It is well recognised that "directors" under the Corporations Act can include persons not formally appointed given the definition in section 9 of that Act.

Further guidance on when such persons may be directors has now been provided in Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6, with the Full Federal Court finding an external company consultant to be a director and liable for Corporations Act 2001(Cth) contraventions.

Facts

Chameleon was a start-up mining explorer with limited funds when it engaged a company associated with Mr Grimaldi as consultant. Mr Grimaldi was integrally involved in the heart of company management. The Court found the Board had acquiesced to his actions in acquiring property for the company, preparing a prospectus and raising capital, organising and communicating director resolutions to third parties, directing the placement and proportion of shares, drafting an ASX announcement and procuring its lodgement with the ASX and banking the placement proceeds.

Court Finding

The Court found Mr Grimaldi was a section 9 director, finding that:

  • There is no single test to determine when a person is a de facto director. It is a question of substance.
  • A person can perform the role of a director for a limited time or for a limited purpose.
  • The perception of third parties is significant evidence and is not confined to the extent to which the company held the person out as being a director.
  • If a person satisfies the requirements of section 9(b)(i) or (ii) it is not necessary to distinguish between "director" or "officer" for the purposes of a breach of duty of s.180 and related sections.
  • Formal engagement as a consultant, (i.e. the capacity in which they act) does not preclude a person from being a director or officer.

The Court also found that:

"The requirement under s9b(i) that a person makes, or participates in making, decisions that affect the whole, or a substantial part, of the business of the corporation, does not mean that the person does so as being "in ultimate control" or that the decision-maker is not subject to the direction and control of the board. Likewise, the sub-paragraph (b)(ii) requirement that a person has the capacity to affect significantly the corporation's financial standing refers to the character properly to be attributed to that person's capacity in the circumstances. It may arise from the extent of that person's participation in investment decisions, from the dimensions of a decision, or from the nature of that person's participation in the control and direction of the affairs of the corporation. The question is one of fact."

Implications

  • A third party may be a director even though not formally appointed.
  • Individuals not formally appointed may incur significant liability for breach of duty, and in liquidation for unreasonable director-related transactions and/or insolvent trading. This extends claims against de-facto directors.
  • Director and officers' insurance policies may be prejudiced due to non-disclosure of the existence of particular directors.
  • Directors formally appointed may be able to seek contribution from a defacto director in claims brought against the duly appointed directors.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.