Background
Graham and Pamela Gordon advanced funds to Ausprout Group Pty Ltd and obtained security under a loan deed. Ausprout later granted them and their company, Gradon (Qld) Pty Ltd, a general power of attorney that remained in force until the loaned amount was repaid and permitted conflict transactions. After Ausprout received an Australian Taxation Office research-and-development payment of $186,074.62, the Gordons withdrew $186,060 and applied it against the loan.
Ausprout and its liquidators sued the Gordons, alleging that they were shadow or de facto directors and had breached directors’ duties or entered an unreasonable director-related transaction. At trial, the plaintiffs abandoned their insolvency-based claims. Their remaining case depended on establishing that the Gordons were directors, although the sole pleaded basis was the power and control granted and exercisable under the power of attorney.
After the defendants objected that the plaintiffs’ opening exceeded the pleadings, the plaintiffs sought leave to amend and an adjournment. The Court refused that application, considering its lateness, the absence of a proposed amendment or satisfactory explanation, prejudice and continuing strain on the individual defendants, wasted resources, and the broader demands of efficient case management. It later declined, in the circumstances of this case, to consider additional theories advanced in closing submissions that had not been pleaded and had affected how the defendants conducted the trial.
The Court’s Holding
The Court held that the grant of an exercisable power of attorney, without more, did not make the Gordons de facto directors under s 9AC(1)(b)(i) of the Corporations Act 2001 (Cth). That provision requires a person to act in the position of a director. The plaintiffs’ pleaded case did not rely on acts performed by the Gordons under the power of attorney, or allege that the withdrawal was undertaken in the position of a director. Even on a generous reading, the withdrawal alone was insufficient.
The Gordons also were not shadow directors under s 9AC(1)(b)(ii). The plaintiffs had not pleaded acts or conduct showing that Ausprout’s appointed director, Ryan Watts, was accustomed to act in accordance with the Gordons’ instructions or wishes. The mere grant of power under the power of attorney could not satisfy that statutory requirement.
Because the plaintiffs failed on this threshold issue, their remaining claims for breach of directors’ duties and an unreasonable director-related transaction necessarily failed. The Court dismissed the originating application and reserved the question of costs for determination after further submissions.
Key Takeaways
- A broad power of attorney does not, by itself, make its holder a de facto director; the statutory inquiry requires conduct showing that the person acted in the position of a director.
- Shadow-director status requires evidence that the company’s directors were accustomed to act according to the alleged shadow director’s instructions or wishes.
- In this case, the Court confined the plaintiffs to their pleaded theory after weighing their late amendment request, insufficient explanation, prejudice to the defendants, litigation strain, and case-management considerations.
Why It Matters
The decision distinguishes extensive contractual authority from the factual assumption of a director’s role. Creditors and attorneys do not become directors merely because an instrument gives them substantial powers; the analysis turns on how they actually operated within the company’s governance or influenced its appointed directors.
It also illustrates the practical importance of pleading the material facts supporting alleged de facto or shadow directorship. A party seeking to broaden its case after trial has begun faces a discretionary, context-specific assessment of delay, prejudice, procedural fairness, and efficient use of court resources; an offer to compensate the opposing party in costs may not cure those consequences.