Mr Featherstone was recorded as director of Ashala Pty
Ltd (Ashala) from 10 March 2004 to 7 October 2005 and from 28
November 2005 to 12 December 2005. Ashala occupied premises which
Mr Featherstone owned as trustee for his family trust.
On 7 October 2005, Mr Featherstone agreed to transfer his shares
in Ashala and two other related companies to Ms Kristy Marks and
for Ms Marks to become the sole director of the three companies.
This agreement was recorded in an "agreement letter" and
ASIC was notified accordingly.
Around 20 months later, Mr Featherstone was "employed"
by Ashala as training and events coordinator. The "employment
letter" stated that Mr Featherstone had "no
responsibility or rights or powers as a director...", and
"[he would not] be involved in any decisions that
substantially affect the operation of Ashala." The letter did,
however, acknowledge that Ms Marks might at times seek Mr
In the period between 30 June 2008 and 9 September 2010, Ashala
incurred debts totalling approximately $200,000 (mostly tax debts).
Mr Featherstone was not formally recorded as a director of Ashala
during this period.
The respondent, Hambleton, was appointed as administrator of
Ashala on 9 September 2010 and as liquidator of Ashala on 14
October 2010. Hambleton commenced proceedings against Mr
Featherstone in the District Court seeking orders that Mr
Featherstone pay the sum of approximately $200,000 under the
insolvent trading provisions of the Corporations Act 2001
(Cth) (ss.558G and M) in respect of the debts referred to
The trial judge found that Mr Featherstone was a shadow / de
facto director at the time the debts were incurred and ordered him
to pay $208,770.33. The trial judge found that the agreement letter
and employment letter "were nothing more than attempts to
create self serving evidence in the event (which has turned into
fact) [Mr Featherstone] was sued". Mr Featherstone appealed
the trial judge's decision.
In dismissing Mr Featherstone's appeal, the Court upheld the
trial judge's decision that Mr Featherstone was a shadow / de
facto director of Ashala and that there were reasonable grounds for
suspecting that Ashala was insolvent at the time the debts were
incurred. In reaching its decision, the Court was influenced by the
a witness had given evidence (which was corroborated by other
evidence) that Mr Featherstone was the one who "pulled the
strings in respect of the operation of Ashala..." and that
nothing was done at the premises where Ashala carried on
business... "unless [Mr Featherstone] 'okay'd'
during an examination of Mr Featherstone under the
Corporations Act, he agreed he was involved in decisions
relating to Ashala, that he was at Ashala's premises each day
when he was in Brisbane (which was most of the year) and that he
continued to run the day-to-day affairs of "everything that
was happening" after he had resigned as a director;
during the examination, Mr Featherstone asserted that, although
he had transferred the shares in the three companies to Ms Marks,
she held the shares on trust for him. Further, with respect to one
of the companies (not Ashala), Mr Featherstone considered Ms Marks
to be subject to his direction – in the Court's opinion,
there was nothing to suggest that Mr Featherstone held a different
view in respect of Ashala;
the evidence indicated that it was Mr Featherstone's
decision for a person by the name of Mr Marshall to become involved
in Ashala and another of the companies. Mr Marshall become a
director of those companies; and
the evidence demonstrated Mr Featherstone's level of
control in relation to one of the other companies (not Ashala).
Specifically, he had vetoed Mr Marshall, who had become the sole
director of the company, from becoming the sole signatory on the
company's bank account.
The decision in this case confirms that the Court will take a
substance over form approach in determining whether someone is a
shadow / de facto director. The Court will look behind written
agreements and ASIC records to uncover the true position as to
whether or not a person is acting as a director. The Court will
look at the conduct of the person in question, whether the person
is performing the functions expected to be performed by a director
and whether the person has sufficient influence to control the acts
of the other directors of the company.
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.
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