CURRENT AS AT 24 January 2019
A shadow director is a person who is not a director, but actively influences directors of a company.
So why is this concept important? A shadow director has the same duties and responsibilities as an officially appointed director.
Section 9 (b)(ii) of the Corporation Act states that a person will be a director when “the directors of the company are accustomed to act in accordance with the person’s instructions or wishes”.
Case law also supports this concept. However it requires more than just the mere potential to control or being in a position to control. To meet the definition of a shadow director, case law requires the person to actively issue instructions to directors.
As a result, a shadow director is subject to all the duties and liabilities imposed on directors by the Corporations Act, including:
- the duty to act with due care and diligence;
- the duty to exercise powers with good faith;
- the duty to not improperly use your position to gain advantage for yourself or someone else, and
- the duty to not trade while insolvent.
These liabilities will only arise in connection with legal proceedings as it is only a court who will deem someone to be a shadow director.
It is still worthwhile keeping this in mind though. If you have a major influence on the directors, you can have the same responsibilities and potential liabilities as an appointed director.
If you have any uncertainty in this area don’t hesitate to contact your client manager.
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