What you need to know
- Eastside Formwork v Stojic [2026] FCA 1140 clarified when a person who is not formally appointed can be treated as a de facto or shadow director under s 9AC(1)(b) of the Corporations Act.
- A de facto director is someone who acts as a director without being formally appointed. A shadow director is someone whose instructions or wishes the board habitually follows, even though they are not formally appointed as a director.
- The Court’s practical checklist includes assumed directorial responsibility, the person’s actual conduct rather than job title, how third parties regarded them, and whether they participated in directorial decisions.
What you need to do
- Review governance arrangements to identify individuals who may be acting as de facto or shadow directors, particularly in family or smaller-company structures.
- Ensure anyone exercising directorial functions—such as managing finances, instructing professionals or negotiating key transactions—understands the duties and liabilities attached to that role.
- Liquidators and creditors should consider whether claims for breach of directors’ duties can be pursued against de facto or shadow directors to maximise recoveries.
The case and our alert set out an excellent practical checklist of factors which will be very useful when considering an issue which frequently arises but can be hard to define with precision. The checklist will be a useful addition to practitioners' precedent materials for statutory and creditor reporting purposes as well as when considering recovery actions.
IMO Eastside Formwork Pty Ltd v Stojic [2026] FCA 1140 ("Eastside")
Identifying the de facto or shadow directors of a company may facilitate recoveries by liquidators when pursuing claims for breaches of duty.
Who are they?
Section 9AC(1)(b), Corporations Act ("CA") provides that a director is not only a person who is appointed to that position but also:
"…a person who is not validly appointed as a director if:
- they act in the position of a director; or
- the directors of the company… are accustomed to act in accordance with the person's instructions or wishes (excluding advice given by the person in the proper performance of functions attaching to the person's professional capacity or their business relationship with the directors or the corporation)."
As was noted in Eastside (at [131]):
"A person who is not validly appointed as a director but '[acts] in the position of a director' is generally referred to as a 'de facto' director. A person who is not validly appointed as a director but to whom 'the directors of the company are accustomed to act in accordance with the person's instructions or wishes' is generally referred to as a 'shadow' director."
So far as concerns identifying a de facto director, the following principles were adopted in Eastside (at [132]):
- "to be a de facto director, a person must be shown to have assumed or performed functions which only a de jure director or board can properly perform, or which are the sole responsibility of a director or board;
- any comparison of what an alleged de facto director does, however, with the things that are done by duly appointed directors, must take into account the fact that what is to be done in the field of management of business and affairs by an individual director will vary from company to company, according to the particular company's circumstances;
- the existence of active directors or a properly constituted and apparently functioning board does not preclude a finding that an alleged de facto director was a director;
- whether the company has held the alleged de facto director out as a director will be a relevant, but not decisive, consideration;
- the focus of the consideration is on the way the alleged de factor director operates within the particular corporate governance context, the degree of the autonomy exercised, and the appearance (and reality) of authoritative operation as a primary level decision maker for the company;
- it may be useful to direct attention to the following considerations:
- whether the person has assumed responsibility to act as a director;
- the nature of the corporate governance structure and the position the person occupies within it;
- what the person actually did, as distinct from any job title;
- the cumulative effect of the activities relied on, with the whole of the circumstances being looked at 'in the round';
- whether the company regarded the person as a director and held them out as such;
- whether the third parties considered that the person was a director; and
- whether the person was consulted about or participated in directorial decisions."
When considering the application of those principles in any particular circumstance:
"The quality of a person's capacity and actions may depend on the corporation's size, corporate structure, management structure, and the identity and nature of the persons involved. For example, if it is possible in smaller companies for all members to participate in the management of the company"; Eastside at [136] (citations omitted).
So in Eastside, the company was, in essence, a family company which was part of a group of companies in which a husband and wife had an equity interest. Mrs Stojic, the alleged de facto director of the company was a director of other companies in the group but not of the company itself. Her conduct had to be considered in that context.
