A recent High Court decision highlights that directors of companies issuing documents subject to the Securities Act 1978 run the risk of personal criminal liability if those documents contain untrue statements. The case emphasises that unless directors have reasonable grounds for a belief that statements are true, that belief will not provide a defence.

In R v Moses (HC Auckland, CRI 2009-004-1388, 8 July 2011), Justice Heath convicted three directors of Nathans Finance NZ Ltd on five counts of breaching section 58 of the Act, on the basis that they had distributed to the public offer documents containing untrue statements. The directors were found not guilty on a sixth count.

Justice Heath rejected the directors' argument that the statements were not untrue as they were literally accurate, holding that the offer documents, when read as a whole by a "prudent but non-expert person", contained material misleading statements.

The directors were also unsuccessful in their argument that they should escape liability because they had had an actual belief based on reasonable grounds (including as a result of information provided by auditors and external advisers) that the statements were true. The Court held that the directors had a personal responsibility to ensure independently that the statements were true. When viewed objectively, given the information available to the directors at the time, the directors should have realised that the statements were misleading.  

The three directors have recently been sentenced in the High Court (HC Auckland CRI 2009-004-1388, 2/9/2011, Heath J). Each sentence included a sum of reparation ranging from $150,000 to $450,000, and a term of imprisonment ranging from nine months home detention with 300 hours community work, to two years four months imprisonment. The directors' subsequent appeals against these sentences were unsuccessful.