Casting a light on shadow directors

IN general, a person formally becomes a company director by a resolution of the board or shareholders. However, a person may have the same legal duties and liabilities of a director despite not being formally appointed as one. Singapore corporate law recognises the concept of a shadow director, otherwise described as the "puppet master" or "cat's paw" who acts as the directing mind of a company.

In a case decided earlier this year, Sakae Holdings succeeded in persuading the court that although one of the defendants in a joint venture company (of which Sakae was a minority shareholder) had formally resigned as a director, he was, in fact, a shadow director, and had breached his fiduciary duties to the company.

The Sakae case illustrates how the concept of a shadow director is a cornerstone of corporate transparency. Those who regularly direct, or even advise, directors on company matters should be conscious of the risk that they may be regarded, as a matter of law, as shadow directors, and thus held accountable for any wrongdoing, including any wrongdoing by the company.