Corporate structure and directors' duties

It is typical for some of the directors to be directors of different companies of the corporate group. For example, some directors of the holding company may also be appointed as directors of the subsidiaries. Holding several directorships across different companies within the group may give rise to various dilemmas such as:

• • how to manage overlapping or conflicting interests within the company (including where interests as directors and interests as shareholders diverge) and between various entities within the corporate group (one of which may be their appointor);
• • which entity the directors should act in the best interest of; and
• • what the directors must do to fulfil their duties to each company of which they are directors.

A director of a wholly owned subsidiary is taken to have acted in the best interests of that subsidiary where that director acts in the best interests of the holding company. This must be expressly authorised in the subsidiary company’s constitution and the subsidiary company is not, and does not become, insolvent because of that act. This is only available to directors of wholly owned subsidiaries.

Shadow directorship has implications both for the holding and subsidiary company. The holding company may be held liable for the subsidiary's actions where the subsidiary is found to have engaged in insolvent trading. The subsidiary company who acted in accordance with the holding company's instructions or wishes risk breaching their duty not to allow their discretion to be fettered.

Even where the holding company is not taken to be a director of the subsidiary and the subsidiary is not insolvent, a holding company may still be held liable for the subsidiary's actions where the directors of the holding company delegate their powers to the subsidiary. The subsidiary would be taken to be acting as the agent of the holding company.

See Corporate structure and directors' duties.