Why Shadow and De Facto Directorships Are Still a Risk in 2025
In 2020, the High Court decision in ASIC v King [2020] HCA 4 made waves across the corporate sector. It sent a clear message: if you’re running a company – in name or in effect – you can be held accountable for its actions.
Five years on, that message has only grown louder.
The 2020 Turning Point
In ASIC v King, the Court clarified that the definition of ‘officer of a corporation’ under s 9 of the Corporations Act 2001 (Cth) isn’t limited to people holding a formal title.
Michael King, CEO and executive director of MFS Ltd, had no official role with the subsidiary MFSIM, yet the Court found he was still an ‘officer’ because he had the capacity to significantly affect its financial standing. The High Court rejected the idea that ‘officer’ means simply ‘holder of an office’.
The takeaway? Influence, not just appointment, determines responsibility.
Why It Still Matters in 2025
- Brown v Etna Developments [2025] NSWSC 358 – Titles Don’t Save You Earlier this year, the NSW Supreme Court found individuals in the construction sector personally liable as de facto directors, even without formal board positions. Their on-the-ground decisions had director-level consequences, and the Court treated them accordingly.
- ASIC’s Appetite for Accountability is Growing The regulator is testing new territory, with high-profile board cases (including The Star Entertainment proceedings) targeting directors for governance failures, particularly in non-financial risk oversight. While not strictly shadow-director cases, they reinforce ASIC’s broader message: if you have the power, you have the duty.
- 3. Ongoing Legal Advice – And Insurance Gaps Law firms continue to warn that D&O insurance may not cover you if you’re deemed a shadow or de facto director. In other words, your unofficial role could leave you officially out of pocket.
The Pretium Perspective
For insolvency practitioners, this evolving legal landscape is more than academic. When assessing director behaviour in distressed companies, it’s crucial to look beyond ASIC records and board minutes. The real influence may be coming from individuals in the background, and ASIC v King gives you a powerful tool to hold them to account.
It also means that if you’re advising a company (formally or informally), you need to be clear on your role and mindful of the decisions you’re influencing. In insolvency, the line between ‘helpful consultant’ and ‘shadow director’ can be a thin one and crossing it could carry personal liability.
Final Word
Whether you’re leading from the front or guiding from the wings, the law sees through the shadows. If you have the capacity to significantly affect a company’s financial standing, you have the same responsibilities as any named director – and in 2025, the courts and regulators are more than willing to remind you.
