Company directors that are found to be in breach of their directors duties
can be liable for significant pecuniary penalties or even imprisonment.
Under the Corporations Act (2001) a director is defined as someone who makes decisions that affect a substantial part of the corporation’s business or has the capacity to significantly affect it’s financial standing. A person who has not actually been formally appointed as a director may nonetheless be considered a director either as a de facto director or a shadow director.
A de facto director is a person who has not been appointed as a director but who is acting as the director of a company. By engaging or participating in the decision-making processes as part of the governing structure of the company, a person may be deemed to be a de facto director. According to Corporate Affairs Commission v Drysdale a de facto director is bound by all the ordinary directors’ duties as if they were formally appointed to the position.
A shadow director is a third party who attends board meetings and imposes requirements on a company which must be followed as a pre-condition to giving permission for a transfer of contractual rights. This was illustrated in Buzzle Operations Pty Ltd (in Liq) v Apple Computer Australia Pty Ltd, where Apple’s control over the board’s decision making was considered significant enough to deem its representative a shadow director.
As a company director, a person will be responsible for the proper management of the company in accordance with the directors duties and obligations. The decision to become a company director should not be taken lightly, as it carries significant risks. A company director can in certain circumstances become personally liable for debts caused by the poor management of the company.