This case involves an interesting discussion of the types of circumstances that may mean that a person is acting in the position of a director within the meaning of section 9 of the Corporations Act 2001 (Cth), despite not having been formally appointed.  An investor who, in protecting their investment, effectively becomes entrenched in the management of a company should be mindful that they may find themselves acting as a de-facto director and assuming all the risks and liabilities that go with a formal appointment.

In this case, McMurdo J found that Mr Rodrick had acted ‘in the position of a director’ of International Cat Manufacturing Pty Ltd (in liq) (ICM) and was thus a ‘de-facto director’ under section 9 of the Corporations Act 2001 (Cth), despite not having been validly appointed.

McMurdo J referred to the 2012 case of Grimaldi v Chameleon Mining NL (No.2) as the leading authority on this issue and made the following findings and observations on the facts of this case:

  • In small companies such as ICM, the distinction between directors and management will be less marked and it will not be surprising for directors to conduct business in a less formal and structured way, without formal meetings or records of resolutions; 
  • The fact that the other directors sometimes acted without reference to Mr Rodrick does not mean that he was not a director.  Rather, the other directors could simply have been wrongly excluding Mr Rodrick from his proper role;
  • The fact that Mr Rodrick resisted a suggestion to be formally appointed as a director did not preclude a finding that he acted in the position of director.  A formal appointment may have been resisted for any number of reasons, including the desire to avoid legal responsibility for the company’s fate;
  • As effectively a half owner of ICM, Mr Rodrick provided working capital (and monitored its application closely) and likely regarded himself as being just as involved in the control of ICM as the other directors. As such, it was almost inevitable that he would assume a role that corresponded with that of a director;
  • The perceptions of ICM employees, suppliers and customers were of evidentiary value.  For example, an employee observed that staff took most of their direction from Mr Rodrick, a supplier gave evidence that Mr Rodrick directly engaged its services and approved quotes and a customer asked Mr Rodrick if he was a director (which showed that Mr Rodrick presented himself as having a degree of authority commensurate with being a director).

Other practical factors which evidenced that Mr Rodrick was a director included that the “to do’ lists for him and the other directors gave the strong impression of all three being in charge, he was actively involved in generally running the business including directing staff, preparing cash flow reports and dealing with suppliers, he became entitled to operate ICM’s bank account, he was at ICM’s factory or office (run from one of the other director’s homes) effectively on a full time basis, he earned an equivalent salary to the other directors and the other directors were not able to direct what he could and couldn’t do for ICM.

See the case.