This case serves as a reminder for senior employees to be mindful, when performing their duties, of the fine line that often exists between a person acting as an employee and as a de-facto director under section 9(b)(i) of the Corporations Act 2001 (Cth) (Act).
ACN 092 745 330 Pty Ltd (Company) and its liquidator sued an employee (Mr Battaglia), his wife and their family company in connection with payments made to them by the Company (Payments).
The Company alleged that Mr Battaglia was a director of the Company (even though he had not been formally appointed until after the Payments were made) or an officer of the Company at the relevant time and had breached directors’ duties owed to the Company in directing, authorising or otherwise causing the Payments to be made.
Evidence brought by the Company and its liquidator in support of the contention that Mr Battaglia performed tasks that would typically be performed by a director included Mr Battaglia's LinkedIn profile (which described him as "founder and Director"), emails and letters sent by Mr Battaglia in which the words "Managing Director" appeared after his name and contracts signed by Mr Battaglia above a line for a director's signature.
However, Barrett J in the Supreme Court of New South Wales held that the evidence was insufficient to conclude that Mr Battaglia was a de-facto director within paragraph (b)(i) of section 9 of the Act at any time before his official appointment, and his activities and responsibilities did not extend beyond those of a senior manager. The following factors were relevant in Barrett J’s finding:
- the LinkedIn profile was printed after the relevant time period and in any case was prepared by “marketing people” and not approved by Mr Battaglia;
- in relation to several of the documents purportedly signed by him as director or managing director, Mr Battaglia may well have done so through carelessness or a misapprehension as to which company was involved (he was a director of other group companies);
- Mr Battaglia appeared to operate under the superior authority of the two appointed directors of the Company;
- Mr Battaglia’s access to the company's finances was through the intermediation of an accountant for the Company;
- there was no holding out of Mr Battaglia as director by either himself or the Company; and
- there was nothing to suggest that anyone believed him to occupy the position that the Act classifies as director.
Barrett J did however find that Mr Battaglia was an officer under section 9 of the Act on the basis of evidence which showed that he was, at all material times, a person who at least participated in making decisions affecting a substantial part of the business of the Company, including:
- arranging the contracting for construction projects and retaining subcontractors; and
- email statements by Mr Battaglia that he had always managed the affairs of the Company and would continue to do so.
Mr Battaglia was also found to owe fiduciary duties to the Company by virtue of his senior position in the Company.
However, Barrett J ultimately found that Mr Battaglia did not breach any statutory or fiduciary duties on the basis that there was no evidence that that he in fact “directed, authorised or otherwise caused” the Payments to be made.