BLAW20001 Final: Final Exam Corporate Law Framework
5 Jun 2018
School
Department
Course
Professor
DIRECTOR’S DUTIES
Preliminary Considerations
1) Is X a director?
• To be burdened with Directors Duties under 180-183 or [588G], X must be a shadow director under S9. A Director includes those that
are (1) Validly appointed, (2) An alternative D (S201K), (3) a defacto director, (4) or a shadow D.
Section 9: director of a company or other body means:
(a) a person who:
(i) is appointed to the position of a director: or
(ii) is appointed to the position of an alternate director and is acting in that capacity regardless of the name that is given to their position;
and
b) unless the contrary intention appears, a person who is not validly appointed as a director if:
(i) they act in the position of a director; or
(ii) the directors of the company or body are accustomed to act in accordance with the person’s instructions or wishes.
Subparagraph (b)(ii) does not apply merely because the directors act on advice given by the person in the proper performance of functions attaching to
the person’s professional capacity, or the person’s business relationship with the directors or the company or body.
• (a) IS X A NORMAL DIRECTOR? Has X been validly appointed? S9
o Prop company must have at least 1 Director (reside in AUS) → 201A(1)
o Public: 3 Directors (2 reside in aus) → 201A(2)
o It is assumed that X has been valid appointed if:
▪ Must be over the age of 18 (201B(1)), Must be an individual (corporation cannot be a D 201B)
▪ Cannot have been disqualified by ASIC (201B(2))
▪ You must have consent, RR201G allows for Co in general meeting to appoint a person as a D by ordinary resolution.
▪ RR in 201H also enables directors to appoint additional directors – but an appointment must be confirmed later at a
GM or the person stops being a D (if co is proprietary, this must happen in 2mths, if it is a public co, it must happen at
the next AGM.)
• (b) Is X A DE FACTO DIRECTOR? S9
o This is a person who- is exercising top level management functions
o A DFD is a person who is not validly appointed by who acts in the position of a D s 9. The Key is acting like a D would in the
circumstances. The court will look at the particular circumstances of the company involved, and X’s position in the company
(Austin)
o Situations:
o (1) Where D is given a another title like ‘consultant” or ‘manager’
▪ They can be a D even if they say they are just a ‘consultant’, but act as D Yasseen or where they represent themselves to
3rd parties as a D and sign docs as D Forkseve
▪ Given title to avoid the person being called as D + usurper of the functions of a director in a company who has not been
appointed to any position. (Chameleon mining)
o (2) Where D is appointed as D but the appointment is invalid
o (3) Where D resigned but continues to perform the role (Williams)
▪ In Austin, the individual resigned as D but continued negotiating contracts with creditors – making high level
management decisions.**
▪ Can be a DFD even where he has purported to resign but continues acting as one (Williams)
o FACTORS TO CONSIDER in determining DFD from Austin (Madjwick J):
▪ (1) Did they exercise ‘top management functions’?
▪ (2) Consider the size and nature of the company (larger the company more likely responsibility will be given to
employees)
▪ (3) Internal practices/structure of the company – does the company classify a certain role as that of an
expert/consultant?
▪ (4) How is the person REASONABLY PERCEIVED BY OUTSIDERs dealing with the company?
• [Austin] purported to resign as a director, but continued to perform ‘top level of management functions’
over an extended period. Because of the length of the time that he acted in this capacity, the court rejected
the argument that Mr Austin had only acted in circumstances of emergency or as a friend of those legally
bound to run the company and was a DFD
o Is D exercising top level management functions? (*If functions similar to these cases – state that obviously de facto director and move on – but
remember to link to particular type of company i.e. size and nature of business):
o Austin (Company in question was a small $2 company incorporated to incur debts for the supply of goods and services for wife’s restaurant and
wages of employees)
▪ Negotiating agreements with Tax Office on behalf of company
▪ Negotiating time to pay with creditors
▪ Countersigned company cheques in favour of the Tax Office
▪ Issued stop notices to the company’s bank
▪ In such a small company it was likely that Mr Austin was exercising top management functions
o Chameleon Mining (mining company)
▪ Being authorised by board to negotiate on company’s behalf to acquire mining interests
▪ Deciding the content of prospectus prior to capital raising
▪ Deciding who would be issued shares & number of shares allotted
▪ Making high level management decisions affecting company’s financial standing*
▪ Being perceived by outsiders as a director *
• (c) IS X A SHADOW DIRECTOR?
o “A person”
▪ It is possible for one person to be both a shadow director and a defacto director (buzzle)
▪ Companies can be shadow directors; cf s 9; Antico
▪ Control can be used through the shares of a holding company in a subsidiary – see Antico below.
o Start – a person may be a shadow director and if they satisfy the criteria of s 9(b)(ii) if the directors of the company/body are
accustomed to act in accordance with that person’s instructions/wishes (Shadow director).]. To determine wether X is a SD, the
key inquiry is whether X has the potential to control, and in practice does control the company (Buzzle) it is sufficient if a
GOVERNING MAJORITY (> 50% of the board) of the D’s act in accordance (Buzzle).
