Uncovering Shadow Directors - What are they and how do you spot them?

Company Directors can include those that are formally appointed, as well as those that aren’t. While ‘De-facto Directors’ carry themselves off as appointed Directors, Shadow Directors influence other Directors (whether formally appointed or not), so that they become accustomed to act in accordance with the Shadow Director’s instructions or wishes.

 Shadow Directors don’t have to influence every single decision and other Directors may use their own judgement disagreeing with what the Shadow Director has advised. However, the Shadow Director has to be a real source of top-level management power.

Courts will look at what a Director in a very similar company would have done with regard to the situation on hand. The context of the action will also be considered by a court to examine in matters of great importance, the discretion and extent of power the Director was privy to. In smaller firms a Shadow Director may have even acted as or on behalf of that firm. Additionally, the court will ask if people outside the company have reasonably perceived the person or entity to be acting as a Director.

If you have further questions, please contact frank@franklaw.com.au

This is not legal advice.