Shadow directors are not just creditors indicating a preference

In brief – NSW decision helps define shadow directorship

A recent decision in Buzzle Operations (in Liquidation) v Apple Computer has clarified the criteria to be met for a lender, secured creditor or other third party to be considered a shadow director.

What is a shadow director?

A shadow director is a person (or it can be a company) whose instructions and wishes others within the company are accustomed to obeying. To be a shadow director, one must exclude any residual discretion in a board. In other words, the nominal directors must effectively be doing one's bidding.

This can have serious implications if the company is engaged in insolvent trading, because a director can be liable for insolvent trading.