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Authors

Martin Markovic

Abstract

It is acknowledged that ‘it is increasingly common for a wide range of corporate functions to be performed by consultants or other contractors who are not strictly “employees”’. 1 Consultants and business advisers (hereinafter referred to as ‘consultants’) may need to tread carefully when providing their services to corporate clients. If consultants participate in the making of decisions that affect a substantial part of a corporation’s business, they will fall within the statutory definition of ‘senior manager’ and ‘officer’ pursuant to s 9 of the Corporations Act 2001 (Cth) (Corporations Act). These consultants, therefore, would become subject to duties imposed by the Common Law2 and the Corporations Act3 upon company senior managers. However, these consultants would not be subject to the significant statutory duty to prevent insolvent trading4 as this duty only applies to parties who fall within the statutory definition of ‘director’ under s 9 of the Corporations Act. This article provides the first detailed examination of the potential risk to consultants who provide services to corporate clients of falling within the statutory definition of ‘de facto director’ pursuant to s 9 of the Corporations Act. Consultants at risk of de facto director status of corporate clients in financial crisis may become attractive new targets for liquidators. There have been numerous cases in Australia and the United Kingdom dealing with the issue of de facto director status. However, in only a small number of cases, have consultants been subject to claims of de facto director status. This article sets out the statutory definition of de facto director and briefly discusses issues concerning the burden of proof of establishing that a party falls within the statutory definition of de facto director. It then provides an examination of specific topics to clarify whether they are key indicators of risk of de facto director status. As part of this examination the article provides a review of the limited case authorities in Australia and the United Kingdom where consultants have been subject to claims of de facto director status. Finally, a summary of key findings is provided in the conclusion.

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