What Does Section 180 Of The Companies Act Say? (2026 Updated)

If you’re a director (or you’re about to become one), you’ve probably heard someone mention “section 180” and wondered what it actually means for you day-to-day.

In practice, people often use “section 180” as shorthand for the director’s duty of care and diligence (a concept that comes up a lot in Australia), and they use it when talking about the standard of decision-making directors are expected to meet.

For New Zealand companies, the key duties are set out in the Companies Act 1993 (and the duty most closely associated with “care and diligence” is in section 137). This update is current and reflects the way directors are expected to operate today, especially in a world of faster decisions, more digital record-keeping, and increased scrutiny on governance.

Below, we’ll unpack what “section 180” is getting at, how the equivalent New Zealand obligations work, and what you can do (practically) to protect yourself and your company from day one.

What Is “Section 180” And Why Do People Talk About It In New Zealand?

First, a quick clarification (because it’s a common point of confusion):

• In Australia, “section 180” is a well-known provision in the Corporations Act 2001 (Cth) about a director’s duty of care and diligence.
• In New Zealand, directors’ duties are primarily in the Companies Act 1993, and the duty of care, diligence and skill is found in section 137.

So if you’re running a New Zealand company and you’ve heard “section 180”, what the person usually means is:

• directors can’t “set and forget” the company;
• directors must make decisions with reasonable care;
• directors should be able to explain (and evidence) how they made a decision.

Directors’ duties also don’t sit in isolation. They work alongside other governance tools you may already have in place, like a Company Constitution and a Shareholders Agreement, which often set expectations around approvals, decision-making processes, and what happens if there’s a dispute.

If you want a plain-English overview of how “section 180” is commonly discussed, this section 180 explainer is a helpful reference point for the concept people are usually referring to.

What Does The Duty Of Care And Diligence Actually Require?

In New Zealand, the duty of care, diligence and skill in section 137 is about meeting an objective standard of conduct. Put simply: you’re expected to act like a reasonable director would act in the same situation.

This duty generally means you should:

• Take an active role in governance (not just a title on Companies Office records).
• Understand the company’s business well enough to make informed decisions.
• Ask questions when you don’t understand something (financials, contracts, risk exposure, etc.).
• Get the right advice when the decision is complex or high-stakes.
• Monitor the company’s position (especially around cashflow, solvency, and major liabilities).

It’s Not About Being Perfect

This duty doesn’t mean every decision has to work out. Business involves risk, and sometimes you make a call that turns out badly despite good intentions.

The key question is usually: was the process reasonable at the time you made the decision?

How This Fits With Other Director Duties

Directors’ duties overlap, and the same set of facts can trigger multiple duties. For example, if you make a rushed decision that benefits you personally, you might be dealing with:

• a care and diligence issue, and
• a conflict issue, and
• a best-interests issue.

Directors are often described as owing fiduciary-type obligations to the company (put simply, obligations of loyalty and acting for proper purposes). If that term feels a bit abstract, this fiduciary duty breakdown will help put it into everyday language.

What Does “Reasonable Care” Look Like In Real Life?

Most directors don’t get into trouble because they made a decision. They get into trouble because they can’t show they made the decision properly.

Here are practical, real-world indicators that you’re meeting the standard expected of you.

1) You’re Making Decisions With Enough Information

You don’t need to know everything, but you do need to know enough. Before signing off on a major decision, you’ll usually want to see (and understand):

• current financials (or at least management accounts),
• cashflow forecasts where relevant,
• key contract terms and liabilities,
• risks and “what if” scenarios, and
• who is responsible for delivery and reporting back to the board.

If the company is doing something material-like raising funds, issuing new shares, or bringing in an investor-you’ll want to ensure the process is documented and approvals are clear (including shareholder approvals where required). Depending on the structure, that might involve documents and processes around a share issue.

2) You’re Recording Board Decisions Properly

Good records do two things at once:

• they make the business run smoother (everyone knows what was decided), and
• they protect directors if decisions are later questioned.

In many companies, especially startups and owner-managed businesses, directors rely heavily on written resolutions rather than formal meetings. That’s normal-but it still needs to be done properly. If you want a simple way to start tightening up your governance, a Directors Resolution is a practical starting point for documenting decisions.

