Shadow directors under the Corporations Law
by David Noakes
Natcomp Technology Australia Pty Ltd v Graiche involved the liquidation of Amtech Industries Pty Ltd (Amtech). The appellant creditor brought proceedings to the NSW Court of Appeal against the respondent, arguing that his involvement in Amtech was so great that he was either a de facto or shadow director and accordingly liable under the insolvent trading provisions. Under the Corporations Law, a 'director' includes a person:
- who is not validly appointed as a director if they act in the position of a director, or
- to whom the directors of the company are accustomed to acting in accordance with that person's instructions or wishes.
However, a 'director' does not include a person giving advice in the proper performance of functions attaching to their professional capacity or their business relationship with directors of the corporation. The respondent had previously accompanied the appointed directors of Amtech and the managing director of the appellant to a trade fair in Taiwan, at which the respondent distributed a business card which carried the Amtech logo, the company's address, and described the respondent as 'CEO' of the company. The respondent also informed the managing director of the appellant that he was at the fair as a representative of Amtech and frequently used the term 'we at Amtech' when discussing the potential of Amtech to build a strong trading relationship with the appellant. On other occasions, the respondent had been introduced to various business contacts as the 'brains behind Amtech', the company's business adviser and as someone who had a financial interest in the company. When determining the conduct and circumstances relevant to the question of whether the respondent was acting as either 'shadow' or 'de facto' director, the Court considered whether he:
- exercised actual (and statutorily extended) top-level management functions;
- acted with full discretion, in the case of a small company, 'as the company', in relation to matters of great importance to it (other than as an arms' length expert engaged for a limited purpose);
- performed the duties of a 'director' in the context of the operations, circumstances and size of the particular company concerned; and
- was reasonably perceived as a 'director' by outsiders who deal with the company (which may aid a conclusion that the supposed director held himself or herself out as such).
Neither the trial judge nor the Court of Appeal were convinced that the respondent was a 'shadow' or 'de facto' director. In particular, the Court of Appeal considered there was no evidence that the respondent was involved in any fashion in the principal aspect of the company's business, namely the sale of computer packages, nor was the respondent involved in the company's day-to-day operations. The Court found that the respondent's involvement with Amtech was "limited to an interest in the development and marketing of possible new products".