When hearing the term 'shadow director' an image of a figure in a dark corner of a boardroom comes to mind but for business, they are a potential role which needs to be understood.
A shadow director is a person who is not an appointed director, but actively influences directors of a company.
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”.
The duties of a shadow director are the same as those of a director, which include:
- Care and diligence
- Acting in good faith
- Not to improperly use position or information for personal gain
- Not trading whilst the company is insolvent
- Maintaining the books and records of the company
Examples of activities which may indicate someone to be a shadow director are:
- Authorising payments
- Managing the day to day business activities
- Arranging lending or borrowing for the company
- Actively contributing to board meetings
Exceptions to these include business professionals whose roles are to typically provide those services like accountants, lawyers and/or consultants.
Generally, these duties only arise where there are legal proceedings, including during a liquidation process. However, it is worthwhile keeping this in mind as they will be considered to have the same responsibilities and liabilities as any of the appointed directors.
Should you think you may be at risk at having a shadow director within your organisation you will need to ensure that they are adhering to all the terms contained in the company’s constitution as well as the rules in the Corporations Act.
The team at Cutcher & Neale are here to help, please get in touch if you would like further assistance.
