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)
 FCAFC 6, with the Full Federal Court finding an external
company consultant to be a director and liable for Corporations
Act 2001(Cth) contraventions.
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.
The Court found Mr Grimaldi was a section 9 director, finding
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
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."
A third party may be a director even though not formally
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 formally appointed may be able to seek contribution
from a defacto director in claims brought against the duly
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 Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
An Australian government inquiry report published earlier this year recommended review of the Australian Franchising Code "… with a view to assessing the respective responsibilities of franchisors and franchisees...
Traditionally, Australian courts have held that shareholders alleging corporate contraventions of prohibitions on misleading conduct must demonstrate that they were aware of, and directly relied on, the corporate misconduct.
A Fixed Price Legal Risk Audit Review and Report on compliance and risk exposure from this legal change is available.
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”
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).