AYB230 · Corporations Law
Corporate Governance & Directors
This Topic 4 chapter sets up the people who run a company and the framework that holds them accountable: corporate governance, the separation of powers between the board and the members, and the agency costs that arise when their interests diverge. It defines the types of director (formally appointed, alternate, de facto, shadow) and officers, the disqualification rules (s206B), and gives an overview of the nine statutory officer duties that the next two chapters examine in depth. It is examined as short-answer and as the foundation for ILAC duty problems.
What this chapter covers
- 01Corporate governance defined: the rules, relationships, systems and processes of accountability
- 02Separation of powers (board vs members) and the agency-cost problem
- 03Types of director (s9): formally appointed, alternate, de facto, shadow
- 04Company secretary and senior manager — who counts as an 'officer'
- 05How directors act: board resolutions (>50%) and circulating written resolutions
- 06Appointment, removal and disqualification of directors (s206B)
- 07Remuneration of directors
- 08Overview of the nine statutory officer duties (s180–183, s588G, s191/194/195, Ch 2E)
De facto and shadow directors (short-answer)
- +1Issue: Does Quinn or Royston fall within the s9 definition of 'director' despite never being formally appointed?
- +1Law: Under s9, a director includes a person validly appointed, but also a de facto director (a person who acts in the position of a director without a valid appointment) and a shadow director (a person whose instructions or wishes the appointed directors are accustomed to act on).
- +1Application: Quinn acts in the role — attending board meetings, signing contracts, being held out as a director — so she is a de facto director. Royston gives no public appearance of being a director but the board habitually acts on his instructions, which makes him a shadow director.
- +1Conclusion: Quinn is a de facto director and Royston is a shadow director; both are 'directors' under s9 and so both owe the statutory duties.
Key terms
- Corporate governance
- The framework of rules, relationships, systems and processes by which authority within a company is exercised and controlled, and through which the people running the company are held accountable to those who own it.
- Agency costs
- The costs that arise because the interests of the members (owners) and the managers (directors) do not perfectly align — including the costs of monitoring management and of management signalling its good behaviour. Much of corporate governance and the directors' duties exists to reduce these costs.
- De facto director
- A person who acts in the position of a director — making decisions, signing documents, being held out as a director — without a valid appointment. Under s9 they are treated as a director and owe the statutory duties.
- Shadow director
- A person (not formally appointed) in accordance with whose instructions or wishes the appointed directors are accustomed to act. Under s9 they too are a director, so a controlling outsider such as a dominant creditor or parent company can be caught — but professional advisers acting in that capacity are excluded.
- Officer
- Beyond directors, a person who makes or participates in decisions that affect a substantial part of the business, or who has the capacity to significantly affect the company's financial standing — including a senior manager and the company secretary. Officers owe the duties of care (s180), good faith (s181) and not to misuse position or information (s182/s183).
- Disqualification (s206B)
- A person is automatically disqualified from managing a company if they are convicted of certain offences (including a dishonesty offence carrying at least three months' jail, or a Corporations Act offence carrying at least 12 months), are an undischarged bankrupt, have entered a personal insolvency agreement, or are subject to a relevant foreign court order. The court can also order disqualification (s206C) for a duty breach.
Corporate Governance & Directors FAQ
Who counts as a 'director' if they were never appointed?
The s9 definition is functional. As well as a validly appointed director, it catches a de facto director (a person who acts in the role without a valid appointment) and a shadow director (a person whose instructions or wishes the appointed directors are accustomed to follow). Both owe the full set of statutory duties, so a dominant creditor, a parent company or a person who simply behaves as a director can be liable — not just the names on the ASIC register.
What is the difference between a director, an officer and a secretary?
A director manages the company and owes fiduciary and statutory duties. An officer is a broader category — anyone who makes or participates in decisions affecting a substantial part of the business, or who can significantly affect its financial standing — which includes senior managers and the company secretary. The secretary specifically handles day-to-day administration and compliance. Officers owe the care, good-faith and no-misuse duties even if they are not directors.
What are agency costs and why do they matter?
Agency costs arise because the owners (members) and the managers (directors) do not have perfectly aligned interests — managers might pursue their own benefit at the owners' expense. The costs include monitoring management and management signalling its trustworthiness. Almost the entire system of corporate governance and directors' duties exists to reduce these costs, which is why the topic is the foundation for the duties chapters.
When can a director be disqualified from managing a company?
Automatically under s206B if they are convicted of certain offences (a dishonesty offence with at least three months' jail, or a Corporations Act offence with at least 12 months), are an undischarged bankrupt, have a personal insolvency agreement, or are subject to a relevant foreign court order. Separately, a court can order disqualification under s206C where a director has breached a civil-penalty duty, with the period depending on the seriousness, dishonesty and likelihood of recurrence.
Exam move
Use this chapter as the scaffolding for the two duties chapters that follow. First, get the definitions watertight: learn the s9 director types (appointed / alternate / de facto / shadow) and the officer concept, because identifying who owes the duties is the first move in any duty problem. Second, memorise the nine statutory duties as a labelled list (s180 care, s181 good faith/proper purpose, s182 position, s183 information, s588G insolvent trading, s191/194/195 disclosure, Ch 2E related party) so you can spot which one a fact pattern raises. Third, keep the governance vocabulary — separation of powers, agency costs — ready for short-answer questions, and know the s206B disqualification grounds. Cite the section every time.
