This means that lawyers or accountants who advise directors and boards (who may be accustomed to following such advice) are generally shielded from the deemed director provisions under the Act.This exception may not however be relied on if advisers become involved in the affairs of the company outside of the specific functions they were originally engaged for.The ‘reckless trading’ provisions under the Act prohibit directors from causing or allowing the business to be ‘carried on in a manner likely to create substantial risk of serious loss to creditors’ or agreeing to the company incurring an obligation unless that director believes the company will be able to perform when required to do so.
It is sufficient that a director or board may simply be required or accustomed (for whatever reason) to act in accordance with the directions of that person.
This means that a shadow director is not limited to someone who “lurks in the shadows” but could just as easily be: A defacto director occupies the position of director notwithstanding that he or she has not been validly appointed.
Given that deemed directors are unlikely to enjoy the same protections as appointed directors (i.e.
Directors & Officers Insurance and/or other company indemnification), penalties will likely need to be settled from personal assets.
However in the event of imminent threat of insolvency, the rules change and directors must then give priority to the interests of its creditors.