▪ *If no governing majority, is the situation like Antico? Where Pioneer (holding co) held 42% shares in GR + only 3 D’s out
of 11, BUT because the other shareholdings were small and dispersed (10%,6%,6%,3%), P was allowed to have effective
control over G and imposed financial reporting requirements consistent with its own (Antico)
o There must be a causal connection between the instructions of the purported D and the D’s who are acting on that instruction
(Buzzle) something more than being in a position of control must be shown- whole fact of the case must be considered (Buzzle).
Further, there must be a sustained pattern of behaviour [it is insufficient to show just once instance of it]. X must exercise
influence in relation to director-like activities, and influence does not have to extend to all areas of the company (Buzzle) can be
confined to finance.
o Furthermore Accustomed” Accustomed requires habitual compliance over time and it is sufficient if a “governing majority” of the
board is so accustomed to act (Buzzle). Additionally Deverell stated that will be sufficient if it can be shown that the directors
‘surrendered their discretions. Thus Ask → ‘Was their will still independent? (Bluecorp) Thus, Did the Ds perform positive acts and
not simply stand by and let the other person supersede them (did they have independent will)?
o Exception → X is not a SD if all that can be shown is X’s advice is being followed because he is advising them in his professional
capacity.
o EXCEPTIONS were a person will not be a SD? (pg216)
▪ (1) But not every person who simply gives advice, which is heeded, will be a SD (Buzzle) A person is not a shadow
director merely because they impose conditions on their commercial dealings with the company with which the
directors feel obliged to comply (Buzzle)
▪ (2) Defence - a person will not be a SD merely because the D’s relied on advice given by the person in proper
performance of his/her functions in professional capacity
▪ (3) Being accustomed to act within the instructions/wishes isn’t established if the Ds are simply following conditions
on a commercial dealing Buzzle
▪ (4) Where the company is merely acting on advice given by a person in proper performance of person’s functions
attaching to a person professional capacity or business relation of a company s9
• [Buzzle] if you give advice in a professional capacity on you are not accountable. Apple was just acting in its own interests
Neither of the defendants was a shadow director as they were only acting to protect their commercial interests and Buzzle’s
directors had a genuine choice as to whether they would follow Apple’s wishes or instructions.
• There was no pattern of simply following the instructions that would demonstrate that the defendants were shadow
directors of the co + There must be some causal connection– this was not established here as the board had already decided
on the course of conduct it wished to pursue.
• The defendants had not had any direct contact with the majority of the board, but rather dealt with the co’s executives –
influence over at least the majority of the board was required.
• [Bluecorp] MacKenzie J Facts: board of L allegedly acted in accordance with directions/instructions of persons associated
with Qintex. Judge finds not so, this is because the directors of L performed positive acts, and did not simply stand aside to
let another supersede them, and their will was still independent
o FACTORS for HOLDING COMPANY (ANTICO) (Refer to pg 127)
▪ Standard Chartered Bank v Antico – Pioneer held 42% ownership and 3 nominee Ds. Factors important –
▪ (1) Effective control due to shareholding
▪ (2) Imposition of financial reporting reqs ‘Pioneer imposed on Giant requirements for financial reporting consistent with
the financial reporting required for the Pioneer group.
▪ (3) Decisions effectively made by Pioneer for 3 major acquisitions
▪ (4) Decisions about funding/security made by Pioneer
• Effective decisions by Pioneer re three major strategic acquisitions → On the three major strategic questions
concerning Giant were taken by Pioneer, and simply accepted by Giant.
▪ (5) Giant showed ‘a willingness and ability to exercise control, and an actuality of control, over the management and
financial affairs of giant’
▪ (6) Directors of G simply accepted P’s decisions
• (D) IS X AN OFFICER?
o In determining if a person is an officer, the inquiry is directed to the role the person plays in the corporation and it its not confined
to the role they played in relation to the particular issue in respect of which it is alleged there is a breach of dry but the person’s
action in this respect may demonstrate that
o WERE/ARE THEY A PERSON →
o (A) s 9(b)(i) → WHO PARTICIPATED IN MAKING DECISIONS That Affected All/Substantial Part Of The Business Of The
Corporation? see Shaffron (pg 129)
▪ In determining whether X is an officer (s 9(b)(i)), the key question is whether X has factually participated in the decision
making of the business (Shafron). This is done by looking at X’s specific role within the company. The assessment is not
confined to the facts that constitute the PARTICULAR breach (Shafron) [can look more broadly at what they do in
general]. Active participation by X, by playing a proactive/significant/substantial role in the making of the decision is
enough (Shafron) [is somewhere between the ‘joint decision maker’ and ‘real contribution’, with the latter being
insufficient].
• [In Shafron] Co’s secretary found to be officer. Was not just giving advice, but played big role in decision-
making. Their participation must have had significance/ Substantial role in decision. Here, the def was an
‘officer’ because he was 1 of 3 execs responsible for formulation the separation proposal.
• [In Adler]** he was on BoD of the parent, member of the Investment Committee of the parent which was
responsible for investment decisions of the whole group including the subsidiary, and he played an active part
in decisions at Board level and investment committee.
• [Buzzle]This limb failed in Buzzle because the Apple didn’t make decisions that affected a substantial part of
the business (White J)
o (B) Or s 9(b)(ii) –Who Has The Capacity To Effect Significantly The Corporation’s Financial Standing?
▪ In order to determine whether X is an officer for the purposes of s 9(b)(ii), X must have the capacity to significantly affect
the financial standing of the corporation, and also be involved in the management of the company.
