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1997-10-22 13:05:34


Corporate Directors Could Go to Jail: New Zealand



Corporate directors who ignore y2k could be sued or even imprisoned in 2000 and beyond.

Notice especially the domino effect problem: the failure of a firm's suppliers to become y2k compliant. This would multiply liability like a virus. It is not just computer systems that are threatened by noncompliance; it is the personal capital of directors.

My view: one sign of the looming collapse will be an exodus of directors in late 1998.

This story appeared in COMPUTERWORLD NEW ZEALAND (Oct. 20).

* * * * * * *

Company directors who ignore the Y2K issue may find themselves on the wrong end of a very expensive personal liability suit or even imprisonment, according to Chris Appleby, a senior solicitor for Phillips Fox, a law firm that carries out legal audits of computer systems and contracts.

IT managers aren't immune, either. In extreme situations the person who drew up a company's plan for Y2K compliance may well be singled out to take the blame. If lives are put at risk or the environment endangered because of a Y2K glitch, IT managers could face prosecution. . . .

Directors have always had duties to the companies they run, and the Companies Act, 1993 has enshrined many of those "duties of care" in law. If directors don't exercise "due care" in decision making, they may find that they personally have to make up any losses incurred and in extreme situations may even face imprisonment. This liability extends to officers of a company as well, possibly to IT managers. Insurance is available in the form of "directors and officers liability insurance" (D&O), but the overseas trend is toward the exclusion of Y2K from liability insurance. . . .

Ensuring your own company's compliance with Y2K is only part of the problem, according to Appleby. "One factor that is emerging is the interdependence of companies and organisations, commonly referred to as the 'value chain'. It's becoming an area of focus for managers and directors." Suppliers, business partners and even customers must also be Y2K compliant or directors could find themselves lumbered with somebody else's problem. New Zealand's strict liability laws could also be a potential minefield. Even if directors can prove that they implemented a plan to become Y2K compliant, it may not be enough to avoid penalties.

"To be found guilty you don't need to have intended to do something," says Appleby. The example he gives is of a factory accidentally leaking toxic substances into a stream. Even though it never meant to do it, and had policies in place to try to prevent it from happening, the company is almost certain to be found guilty. The same rulings could apply to Y2K issues if brought before the court.


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