community service, and ordered a $500,000 fine on MaxBuild for its role in facilitating the cartel conduct. Justice Wilkinson-Smith described the behaviour as ‘serious and deliberate,’ and an attack on business confidence and taxpayer trust.

More recently, in October 2025, the High Court imposed a $30,000 fine on Mardom following its guilty plea to cartel conduct.

Justice Sally Fitzgerald indicated that a starting fine of $595,000 would have been appropriate for Mardom, but the fine was lowered to $30,000 due to Mardom’s poor financial position and lack of active trading. Despite not directly benefiting financially from the scheme, the company had ‘taken active steps in the collusive behaviour.’

In both prosecutions, mitigating factors such as early guilty pleas, cooperation, personal circumstances and the inability to pay influenced the level of penalties imposed.

Why this matters for New Zealand businesses

Under New Zealand law, intentional cartel behaviour – including price-fixing, market allocation, restricted output arrangements and bid-rigging – can attract:

  • Up to seven years’ imprisonment (for individuals), and /or fines of up to $500,000, and
  • Substantial corporate fines (up to the greater of $10 million, three times commercial gain or 10% of turnover for each year in which a breach occurred).

The cases of MaxBuild and Mardom demonstrate that:

  • The Commission will deploy criminal powers when warranted – not just civil penalties
  • Bid-rigging and cover pricing are key priorities, particularly in public-sector procurement
  • Individuals face personal exposure, with directors who engage in or facilitate cartel conduct risking criminal convictions and custodial sentences, and
  • Early guilty pleas and cooperation can reduce sentences, but they do not prevent convictions.

Lessons for business

  • Train your staff on ‘informal’ competitor contact. Conversations about pricing, bid strategy, territories or customers with competitors can be high-risk
  • Establish compliance programmes for your tender applications and keep them updated. Any coordinated arrangements with competitors about bidding practices can easily amount to cartel conduct. Include cartel law training, procurement protocols and escalation points for suspected breaches, and
  • Be proactive if you suspect there has been a breach. The commission’s Cartel Leniency and Immunity Policy (here) can be a way to mitigate exposure if cartel conduct is disclosed early.

Cartel conduct will be pursued aggressively

The commission’s prosecutions of MaxBuild and Mardom represent a tipping point in New Zealand’s competition law enforcement. It underlines that cartel conduct, particularly in tender processes involving public funds, will be pursed aggressively, with potential criminal consequences.

For businesses operating in competitive markets, strong competition law governance is essential to protect legal, financial and reputational risk.

 

If you are unsure about any aspect of competitive commercial tenders, please contact us at the earliest opportunity.

 

DISCLAIMER: All the information published in Commercial eSpeaking is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of Edmonds Judd. Articles appearing in Commercial eSpeaking may be reproduced with prior approval from the editor and credit given to the source.
Copyright, NZ LAW Limited, 2026     Editor: Adrienne Olsen.       E-mail: [email protected]     Ph: 029 286 3650

Rights of shareholders to company information

Business Guidance, Company & Shareholder Law, Leave & Entitlements
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If you are a shareholder of a small to medium-sized company but not a director, then you may have a significant amount of money invested in the company but not be involved in its day-to-day management and operation.

 

You have an interest in knowing what the company is doing, as your investment may be at risk if the company fails. You may also be reliant on the company for your income, either through share dividends or as an employee of the company.

 

This raises the issue of what information about a company a shareholder is entitled to receive. The Companies Act 1993 governs this.

 

Right to information under section 216

A shareholder has an absolute right to some fundamental information under section 216 of the Companies Act. This includes:

  • Minutes of all meetings and shareholder resolutions
  • All written information distributed to shareholders over the preceding 10 years, including annual reports and financial statements
  • Directors’ certificates, and
  • The company’s interests register (the official list of any potential conflicts of interest the directors may have).

 

The limited information available under section 216 is unlikely to enable a shareholder to obtain information about significant financial decisions made by the company in time to influence them.

 

Right to information under section 178

A shareholder has a right to ask for any information held by a company under section 178 of the Companies Act. However, the company may refuse to provide the information or charge the shareholder for providing it. The company may decline to provide information for any reason.

 

The Companies Act, however, specifically states that a company may refuse to provide information if its release would prejudice the company’s commercial position or that of any other party it is dealing with. It also states that a company may refuse a request that is frivolous or vexatious.

 

A shareholder may apply to the court to have a company’s decision to refuse to release information reviewed. However, a court application is likely to substantially delay the release of the information and increase the cost of obtaining it, even if the court ultimately orders the release of the information.

 

Shareholder entitled to see the company’s legal advice?

One category of information that has special rules applying to it is legal advice received by a company. Traditionally, the courts have applied what has become known as the Shareholder Rule.[1] This has meant that a shareholder was entitled to be provided with any legal advice obtained by a company except advice relating to a dispute with the shareholder. It would be very difficult for a company to deal with a dispute with a shareholder if it could not keep its legal advice regarding the dispute confidential.

 

Recent Privy Council decision

The UK’s Privy Council has recently issued a decision that is likely to become a landmark decision in company law.[2] The court’s decision effectively overturns the long-standing Shareholder Rule. The court held that shareholders are not entitled to any privileged legal advice obtained by a company.

 

The Privy Council is no longer New Zealand’s highest court; it was replaced by the Supreme Court in New Zealand in 2004. The Privy Council’s decisions are, however, still strongly influential on the development of New Zealand law. Many commentators believe that the New Zealand courts will adopt this approach to the Shareholder Rule. Companies may well, therefore, begin to decline shareholder requests for any legal advice obtained by a company under section 178 of the Companies Act.

 

It is likely that the New Zealand courts will uphold the refusal by a company to release such information in the future.

 

Shareholders still have strong rights

Shareholders still have strong rights to obtain information about a company under sections 178 and 216 of the Companies Act, even if they are no longer able to access the company’s legal advice. These rights can be particularly useful if a dispute arises between shareholders in relation to the company’s management or strategic direction.

 

You should contact us if you have any concerns about the management of a company in which you own shares. There are a number of legal mechanisms contained in the legislation that shareholders can use to protect their position, including the rights to information discussed here. Prompt action, however, is often required to achieve the best possible outcome.

[1] Lambie Trustee v Addleman [2021] NZSC 54, [2021] 1 NZLR 307.

[2] Jardine Strategic Holdings Ltd v Oasis Investments II Master Fund Ltd No 2 [2025] UKPC 34.

 

 

DISCLAIMER: All the information published in Commercial eSpeaking is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of Edmonds Judd. Articles appearing in Commercial eSpeaking may be reproduced with prior approval from the editor and credit given to the source.
Copyright, NZ LAW Limited, 2025.     Editor: Adrienne Olsen     E-mail: [email protected]    Ph: 029 286 3650

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