Published on 04 May 2010 • Australia |
"(i) makes or participates in making decisions that affect the whole or a substantial part, of the business of the corporation, or (ii) ... has the capacity to affect significantly the corporation's financial standing".
"Mr Hartono deposed that he felt he had absolutely "no choice but to agree to the terms contained in the Payments Deed". This does not mean that Apple participated in Buzzle's decision-making. To the contrary, Mr Hartono said he had no choice but to agree to what Apple proposed. For a director of a company to acquiesce in a third party's demands does not mean that the third party participates in the company's decision-making. Given that officers of a company have a statutory duty to act in the best interests of the company, it would be an impossible position if a third party making demands on a company in its own interests become an officer of the company because its demands were acceded to." (Paragraph [118] (emphasis added).)
"[it] should be taken as referring to a person who, in his or her management of the affairs of the corporation, has the capacity to affect significantly the corporation's financial standing. It does not refer to a person who has that capacity as a third party but is not involved in the management of the corporation's affairs". (Paragraph [126].)
"However, none of the purposes attributed to Apple in the taking of the charge was common to Buzzle. It was no part of Buzzle's purpose that Apple obtain better security for the repayment of the vendors' debts. The fact that both Apple and Buzzle saw the merger as potentially beneficial to each of them does not mean that they had a common purpose in relation to the merger, let alone that they had a common purpose in relation to the creation of the charge." (Paragraph [132].)
"a person or company is not within the definition ... merely because that party imposes conditions on his or her commercial dealings with the company with which the directors feel obliged to comply. A lender who is entitled to demand repayment of a loan and appoint a receiver can say, for example, that it will stay its hand only if the borrowing company sells certain assets. A supplier or buyer might impose conditions and because of its superior bargaining power, the directors of the company with whom it deals might feel they have no choice but to comply with the conditions imposed. It has been uniformly held that this is not sufficient to make the third party who exercises such powers in his dealings with the company a shadow director, even though the directors of the company are accustomed to comply with its demands
....
In my view the reason that third parties having commercial dealings with a company who are able to insist on certain terms if their support for the company is to continue, and are successful in procuring the company's compliance with those terms over an extended period, are not thereby to be treated as shadow directors within the definition, is because to insist on such terms as a commercial dealing between a third party and the company is not ipso facto to give an instruction or express a wish as to how the directors are to exercise their powers. Unless something more intrudes, the directors are free and would be expected to exercise their own judgment as to whether it is in the interests of the company to comply with the terms upon which the third party insists, or to reject those terms. If, in the exercise of their own judgment, they habitually comply with the third party's terms, it does not follow that the third party has given instructions or expressed a wish as to how they should exercise their functions as directors." (Paragraphs [242] and [243] (emphasis added).)
"For the reasons I have already given, I do not accept that to establish that person is a shadow director, it must be shown that the directors of the company do not exercise any discretion of their own. Nonetheless, the authorities provide powerful support for the defendants' submission that there must be a causal connection between the instruction or wish of the shadow director and the act taken by the directors. There is good reason for this. If a person is a shadow director, he, she or it owes statutory duties to act in good faith in the best interests of the company, and with the reasonable care and diligence of a director of the company. A shadow director is also liable to statutory liabilities, such as the liability of a director for insolvent trading. When the definition is construed in the light of the purpose of subjecting a person who is not appointed, and does not (or might not) act as a director, to the statutory duties and liabilities of a director, it makes good sense that there must be a causal connection between the acts of the directors and the instructions of the putative shadow director for the definition to be satisfied. I accept the defendant's submissions that such a causal connection is necessary." (Paragraph [247].)
"The [Liquidator] stressed that Apple perceived it to be in its interests for Buzzle to continue to trade whilst Apple worked out what it wanted to do with Buzzle. It did not want winding-up proceedings to be commenced against Buzzle. The reason for this was that Buzzle was by far the largest Reseller and accounted for perhaps 30 per cent of its revenues. Apple faced substantial losses if Buzzle went into administration or receivership from the loss of sales and damage to Apple's brand. But motive for Apple to give directions to Buzzle's board, does not establish that Buzzle's directors were accustomed to act in accordance with Apple's wishes." (Paragraph [331].)