Australia: When is a director not a director? — primacy of the company constitution

Addisons Insolvency Update
Last Updated: 14 June 2012
Article by Anthony Addison and Anthony Addison
  • Directors must be appointed in strict accordance with the company constitution — reliance on saving provisions of Corporations Act not a safe bet
  • One who acts as a director, and whom everyone fully believes to be a director, is not necessarily a director
  • Executive escapes personal liability for breach of OHS responsibilities by good luck rather than company's good management

The decision of the Full Bench of the Industrial Court of New South Wales in Inspector James v Ryan (No 3) [2010] NSWIRComm 127 (the Ryan case) reminds us of the need to comply with the requirements of a company's constitution in the appointment of a director.

In this case the court held that Justin Ryan was not a director at the relevant time as he was not appointed a director in accordance with the requirements of the relevant company's constitution, which required that a director be appointed by a written notice from the holding company to the company. In coming to this conclusion, the Full Bench unanimously af? rmed the decision of Marks J in Inspector James v Ryan [2009] NSWIRComm 215.

This was good news for Mr Ryan. Because he was not a director at the relevant time, he could not be held to be liable for breaches of the Occupational Health and Safety Act 2000 (NSW) (OHS Act) arising from the death of an employee at the factory of the relevant company, Dekorform Pty Ltd (Dekorform).

Both Marks J and the three judges of the Full Bench came to this conclusion notwithstanding other evidence that Mr Ryan had acted as a director of Dekorform.

This article looks at the primacy of the constitution, examines the Ryan case and discusses whether the failure to appoint Mr Ryan as a director was an irregularity that would be validated as a procedural irregularity under s 1322(2), or otherwise able to obtain the bene? t of an order from the court under s 1322(4), of the Corporations Act 2001 (Corporations Act).

Primacy of a company's constitution

A company's constitution is a statutory contract between:

  1. the company and each member
  2. the company and each director and the company secretary and
  3. a member and each other member.2

Unlike an ordinary contract between consenting parties, a company's constitution cannot be rescinded or recti? ed 3 by the members and can only be amended in accordance with the requirements of the Corporations Act. 4 In addition, a company's constitution cannot be overridden by another agreement between shareholders. 5

Failure to follow the strict requirements of a company's constitution can sometimes lead to invalidity. Some examples are:

  1. lack of a quorum as required by a company's constitution may result in the meeting being invalid6
  2. a meeting convened without the required notice under the company's constitution may lead to the meeting being invalid7
  3. failure to follow the procedure for nomination of candidates for election of directors as set out in a company's constitution may lead to the nomination being invalid8 and
  4. failure to have a chairman of a meeting as required by the company's constitution may mean the meeting is invalid.9

There are provisions in the Corporations Act which will automatically validate, without a validating order, a proceeding that is not strictly in compliance with the requirements of a company's constitution provided that that proceeding can be characterised as a procedural irregularity and the court is not of the opinion that the irregularity has caused or may cause substantial injustice that cannot be remedied by any order of the court.10

In addition, under s 1322(4) of the Corporations Act, a court is given wide discretion to make validating orders in respect of irregularities generally, not just procedural irregularities. I will return to s 1322(4) after a consideration of the Ryan case.

The Ryan case

The Ryan case concerned two charges made under the OHS Act against Justin Ryan, as a director of Dekorform, after an employee of Dekorform was fatally injured on 3 July 2006 in the course of employment. In determining whether Ryan was liable, one of the key issues was whether Ryan was in fact a director of Dekorform.

Relevantly, clause 3.2 of Dekorform's constitution provided that 'The Holding Company [Alesco Corporation Limited (Alesco)] may by notice to [Dekorform] appoint a person to be a director ...' [emphasis added].

Clause 13.6 further provided that: [Alesco] may exercise a power by ... notice in writing:

  1. executed by [Alesco]; or
  2. executed on behalf of [Alesco] by a director, secretary or executive of? cer of [Alesco], and delivered to or sent by facsimile or other electronic means to [Dekorform].[emphasis added]

Moreover, the replaceable rules were expressed displaced and inapplicable to Dekorform by clause 13.5 of its constitution.

On a strict interpretation and application of the above provisions, Marks J found, and the Full Bench agreed, that:

  1. Alesco had failed to deliver notice of Mr Ryan's appointment to Dekorform and
  2. Alesco had not in fact appointed Mr Ryan as a director of Dekorform by any valid means,

and thus, Mr Ryan was not a director of Dekorform and therefore not personally liable for the company's offences against the OHS Act.

In coming to this conclusion, the structure and wording of Dekorform's constitution was of importance. In particular, the Full Bench noted:

  1. that clause 13.5 placed a blanket exclusion against the replaceable rules and thus precluded the appointment of a director by ordinary resolution of Dekorform's members or directors11 and
  2. therefore, the giving of notice (as de? ned by clause 13.6) under clause 3.2 of Dekorform's constitution was 'the only means under Dekorform's constitution by which [a director's] appointment could be made.'

The Full Bench came to this conclusion notwithstanding that Mr Ryan and all relevant persons believed, albeit mistakenly, that he had been appointed as a director of Dekorform, consistent with the documents ? led with the Australian Securities and Investments Commission (ASIC).