3) You’re Managing Conflicts Of Interest Early

A common governance trap is the “it’s just easier if I handle it” approach-especially when a director is also a shareholder, founder, employee, or supplier.

Conflicts aren’t automatically illegal, but they must be managed. That usually means:

• disclosing the conflict,
• properly recording it,
• considering whether the conflicted director should step back from voting, and
• ensuring the decision is demonstrably in the company’s interests.

4) You’re Keeping An Eye On Solvency And Financial Risk

For many directors, the biggest “care and diligence” risk appears when the business hits a cash crunch.

If the company is close to the line financially, directors should be especially careful about:

• taking on new debt,
• agreeing to long-term leases,
• continuing to trade while unable to pay debts as they fall due, and
• signing personal guarantees without fully understanding exposure.

It’s also worth remembering that “limited liability” doesn’t mean “no liability”. Directors can face personal exposure in certain situations. This overview on personal liability explains some of the typical risk areas in plain English.

Common Scenarios Where Directors Slip Up (And How To Avoid It)

Most directors want to do the right thing. The issue is that business moves quickly, and the legal expectations don’t disappear just because you’re busy.

Here are a few common scenarios where directors accidentally fall short, plus some practical fixes.

Scenario A: “We Agreed In A Chat” (But There’s No Paper Trail)

Imagine you and a co-director agree (informally) to bring on a new investor, change shareholdings, or transfer equity “later”. Months pass, relationships change, and suddenly everyone remembers the discussion differently.

How to protect the company (and yourself):

• Document decisions when they’re made (board minutes or written resolutions).
• For equity changes, make sure the legal process is followed and recorded.
• Use clear documents for transfers and approvals rather than relying on emails or messages.

When the decision involves ownership changes, it’s worth getting the process right upfront-this is where steps around share transfers matter, even for small, founder-led companies.

Scenario B: “We Didn’t Realise We Needed Approval”

Some decisions can be made by directors alone. Others may need shareholder approval, or may be restricted by the constitution, shareholder arrangements, or investment terms.

How to protect the company (and keep everyone on the same page):

• Check what your governing documents require before signing.
• Keep an approvals checklist for big decisions (debt, leases, hiring senior staff, issuing shares).
• If you’re not sure, get legal advice early-fixing it later is usually more expensive.

Scenario C: “We Moved Fast” (And Skipped Advice On A High-Stakes Deal)

Moving fast can be good business. But if the risk is high (or the transaction is unusual), “moving fast” without a reasonable process can create director exposure.

How to protect the company (without slowing it to a crawl):

• Get targeted advice for the specific risk area (tax, employment, IP, privacy, finance, or contracts).
• Write down the options you considered and why you chose one.
• Record what information you relied on (reports, financials, expert advice).

What Happens If A Director Breaches The Duty?

If a director fails to meet the required standard of care and diligence, the consequences can be serious-especially if the breach causes loss to the company.

Depending on the circumstances, potential outcomes can include:

• claims against the director (often brought by the company, shareholders, or in some cases a liquidator),
• orders to pay compensation for losses caused by the breach,
• disqualification from being a director in certain situations, and
• ongoing dispute costs (time, stress, legal fees, reputational damage).

Just as importantly, even if the issue never becomes formal proceedings, poor governance can damage relationships with:

• investors (who expect clean decision trails),
• banks and lenders (who care about solvency and reporting), and
• co-founders/shareholders (who want clarity and fairness).

A Quick Reality Check For Owner-Managed Companies

If you’re both a director and a major shareholder, it can feel like “it’s my business, so I can decide”. But legally, directorship comes with responsibilities to the company as a separate legal person.

That’s why getting the legal foundations right early-structure, documents, approvals, records-usually saves a lot of pain later.

Key Takeaways

• In New Zealand, the director duty people often associate with “section 180” is most closely reflected in section 137 of the Companies Act 1993 (care, diligence, and skill).
• The duty is less about whether a decision succeeds and more about whether you used a reasonable process and made an informed decision at the time.
• Good governance is practical: keep proper records, manage conflicts early, and make sure approvals match what your constitution/shareholder arrangements require.
• Director risk often increases when cashflow is tight, decisions are rushed, or major transactions happen without documentation.
• Having the right documents in place (and using them consistently) can significantly reduce disputes and help protect directors if decisions are challenged later.

If you’d like help understanding your director duties or tightening up your governance and company documents, you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.