At a Glance
- Nominee directors owe the same statutory and fiduciary duties as any other director
- Acting on instructions from appointing shareholders does not remove personal liability
- Courts focus on actual involvement and decision making, not job titles or labels
- Liability can arise even where a nominee believes they are passive or administrative
- Breaches may expose nominee directors to civil penalties, compensation orders and disqualificationWhat Is a Nominee Director?
A nominee director is typically a person appointed to the board to represent the interests of a particular shareholder, investor, lender or joint venture partner.
Common scenarios include:
- investors appointing a director as part of a funding arrangement
- parent companies appointing representatives to subsidiary boards
- family members or advisers holding board seats on behalf of others
While commercially convenient, this structure often creates tension between loyalty to the appointing party and legal duties owed to the company.
The Legal Reality Under Australian Law
Equal Duties Apply
Section 180 to 184 of the Corporations Act impose duties of care, diligence, good faith, and proper purpose on all directors, without distinction.
These duties include obligations to:
- act in the best interests of the company
- avoid improper use of position or information
- exercise independent judgment
- prevent insolvent trading
There is no exemption for nominee directors.
In ASIC v Adler, the court made it clear that directors cannot subordinate their duties to the company in favour of external interests, even where those interests are commercially influential.
Independence Is Not Optional
In ASIC v Healey, the Federal Court emphasised that directors must actively apply their own minds to board decisions and cannot rely blindly on external advice or shareholder directions. This is particularly relevant for nominee directors, who must balance their appointment obligations with statutory and fiduciary duties owed to the company..
This is particularly relevant for nominee directors who:
- vote in line with shareholder directions without analysis
- fail to question related party transactions
- abstain from decisions they should actively assess
Passive behaviour does not equate to protection.
“I Was Just Following Instructions” Is Not a Defence
One of the most common misconceptions among nominee directors is that liability rests with the appointing shareholder or controlling mind of the company.
Australian courts have repeatedly rejected this argument.
In Shafron v ASIC, the High Court confirmed that responsibility follows function, not title. Where a person participates in decision making, or allows their position to influence outcomes, they can be held accountable for the consequences.
For nominee directors, this means that agreeing in advance to follow instructions does not displace legal responsibility.
Practical Case Example
Consider a company with two shareholders, one active and one passive investor. The passive investor appoints a nominee director who rarely challenges management and routinely votes as instructed.
The company later enters financial distress. The board approves related party loans and asset transfers that favour the appointing shareholder.
From a commercial perspective, the nominee may see themselves as a conduit. Legally, however, they participated in decisions that harmed the company’s creditors.
In practice, liquidators and ASIC frequently pursue nominee directors in these circumstances, particularly where board minutes show attendance, voting, or acquiescence.
Where Nominee Directors Are Most Exposed
Nominee directors commonly face risk in the following areas:
- related party transactions
- insolvent trading periods
- selective payments to shareholders or affiliates
- failure to question inadequate financial information
- allowing dominant directors to control outcomes unchecked
The longer a nominee remains silent, the harder it becomes to argue they exercised independent judgment.
Can Nominee Directors Protect Themselves?
Yes, but protection requires active engagement, not formal labels.
Practical steps include:
- insisting on access to accurate and timely financial information
- documenting dissent or concerns in board minutes
- seeking independent legal or financial advice where conflicts arise
- resigning where ongoing compliance is not possible
Simply being described as a nominee is not enough.
Key Takeways
- Nominee directors owe full statutory duties under Australian law
- Acting on instructions does not remove personal liability
- Courts focus on substance, not labels or intentions
- Passive involvement can still result in serious exposure
- Early advice and active governance are critical
Frequently Asked Questions
Are nominee directors treated differently under the Corporations Act?
No. The law makes no distinction between nominee and non nominee directors.
Can a nominee director rely on shareholder instructions?
No. Instructions cannot override duties owed to the company.
Is resignation the only safe option?
Not always, but continued involvement without independence significantly increases risk.
How We Can Help
We regularly advise:
- nominee directors on risk management and duty compliance
- investors appointing board representatives
- directors facing ASIC investigations or liquidator claims
- companies restructuring governance arrangements
Our approach is practical, commercial, and focused on reducing personal exposure before disputes escalate.