The Full Bench concluded, supporting the ? nding of Marks J, that other factual matters pointing to a recognition of Mr Ryan's directorship were trivial, including that:

  1. Alesco's intention to appoint Ryan as a Dekorform director was known to the common company secretary of both Alesco and Dekorform
  2. the appointment was common 'corporate knowledge' in the sense that the executives of the Alesco group, including other Dekorform directors, had acted on a presumption of Mr Ryan's directorship
  3. Mr Ryan had signed a consent to act as a director of Dekorform
  4. Mr Ryan had signed documents on behalf of Dekorform as a director, including a power of attorney, deed of cross guarantee and a circular resolution of directors appointing another person to be a director
  5. Mr Ryan was widely held out by Dekorform to the community (by way of noti? cation to ASIC) as a director of the company and
  6. Alesco had developed a practice of appointing the directors of its subsidiaries by way of circulating resolution without further notice to the relevant company. The court emphasised that:
  7. it cannot be right that a practice relating to the important function of appointing directors developed inconsistently with the company's constitution could supplant the requirements of the constitution.

Therefore, the speci? c way in which Dekorform's constitution was framed and open to be construed was determinative to the court's ? nding that Mr Ryan was not formally a director of Dekorform, despite widely held beliefs to the contrary.12

In coming to its conclusion, the Full Bench rejected several arguments put on behalf of the NSW WorkCover Authority.

  • There is a presumption that ASIC records, which showed Mr Ryan as a director of Dekorform, are prima facie evidence of that fact. This presumption, the Full Bench said, is capable of rebuttal by showing that no appointment was made in accordance with the company's constitution.
  • The requirement for notice from the holding company to its subsidiary of the appointment of a director does not have to be in writing but could be an oral notice. This argument was rejected as it did not give effect to clause 13.6 of the constitution and in any event there was no actual evidence of any notice oral or otherwise.
  • The principle of 'unanimous consent', which permits the validation by unanimous conduct of shareholders of an otherwise invalid or voidable appointment, should apply. The court said that the inherent power of Dekorform's shareholder to appoint directors by ordinary resolution in general meeting had been displaced by the strict words of the Dekorform constitution.
  • Clause 3.2 of the constitution was merely a procedural provision so that any failure to observe that provision did not nullify the appointment. Af? rming the view of the trial judge who quoted Williams J in Grant v John Grant & Sons Pty Ltd(1950) 82 CLR 1 (Grant's case), the Full Bench said:
  • That cl 3.2 is a substantive provision in the same way as article 86 was in Grant, is undoubtedly the case. The appointment of a director is a fundamental exercise of power within the corporation or, in this case, by the Holding Company. Dekorform was required to be given notice in writing of that appointment. It is the only means under Dekorform's constitution by which such an appointment could be made.

If he's not a director, what next?

The good news for Mr Ryan was that the prosecution was not able to prove beyond reasonable doubt that he was a director of Dekorform so he could not be found liable to a criminal offence under the OHS Act.

But what about Mr Ryan's acts in purported exercise of his functions as a director? He had signed documents and in certain cases acted as a director on behalf of Dekorform. Are these acts valid or invalid and can a counterparty assume they are valid? For example, can a counterparty to a deed with Dekorform signed by Mr Ryan as a director assume that it has been validly signed, sealed and delivered by Dekorform?

In these circumstances, you might see Dekorform apply to the courts for an order under s 1322 that either Mr Ryan's appointment was valid or that certain acts done on behalf of the company were valid.

As stated, s 1322(2) deals with procedural irregularity and provides:

A proceeding under this Act is not invalidated because of any procedural irregularity unless the Court is of the opinion that the irregularity has caused or may cause substantial injustice that cannot be remedied by any order of the Court and by order declares the proceeding to be invalid.

It is clear from the Ryan case that in the appointment of Mr Ryan, there was no proceeding to make regular as no notice of his appointment had in fact been given. In the words of Williams J in Grant's case, there was no 'slip in the appointment of a director'.13

Given that s 1322(2) provides no relief, can s 1322(4) then assist in making things that might be invalid, valid again?

Section 1322 of the Corporations Act enables a court to declare:

that any act, matter or thing purporting to have been done ... under the Act or in relation to a corporation is not invalid by reason of any contravention of a provision of this Act or a provision of the constitution of a corporation,

provided that the contravention is essentially procedural; or that the person concerned acted honestly; or that it is just and equitable that an order be made, and provided that no substantial injustice has been or is likely to be caused.

In Cordiant Communication, Palmer J said:

I think that the following general proposition may be formulated for the purposes of the application of CA s 1322:

  • what is a "procedural irregularity" will be ascertained by ? rst determining what is "the thing to be done" which the procedure is to regulate;
  • if there is an irregularity which changes the substance of "the thing to be done", the irregularity will be substantive;
  • if the irregularity merely departs from the prescribed manner in which the thing is to be done without changing the substance of the thing, the irregularity is procedural.

