In Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd [2011] NSWCA 109 the NSW Court of Appeal dismissed Buzzle’s appeal from the trial judge’s decision that Apple and its finance director did not become shadow directors of the company through its loan transaction conditions and guidance (discussed here).

The Court of Appeal set out the following propositions:

First, not every person whose advice is in fact heeded as a general rule by the board is to be classed as a de facto or shadow director.

Secondly, if a person has a genuine interest of his or her or its own in giving advice to the board, such as a bank or mortgagee, the mere fact that the board will tend to take that advice to preserve it from the mortgagee’s wrath will not make the mortgagee, etc a shadow director.

Thirdly, the vital factor is that the shadow director has the potentiality to control. The fact that he or she does not seek to control every facet of the company or the fact that from time to time the board disregards advice is of little moment.

Fourthly, … the evidence must show “something more” than just being in a position of control must be shown. The whole of the facts of the case must be shown to see whether that power to control was put into practice. …

Fifthly, although there are problems with cases where the board of the company splits into a majority and minority faction, so long as the influence controls the real decision makers, the person providing the influence may be a shadow director.

Buzzle also argued that two payments made to Apple were uncommercial transactions.

Apple successfully defended the uncommercial transactions claim: “even if the payments were uncommercial transactions, Apple is not liable and does not have to repay the amounts as s 588FG(2) of the Corporations Law applied. Apple acted in good faith, had no reasonable grounds for suspecting insolvency and gave valuable consideration.”