Shadow Directors are Directors that exert influence and control on other Directors and the Company so that they are a real source of top-level management power. There are various ways to distinguish them from formally appointed Directors.
A Shadow Director, even though are not formally appointed, have the same duties and liabilities as other Directors.
Some of these include:
- Duty to prevent insolvent trading – Insolvent trading occurs when a company is not able to pay its debts as they are due. This duty relates to Directors that ought to have known, at the time that a debt was incurred that the company was insolvent, or going to be as a result of the debt.
- Duty to act in ‘good faith’ – Although vague, this encompasses the general belief that Directors should act with honesty, use their position for a proper purpose and to always act in the best interests of the company.
- Duty to avoid conflicts of interest – Directors must not act in a way that places their own interests above the company’s.
- Duty not to misuse information or position – Information gained as a result of a Directorial position must not be used to give the Director or anyone else an advantage, at the company’s expense.
- Duty to act with reasonable care and diligence – Directors must use a ‘reasonable’ degree of care and skill in their work. This will be compared to what an ordinary person in the same situation would do.
If you have further questions, please contact us at frank@franklaw.com.au
This is not legal advice.