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Alternate Directors - A Practical Solution

Written by Sarah Gibbs on July 17th, 2014.

A director may appoint an alternate director to act as their substitute during periods when the director is unavailable or absent.  The idea of an alternate director is basically to ensure the continuous appointment of a director so that company operations are not halted by the absence of a director.  As such, the appointment of alternate directors can provide a practical solution for companies with a sole director or companies with directors who travel often or are otherwise unavailable or absent from time to time.  
 
This article provides a brief summary of the appointment and function of alternate directors in a company.  Could appointing an alternate director be a sensible option for your company?
 
Appointment
 
The Companies Act 1993 (the "Act") makes no reference to the position of "alternate directors".  However, the definition of "director" at section 126 of the Act includes "a person occupying the position of a director of the company by whatever name called".  Such a person includes an alternate director.  To enable a director to appoint an alternate director, the company's constitution must make provision for alternate directors to act in the place of an appointed director during their absence or inability to act as a director at any time.  Generally, an alternate director will be appointed by notice in writing to the company by the appointing director.  As required by the Act, the alternate director will need to sign a director's consent form.
 
The precise nature of the appointment of an alternate director will depend on the constitution and any other contractual condition attached to the appointment.  Where the appointed director for whom the alternate director has been appointed ceases to occupy the position of a director, the appointment of the alternate director will also be terminated, even if the constitution does not expressly provide for this.  Generally, the appointing director can terminate the appointment of an alternate director at any time by notice in writing to the company.
 
Powers
 
Generally, alternate directors will have the same powers, responsibilities and duties as appointed directors, but only when the alternate director is acting as a director in place of the appointing director for whom they are the alternate.  Accordingly, an alternate director has no legal status and therefore none of the power, duties or responsibilities of an ordinary director, at times when the appointing director is present.  Notwithstanding, it is prudent for alternate directors to regard themselves as directors at all times for the purposes of disclosure of interests, use of company information, disclosure and restrictions on share dealings, and all of the general duties of directors when acting in that capacity.
 
Third Party Dealings
 
Persons dealing with a company customarily search the Companies Office records online to ensure that the person they are dealing with is registered as a director.  Accordingly, we generally suggest that an alternate director be added as a director on the Companies Office records to give third parties comfort that the alternate director is legitimate.  However, note that section 18(1)(b) of the Act prohibits a company from asserting that a person named as a director in the most recent notice of change of directors is not a director, has not been duly appointed or has no authority to exercise a power customarily available to a director of a company in a business of that kind.  Such a person can be presumed by third parties to have authority to act as a director.  The upshot of this is that the company will be bound by any action taken by an alternate director, even if the action is outside the scope of their defined authority or period in which they are allowed to act.
 
Conclusion
 
In summary, the role of alternate director must be provided for in the constitution of a company and appointed by a director.  An alternate director can be a pragmatic way to solve logistical issues associated with absent or unavailable directors.  As the alternate director will have apparent authority to third parties dealing with the company, the company will be bound by any action the alternate director takes (even if it is outside the scope of their authority).
 
If you would like to appoint an alternate director for your company or have any other corporate queries, we would be happy to assist.  Please contact:
 
Sarah Gibbs
Senior Solicitor
Direct Dial: +64 9 375 7636
Mobile: +64 21 614 549
Direct Fax: +64 9 365 5436
Email: sarah.gibbs@heskethhenry.co.nz
 
 
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