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Fakulti Undang-Undang

Law Faculty

Nurulalsah Hj Hassan Alban


GP00820
Problem Set 5
Question 5

UK6043
Undang-Undang dan Amalan Syarikat
Company Law and Practice

Prof. Dr. Aishah Bidin


Parties
1. SUBCO
o Unlisted Public Company
o Subsidiary of LISTCO

2. LISTCO
o Listed Public Company
o Owns 73% of SUBCO’s ordinary shares

3. Tang Family
o Owns 23% SUBCO’s ordinary shares
o Represented by Director Tommy Tang
Facts
At first, LISTCO passed a resolution to
instruct SUBCO to acquire a business in
North America but was rejected by
SUBCO’s board of directors.
The Proposal was reformulated and put
into SUBCO’s board of directors again
and was accepted by majority of directors.
Facts (Cont)
Tang Family thought that SUBCO was
willing to endorse anything LISTCO
proposed without assessing its merit.
(Rubber-stamp)
According to Tang’s solicitor, LISTCO
may be treated as a director for SUBCO
and subject to statutory duties that apply
to company directors.
Issues
1. Can LISTCO be treated as a director?

2. Whether SUBCO was submissive to


LISTCO’s instruction.

3. Whether LISTCO was acting as a


director.
Issue 1 – Listco as Director?
Definition
-Section 4 of the Companies Act 1965-

…includes any person occupying the


position of a director of a corporation by
whatever name called and includes a
person in accordance with whose
directions or instructions the directors of
a corporation are accustomed to act…
STATUTORY PROVISION
FOR A CORPORATION
AS A DIRECTOR
Section 122 (2) of CA

X
No person other than a
natural person of full age
shall be a director of a
company.
Section 122 (5) of CA

On the commencement of this Act any


corporation which holds office as a
director of a company shall cease to
hold office…

Only natural person


not a corporation
What is the reality?
From the interpretation of Section 4 of CA ,
3 main types of director can be categorized.

1) Properly appointed

2) De facto – not validly appointed, act as

3) Shadow – cannot be validly appointed, does not claim to


be a director but whose wishes are habitually /frequently
acted upon by the board of directors
Yes, a corporation can still be treated as a
director of another company BUT depends
wholly on the facts of each case.

From judicial pronouncements the following


may be summarized as the essential
elements to establish the existence of de
facto and shadow directors;
Person
He may be a natural or corporate person.

Case:
1. Re A Company (Ex Parte Copp) [1989]
BCLC 13
2. Standard Chartered Bank of Aust Ltd. V
Antico (1995) 13 ACLC 1381
Directions or Instructions

He gives ‘directions’ and ‘instructions’ in


relation to the company that can only be
discharged by a director.

Case:
1. Ho v Akai Pty Ltd (in LIQ) [2006]
FCAFC 159
Accustomed to Act
There is a pattern established in that the
’instructions’, or ‘directions’ of the
shadow director is customarily adhered to
by the de jure* directors.

*concerning fact
Re A Company
(Ex Parte Copp) [1989] BCLC 13

Bank was held liable as shadow director of


a company on the grounds that the bank
had used its position as debenture holders
to play a controlling role in the affairs of
the company.
Standard Chartered Bank of Aust Ltd. V Antico
(1995) 13 ACLC 1381

Court held a holding company liable as a shadow


director of its subsidiary on the basis of the
controlling role it exercised over the board of
directors of its subsidiary.
Can a Corporation be treated as a
Director?

YES
!
Can LISTCO be treated as a Director?

Yes, if controlling
controlling role
role
can be established.
Issue 2 - Was SUBCO submissive to
LISTCO?

In the past, SUBCO rejected the same


proposal.
It establishes that SUBCO and LISTCO
directors practiced independent freewill
judgement.
There is no consistency to “accustomed to
act” by SUBCO to the instructions of
LISTCO.
SUBCO was not submissive to
the demands and instructions of
LISTCO.
Issue 3 – Was LISTCO acting as a
Shadow Director?

Must establish ‘controlling role’.

1. The same proposal was forwarded 2 times;


First – rejected, and later reformulated –
accepted.
Not controlling but
bargaining or diplomacy
Cont. Controlling Role

2. A governing majority of the board must be


accustomed to act in accordance with the
shadow director’s instructions or wishes.*

LISTCO may have strong influence over 2 out


of 5 directors of SUBCO. This fact does not
make LISTCO a governing majority.
*As in Buzzle v Apple
Directors of SUBCO
Frank Fearless – Also LISTCO Director

Barry Boon – Also LISTCO Director

Jenny Johnson – Managing Director

Tommy Tang – Former CEO of Tang Supermarkets

Sally Stevens – Lawyer and was non-Exec Director


of Tang Supermarkets before acquired by SUBCO.
Buzzle Operations Pty Ltd (In Liq) v
Apple Computer Aust Pty Ltd
[2010] NSW 233

1. To be a shadow director, an individual or a company must be shown to


exert control over a governing majority of the board.

2. A shadow director need not influence the board’s entire field of


corporate activity – it is sufficient to show control over a discrete
aspect of corporate decision-making.

3. A lender, creditor or third party will not be characterised as a shadow


director due to the imposition of certain terms and conditions,
provided that the directors remain free to exercise their independent
judgment when deciding whether to comply with them.
LISTCO was not acting as a
Shadow director to SUBCO.
Conclusion
The solicitor was wrong telling the
Tang family that LISTCO was to be
treated as a director.

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