A person who actively influences company directors, but is not officially appointed as a director, can be referred to as a shadow director. This term may interest accountants in Sydney who provide corporate governance advice.
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. Case law requires the person to actively issue instructions to directors to meet the definition of a shadow director.
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 an 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 only a court will deem someone to be a shadow director.
It is still worthwhile keeping this in mind, though. If you significantly influence the directors, you can have the same responsibilities and potential liabilities as an appointed director.
If you are uncertain about this area, don’t hesitate to contact your client manager.
Kreston Stanley Williamson Team
*Correct as of January 2019
*Disclaimer – this article has been produced by Kreston Stanley Williamson as a service to its clients and associates. The information contained in the article is of general comment only and is not intended to be advice on any particular matter. Before acting on any areas in this article, you must seek specific advice relating to your particular circumstances. Liability is limited by a scheme approved under professional standards legislation.