In deciding whether Mrs Stojic was a de facto director the court had to address a number of factual issues:
1. How Mrs Stojic used the Company Admin Email
It was found that:
"despite some delineation of her roles with other companies in the group, she was the prime user of the Company Admin Email on behalf of the Company, and that, given the content of the emails, in so using it she demonstrated that she was... the person with 'the ultimate responsibility for management decisions.'"; Eastside at [170].
2. Factoring arrangements entered into by the company
For the purposes of improving its cashflow the company undertook a factoring arrangement with respect to its debts. In support of that factoring arrangement Mrs Stojic mortgaged her own property being her family home.
As to that circumstance the court said (Eastside at [178]);
"She had no reasonable explanation for the significant financial support for the Company, and the [factoring company's] funding and mortgage are part of the foundations of my finding that Mrs Stojic was a person who had the capacity to affect the whole, or a substantial part of the Business of the Company, or who had the capacity to affect significantly the Company's financial standing… and so was an officer of the Company."
3. The sale of the company's business
As to that transaction the court held (Eastside at [209]);
"I accept that Mrs Stojic was conducting the sale of the Business… and was positively negotiating the terms of the sale on behalf of, inter alia, the Company. …I do not accept that she was merely negotiating at the behest of others as submitted by her, or solely concerned to have the security released over her home. I particularly find that the signing of the acceptance of the offer on behalf of the Company reflects her degree of involvement, and was not in that sense a 'silly mistake'. The negotiation of the sale of the Business is consistent with her being a de facto director, or officer, on the basis of the import of this decision for the Company".
4. Instructions to employees of the company
Mrs Stojic was involved in a number of activities concerning or affecting employees of the company including:
- requiring that their email accounts be established as a matter of urgency;
- instructing employees to cause the company to pay various invoices to its creditors;
- "Mrs Stojic was sent emails by the Company's employees regarding its spreadsheet of projects being undertaken by the Company, a draft job advertisement, claims of payment, a list of employees proposed to be terminated, leave entitlements, insurances, subcontractors, and comments on the terms of an enterprise bargaining agreement"; Eastside at [212];
- Mrs Stojic was consulted in relation to the termination of the employment of workers who were "believed to be toxic and disruptive, or otherwise unproductive";
- Mrs Stojic was consulted in relation to the settlement of Fair Work proceedings;
- Mrs Stojic worked closely with the company's accountant for the purpose of formulating responses to queries in respect of business activity statements lodged by the company;
- Mrs Stojic was requested to approve the payment of a workers compensation claim in respect of an employee of the company;
- Mrs Stojic was requested to approve a document regarding terminations and voluntary redundancies for members of the company's staff; and
- Mrs Stojic gave instructions as to how the factoring arrangement was to be operated.
5. Instructions to solicitors
The court accepted that Mrs Stojic was instrumental in the provision of instructions to solicitors for the company; Eastside at [221];
6. Instructions to the accountants for the company
"The evidence… demonstrates conclusively that Mrs Stojic was indeed heavily involved in the instructing, liaising with, and responding to requests from [the company's accountants]. I can also comfortably find that she was responsible for instructing the Company's accountants, in recreating three years of the Company's accounts in 2019 and 2020, and for the 2019 audit of the Company conducted by the ATO."; Eastside at [234].
7. Correspondence with customers and creditors of the company
At [240] the court in Eastside said
"I find that the evidence clearly indicates that Mrs Stojic's role with the Company involved correspondence with customers and creditors, and significant deficits on her part to deal with [the factoring company] so that the Company could obtain funds, ostensibly to pay its creditors."
Having reviewed that evidence the court's conclusion so far as concerned the allegation that Mrs Stojic was a de facto director of the company was in these terms (Eastside at [241]);
"The evidence is only one way that Mrs Stojic acted as a director, or as an officer, of the Company. I have set out the many ways in which she acted in the position of a director, made or participated in making decisions that affected the Company, and had the capacity to affect significantly the Company's financial standing. She managed the company's finances and instructed accountants. She negotiated to sell it [the business of the company]. She signed documents 'for and on behalf of' the Company and she was regarded by third parties including solicitors and accountants seeking her instructions) as the mind behind the Company. The Company's employees… looked to her for guidance and complied with her direction."
Authors: Richard Fisher AM, Consultant and Michael Sloan, Partner.
