The New South Wales Supreme Court decision of Justice White last week in Buzzle Operations Pty Ltd v Apple Computer Australia Pty Ltd  NSWSC 233 concerned whether or not Apple (as an independent corporate entity) was to be deemed a shadow director of Buzzle Operations Pty Ltd (Buzzle) pursuant of the Corporations Act 2001, and thus liable as a director for insolvent trading debts.
If a person or corporation is found to be 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 that company. A shadow director is also legally responsible for all statutory liabilities that a director would be held responsible for.
In mid-2000, six Apple resellers merged to become Buzzle. As Apple was the supplier and provided a number of sureties for the merger it also participated in the negotiations and subsequent formation of the company. Through these negotiations Apple made Buzzle’s financial obligations clear to them and the trading terms to which they would have to comply to ensure Apple’s continued support. Buzzle unfortunately soon become insolvent and failed to fulfil these obligations. The liquidators of Buzzle subsequently attempted to claim that Apple was liable for a number of insolvent debts incurred as a ‘shadow director’ of the company.
In dismissing this claim, Justice White provided a number of useful guidelines as to what advice can be given and influence exercised before such actions would be deemed to be those of a shadow director:
Apple was ultimately found not to be a shadow director because, at the time of its involvement with the directors of Buzzle, they (the directors) were not then deemed to be acting as directors. Apple was found to be merely imposing conditions on its commercial dealings with Buzzle, rather than controlling the directors.
This decision does not exclusively or conclusively outline all scenarios in which a creditor, financial institution with insolvent corporate clients, investigative accountant or any other person or corporation’s actions may make him, her or it liable as a director for insolvent debts. It does however provide a guideline as to the specific and special types of involvement with a company that would lead to a finding that an independent corporation was a shadow director.
For further information please contact Partner Alison Robertson on (08) 9288 6872 / firstname.lastname@example.org.