Section 1322(4) has been used to regulate a wide variety of substantial errors or irregularities, including:

  1. validating the issue of shares or options that would be otherwise invalid14
  2. extending limitation periods15
  3. extending the time for holding a meeting of members16 and
  4. con? rming that a person is a director.17

Similarly, there are a number of things that Dekorform and its holding company could request the court to do under s 1322(4). They could ask the court to:

  1. validate Mr Ryan's attempted appointment as a director from, say, the date that the appointment was noti? ed to the ASIC, which was before the accident and
  2. validate any contract that was incorrectly signed by Mr Ryan in the belief that he was a director of Dekorform.

It is very unlikely that Dekorform or Mr Ryan would seek recti? cation of his appointment under s 1322(4) at any time in the past. It would be more likely, if Mr Ryan was inclined, for him to consent to the holding company writing to Dekorform appointing him a director from a given point in the future.

Assuming hypothetically however that Mr Ryan would consent to validation of his appointment in the past, could the court do it under s 1322(4)?

It is unlikely, on a strict reading of the section, that the court would be able to do so. Although most of the elements for a favourable order are present, the one element that is not present is the act, or purported act, of appointment of Mr Ryan as a director. The Full Bench held that there was no evidence, written or oral, of Mr Ryan's actual appointment. The best there is from the facts of the Ryan case is a general understanding that Mr Ryan was a director.

Given that there is no act or purported act to validate, s 1322(4) is of no help in seeking to have Mr Ryan appointed as a director at a point in time in the past, if he was mindful to consent to such an action.

The good news for Mr Ryan was that the prosecution was not able to prove beyond reasonable doubt that he was a director of Dekorform so he could not be found liable to a criminal offence under the OHS Act.

But what about Mr Ryan's acts in purported exercise of his functions as a director?

In relation to validating any acts which Mr Ryan did in the mistaken belief that he was a director, a court will look at the situation on a case-by-case basis and is likely to refer any applicant to s 129, which sets out certain assumptions that a person dealing with a company can make, including that:

  1. a person who appears, from information provided by the company that is available from the ASIC, to be a director is in fact a director and has the authority to exercise the powers and perform the duties customarily exercised or performed by a director of a similar company and
  2. a document has been duly executed by a company if the document has been signed in accordance with the requirements of the Corporations Act.

Given these assumptions, a third party would be able to assume that any agreement signed by Mr Ryan, purporting to be a director of Dekorform, was validly executed and enforceable against the company.

However, conversely, if Dekorform is the one seeking to validate the agreement signed by Mr Ryan, a counterparty to such an agreement wishing to get out of the agreement may argue that it was not validly signed on behalf of Dekorform and Dekorform would not be protected from its own invalid execution of the agreement.

In such circumstances, a court may invoke s 1322(4) and say that the purported execution of the agreement by Mr Ryan in breach of s 127(1)

(Execution without a seal) is not invalid provided Mr Ryan acted honestly. A court can only reach this conclusion if it is satis? ed that no injustice has been or is likely to be caused to any person. This will be something for Dekorform to address in its application to the court. Dekorform would argue that both parties entered the agreement expecting it to be valid and that validating Dekorform's execution would con? rm that expectation. This may be a dif? cult assignment where the counterparty to the agreement is trying to get out of it. How a court would rule in any given situation will depend upon the facts in the case before the court.


There is only one conclusion from the Ryan case: know your constitution and comply with its terms. Having said this, recognise that Mr Ryan would have been very relieved that he was found not to be a director of Dekorform on 3 July 2006.


1 The author would like to acknowledge Belle Jing, Solicitor, Addisons, for her assistance in preparing this article
2 s 140(1) Corporations Act
3 Scott v Frank F Scott (London) Ltd [1940] Ch 794, Santos Ltd v Pettingell (1979) 4 ACLR 110 and NRMA Ltd v Parkin (2004) 49 ACSR 485
4 s 136(2) Corporations Act
5 Cordiant Communication (Australia) Pty Ltd v Communications Group Holdings Pty Ltd (2005) 55 ACSR 185 at para [131] (Cordiant Communication). See also Duffy MJ, 2008, 'Shareholders Agreements and Shareholders' Remedies Contract versus Statute?' Bond Law Review, Vol 20 No 2, pp 1–27
6 Re Chinese Cultural Club Ltd (2004) 49 ACSR 568
7 Myer Queenstown Garden Plaza Pty Ltd v Port Adelaide City Corporation (1975) 11 SASR 504
8 NRMA Ltd v Gould (1995) 18 ACSR 290
9 Colorado Constructions Pty Ltd v Platus [1966] 2 NSWR 598
10 s 1322(2) Corporations Act
11 s 135 Corporations Act
12 The Full Bench in the Ryan case also concluded that Mr Ryan was not a de facto or shadow director
13 Grant's case at pp 33–34 (Williams J)
14 Re Golden Gate Petroleum Ltd (2004) 50 ACSR 659; Re Elemental Minerals Pty Ltd (2010) 79 ACSR 277
15 Super John Pty Ltd v Futuris Pty Ltd (1999) 32 ACSR 398
16 NRMA Insurance Group Ltd v Spragg (2001) 38 ACSR 174
17 Gangemi v Osbourne [2009] VSCA 297

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.