Under New Zealand law, a director can be held liable for trading recklessly or insolvently if they allow the company to continue trading while it is insolvent or likely to become insolvent, and their actions cause a loss to the company's creditors.
The determinants for finding a director liable for trading recklessly or insolvently include:
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Awareness of Insolvency: A director may be held liable if they continue to trade while the company is insolvent or if they become aware or should have been aware of the company's insolvency and failed to take appropriate action to address it.
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Breach of Directors' Duties: Directors have a duty to act in the best interests of the company, exercise due care and diligence, and avoid reckless or imprudent decisions. If a director breaches these duties and causes losses to creditors, they may be held personally liable.
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Cash Flow and Financial Projections: Directors have a responsibility to monitor the company's cash flow and financial projections regularly. If they ignore warnings of impending insolvency or rely on unrealistic projections, they may be held liable for reckleAss or insolvent trading.
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Transactions at Undervalue: Directors who engage in transactions that benefit themselves or related parties at the expense of creditors may be held liable for trading recklessly or insolvently.
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Failure to Seek Professional Advice: If a director fails to seek professional advice or act on advice received from accountants, lawyers, or other experts regarding the company's financial situation, they may be held liable for trading recklessly or insolvently
In summary, a director can be held liable for trading recklessly or insolvently if they fail to take appropriate action when the company is insolvent or likely to become insolvent, breach their duties as a director, fail to monitor the company's financial position, engage in transactions that benefit themselves or related parties at the expense of creditors, or fail to seek professional advice.