The New South Wales Court of Appeal recently handed down its decision in Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd  NSWCA 109.
Buzzle Operations Pty Ltd (Buzzle) was formed after six resellers of Apple products merged in September 2000. The merger was ultimately unsuccessful and Apple appointed receivers to Buzzle in March 2001. Liquidators were appointed in 2002.
The liquidators claimed (amongst other things) that Apple and its finance director, Mr James Likidis, were shadow directors of Buzzle for a certain period, and accordingly liable for insolvent trading claims.
Decision at first instance
At first instance, White J decided in favour of Apple, and found that:
Decision on appeal
In dismissing the liquidators’ appeal against the findings that Apple and Mr Likidis were not shadow directors, Young JA (Hodgson JA and Whealy JA agreeing) found the following five propositions relevant to determining whether a person was a shadow director:
The court held that there is a significant difference between a board assigning responsibility for the day to day running of certain activities, and formally delegating collective responsibility for decision making.
This decision is important to insolvency practitioners and secured creditors alike as it provides useful guidance as to the involvement and level of control that a person is required to exert before they will be considered a shadow director. In this case the fact that Apple had the ability as a joint venture partner to control Buzzle’s decisions did not, of its own, amount to a finding that Apple was a shadow director of Buzzle.
It is not uncommon for investigative accounts and secured lenders to exercise similar levels of control over defaulting companies that are required to sell their assets in order to repay the secured lender.
The possibility of an appeal by Buzzle to the High Court remains open. We at Lavan Legal will continue to keep you updated of the progress of this case and any developments in the law regarding whether a person is a shadow director or not.