A de facto director is an individual who, despite not having been formally appointed as one, assumes the responsibilities of a company director. Importantly, de-facto directors hold the same responsibilities as directors under company law and are subject to directors' duties. The label of a de facto director can therefore have huge ramifications on the responsibilities and liabilities of an individual.
A recent case put to the test whether Mr Jones, a director of a holding company in a corporate group, was a de facto director of a subsidiary company within that group.
In this case, the court determined that the director of the holding company was, indeed, a de facto director of the subsidiary. The additional responsibilities and liability associated with that were vast.
The subsidiary company entered into creditors' voluntary liquidation, leading to a subsequent legal claim against Mr. Jones. While holding a directorial role in the holding company, he had not been officially appointed as a director of the subsidiary.
The court considered several factors that suggested Mr. Jones was acting as a de facto director of the subsidiary:
As a result, Mr Jones breached his directors' duties, and became liable for the authorisation of a payment by the subsidiary that should not have been made.
Consequently, the court ordered Mr. Jones to reimburse the subsidiary for the payment.
As de facto directors can be personally liable or even commit a criminal offence if they breach the directors' duties, it is important to analyse to what capacity someone represents a company. Understanding the legal implications of de facto directors is essential to avoid personal liability and potential legal consequences.