The term ‘director’ usually refers to people formally appointed to a Board. However, some people who are not formally appointed may operate as ‘deemed directors’ or ‘shadow directors’. They are increasingly likely to be treated by the law in the same way as formally appointed directors.

Justice Millett in a well-known case said a ‘de facto’ director “… is one who claims to act and purports to act as a director, although not validly appointed as such. A shadow director, by contrast, does not claim or purport to act as a director. On the contrary, he claims not to be a director. He lurks in the shadows, sheltering behind others who, he claims are the only directors of the company to the exclusion of himself.”[1]

Justice Millett’s description is perhaps a little cynical. Some shadow directors may be trying to avoid the accountability that attaches overtly to appointed directors, while others may be quite open about the influence they have on directors and boards.

What does the Companies Act say? What matters is that de facto and shadow directors are captured in the Companies Act definition of ‘director’ as  a person in accordance with who directors or instructions the board of the company may be required or is accustomed to act. This means that whether or not they regard themselves as directors, these ‘deemed directors’ may be held accountable as though they were directors for any breaches.

Who might this capture? Looking at the definition, whether or not a board is “required or accustomed to act” for a deemed director is a matter of fact. The court will look at any evidence that shows a pattern of behaviour that amounts to directors being “accustomed to acting” on a deemed director’s instruction.

One legal commentator has suggested that the statutory wording of “required to” might extend the accountability net to include people who can be shown to have exercised control over the board even without a pattern of behaviour,[2] although this has not yet been tested in court.

An example in practice could be a large shareholder who is not a director but who behind the scenes is directly what the Board does.

Key points to note:

• Parliament implemented this definition intentionally. It makes sense that if deemed directors have been instrumental in action or inaction that breaches directors’ duties, they too should be held accountable; perhaps even more so if they did this to avoid attention and liability.
• Boards often rely on the professional advice from lawyers or accountants. It is important that relationships with advisors are purely advisory in nature and that directors or boards are not controlled or directed by the advisors.
• If you are a shadow director, or your company has a relationship likely to be deemed a shadow director, be aware of the implications. One question to ask might be whether or not shareholders are aware of the shadow director, and if not, why not. Should the person just be appointed?

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[1] Re Hydrodan (Corby) Ltd [1994] 2 BCLC 180 Ch, at 183.

[2] Taylor Lynn “Expanding the pool of defendant directors in a corporate insolvency: the de facto directors, shadow directors and other categories of deemed directors” New Zealand Business Law Quarterly 16(2) Jun 2010:203.

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If you have any further queries please do not hesitate to contact one of our experts at Parry Field Lawyers- stevenmoe@parryfield.com, yangsu@parryfield.com, sophietremewan@parryfield.com, or annemariemora@parryfield.com

This article is general in nature and is not a substitute for legal advice. You should talk to a lawyer about your specific situation. Reproduction is permitted with prior approval and credit being given back to the source. 

There is often confusion over Health and Safety – the rules have been around for a while now but we still get some common questions.  Below we set out some of the key points to consider to ensure compliance around volunteers. Check out our other guidance on these topics as well.

Is your organisation a PCBU?

Under the The Health and Safety at Work Act 2015, a PCBU has the primary duty to ensure the health and safety of its workers and others, so far as is reasonably practicable.

Reasonably practicable means that “which is, or was, at a particular time, reasonably able to be done in relation to ensuring health and safety.”  A PCBU is not expected to guarantee the health of safety of their workers but they must do what can reasonably be done to ensure health and safety.  Factors that will affect what is reasonably able to be done include:

• The hazards and risks associated with the work and the likelihood of the hazard or risk occurring;
• The severity of the injury or harm to health that could result from the hazard or risk;
• What the person knows or reasonably should know about the hazard or risk and the ways of eliminating or minimising it;
• What can be done to eliminate or minimise the risks and how available and suitable these risk controls may be;
• The cost associated with eliminating or minimising the risk, including whether it is grossly disproportionate to the risk.

What about Volunteer organisations?

Section 17 of the Act states a “volunteer association” is not a PCBU.  The Act defines a volunteer association as “a group of volunteers (whether incorporated or unincorporated) working together for 1 or more community purposes where none of the volunteers, whether alone or jointly with any other volunteers, employs any person to carry out work for the volunteer association”.

If your organisation has no employees then it will be known as a volunteer association under the Act.  As a volunteer association your organisation would not be a PCBU and therefore the Act would not apply to your organisation.  However, frequently this exemption would not apply to organisations.

If your organisation has one or more employees then it is likely it will be a PCBU and thus the Act will apply.

If your organisation is a PCBU

If your organisation is a PCBU, it will have a duty to ensure the health and safety of others so far as is reasonably practicable.

So what about Volunteer officers?

Officers have a duty to exercise due diligence to ensure the PCBU complies with its duties and obligations under the Act.  In exercising due diligence, officers must take reasonable steps to:

• Know about work health and safety matters;
• Gain an understanding of the operations of the PCBU and the hazards and risks associated with those operations;
• Ensure the PCBU has appropriate resources and processes to eliminate or minimise risks;
• Ensure the PCBU receives information about incidents, hazards and risks;
• Ensure there are processes for the PCBU to comply with the Act.

Volunteer workers

Under the Act a “volunteer worker” is a volunteer who carries out work in any capacity for a PCBU on a regular basis, with the PCBU’s knowledge and consent and is integral to the PCBU’s operations.  A PCBU would owe a duty to ensure, so far as is reasonable practicable, the health and safety of volunteer workers.

The volunteer worker would also have duties under the Act.  While at work they must:

• Take reasonable care for his or her own health and safety;
• Take reasonable care that his or her acts or omissions do not adversely affect the health and safety of other persons;
• Comply, as far as the worker is reasonably able, with any reasonable instruction that is given by the PCBU to allow the PCBU to comply with the act or regulations; and
• Co-operate with any reasonable policy or procedure of the PCBU relating to health or safety at the workplace that has been notified to workers.

“While at work” is not defined but likely means while at the workplace or at an event run by the PCBU.

Casual volunteers

A volunteer is not a “volunteer worker” if their voluntary work includes:

• Participating in a fund-raising activity;
• Assisting with sports or recreation for an educational institute, sports club or recreation club;
• Assisting with activities for an educational institution outside the premises of the educational institution; or
• Providing care for another person in the volunteer’s home.

Even though this volunteer would not be a volunteer worker, the PCBU would still have a duty to them to ensure their health and safety is not put at risk from the PCBU’s work.

The casual volunteer would not have duties under the Act.

If your organisation is a PCBU and something goes wrong the penalties can be high.  It is therefore very important that you are aware of whether your organisation is a PCBU or not.  In some cases this may be unclear.  We would be more than happy to talk with you about your particular situation to help you determine whether or not you are a PCBU.

This article is not a substitute for legal advice and you should contact your lawyer about your specific situation. Please feel free to contact Steven Moe at stevenmoe@parryfield.com