LAWS2203 Study Guide - Final Guide: Reinsurance, James Hardie, Supreme Court Of New South Wales
Definition of Director
Section 9
• a director unless contrary intention includes
o A person appointed
o Acting in the position of director: de facto director
o Shadow directors: those in accordance with whose wishes or instructions the directors of the
company are accustomed to act
• excludes a person who merely provides advice to the directors in the proper performance of their
professional functions or who provides advice in the context of a business relationship with the
directors or company
Types of directors
• Executive directors: full time employees of the company, and have significant management and
administrative duties delegated to them by the board.
• Non-executive directors: not involved in the daily management of the company's business, their
engagement with the company is not through a full-time employment contract
o Independent: if no affiliation with the management of the company's business, or other business or
personal relationship that could be seen as materially interfering with their independent judgement
• A person who acts as a director will be considered a de facto director even if not validly appointed
De facto Directors
Deputy Commissioner of Taxation v Austin (1998) 28 ASCR 565 :
o Austin resigned as a director, but continued to play an active role in the company, including
negotiating agreements with the Commissioner on behalf of the company and with the company's
creditors for more time to make payments
o These responsibilities are typically expected of a director, and Austin was therefore a de facto
director
o Madgwick J: factors relevant for determining whether a person was a de facto director
1. The size of the company: what may demonstrate as acting as director for a small may not apply
within a large company, vary depending on the internal practices
• May affect the discretion given to an employee to do certain things
2. How the person claimed to be a director is reasonably perceived by outsiders who deal with the
company
3. And Such a person must be exercising top-level management functions
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• Mistmorn Pty Ltd (in liq) v Yasseen: a person described as a consultant undertaking tasks typically
expected of a director was held to be de facto director
Shadow Directors
• A person in accordance with whose wishes or instructions the directors of the company are
accustomed to act, is a shadow director
o Like a puppet master
• Section 9: a person is not a shadow director merely because 'the directors act on the advice given by
the person in proper performance of functions attaching to the person's professional capacity, or the
person's business relationship with the directors or the company
• Re Akron Roads Pty Ltd (In liq)(NO 3): Crewe was engaged by Akron to provide Mr Crewe's
services as director and to provide advice on financial and management matters
o when Akron became insolvent and was placed into liquidation, the liquidator argued that Crewe
Sharpe was a director, due to their role invoicing Akron for Mr Crewe's work as a director of Akron,
and their provision of other employees of Crewe Sharp to give advice, provide financial and
administrative services to Akron
o Robson J found that although Mr Crewe was clearly a director , Crewe Sharp was not: ' an adviser
does not become a shadow director merely because the directors follow his or her advice, particular
when the adviser had been retained to give advice.
• Pursuant to s 201 B : a person must be at least 18 to be appointed as a director
o A company is not capable of formal appointment as a director under this section, but can be found as
a shadow minister
o A creditor can be a shadow director: Re Akron Roads
o A company as well: Buzzle
Buzzle Operations Pty Ltd v Apple Computer Australia [2010] NSWSC 233
o Apple and Mr Likidis, its finance director, were shadow directors of Buzzle.
o Buzzle was the product of the merger of six retailers of Apple products, which occurred under the
advice of Apple as to the structure of the merger, the financial accounting system to be used, the due
diligence reports required, the transfer of stock from the retailers to Buzzle, and future cash flow
o Whether Apple as a creditor was able to satisfy the definition of shadow director of Buzzle?
o White J:
• The directors of the company must be accustomed to act as directors of the company in accordance
with the person's instructions or wishes as to how they should so act
• A person/company is not within the definition of a shadow director merely because they impose
conditions on their commercial dealings with the company with which the directors feel obliged to
company
• Directors are free and expected to exercise their own judgement, and if in their own judgement, they
habitually comply with the third party's terms, it does not follow that the third party has given
instructions or expressed a wish as to how they should exercise their functions as directors
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• Need a causal connection between the putative shadow director giving the instructions or expressing
the wish and the directors acting on it
• Performing an act that the directors would have done in any event is not sufficient to satisfy the
requirement of acting 'in accordance' with the instruction, also need habitual compliance over a time
period
• 'a governing majority' of directors acting in that way is sufficient
• Apple was not regarded as a shadow minister
• There was no causal link, it drove a hard bargain, required the directors to do certain things, but still
have their own judgement
Definition of ‘Officer’- S 9
"officer " of a corporation means:
(a) a director or secretary of the corporation; or
(b) a person:
(i) who makes, or participates in making, decisions that affect the whole, or a
substantial part, of the business of the corporation; or
(ii) who has the capacity to affect significantly the corporation's financial
standing; or
(iii) in accordance with whose instructions or wishes the directors of the
corporation are accustomed to act (excluding advice given by the person in the proper performance
of functions attaching to the person's professional capacity or their business relationship with
the directors or the corporation); or
(c) a receiver, or receiver and manager, of the property of the corporation; or
(d) an administrator of the corporation; or
(e) an administrator of a deed of company arrangement executed by the corporation; or
(f) a liquidator of the corporation; or
(g) a trustee or other person administering a compromise or arrangement made between
the corporation and someone else.
• ASIC v Citigroup Global Markets Australia (NO 4):
o Jacobsen J in Federal Court considered whether a share trader employed by citigroup with a daily
trading limit of $10million could be considered an officer.
o Focusing on s 9 subs b(i) and (ii)
o JJ compared him to a loan officer of a large bank, who could 'in general terms, have the capacity to
affect the bank's standing if he or she lends recklessly, but the loans officer is an employee, not an
officer of the corporation.
o The court held ASIC had not proven that $10million was a significant figure in terms of the business
conducted by Citigroup and as such the trader did not satisfy the definition in b(ii)
• Morley v ASIC: general counsel considered senior manager
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Document Summary
Duty of care, skill & diligence s 180(1: this exists in common law via contract and tort, and in equity. At first instance: awa is an electronic company, awa was one of largest electronic company in the 20 century, importing and exporting electronics. It engaged in foreign exchange dealings, in 1996, the board adopted guidelines to manage the risk of foreign exchange. Unsupervised borrowing left the company exposed to a liability of m. He was able to conceal some of his activities. Cohort acted without any effective supervision by management. They carried two audits while cohort was there. Deloitte did not raise any of the defects to the board. Awa discovered a loss of m in foreign exchange. Deloitte did not qualify the defects in the relevant period: the board sued the auditors for negligence, to draw attention to the board, rogers j held the negligence was proven, but also contributory negligence from the company.
