When family members, friends, or business partners set up a company, they may ask someone they trust to be registered as a director or shareholder “in name only.” The actual business operations may be handled entirely by someone else.
This type of arrangement is often described as using a nominee director or a “straw person” company structure. Although it may seem convenient, it carries significant legal risk. If the company later becomes involved in unlawful conduct, insolvency, liquidation, tax issues, or a regulatory investigation, the person registered as the director may still face serious legal consequences, even if they were not involved in day-to-day management.
Example: ASIC Investigation into the Real Controller of a Company
In recent company liquidation matters, the Australian Securities and Investments Commission, commonly known as ASIC, has investigated cases where the registered director had little or no actual control over the company, while the real decision-maker controlled funds and transactions through personal or third-party accounts.
In one matter, a nominee director claimed that they had only “helped by putting their name down” and had never managed the company’s accounts. However, ASIC considered that, as the company’s legally registered director, the person still had duties under Australian corporate law. These duties included ensuring that the company complied with tax, financial reporting, record-keeping, and asset management obligations.
As a result, both the nominee director and the person who actually controlled the company faced potential penalties and disqualification consequences.
Key Legal Point 1: A Nominee Director Can Still Be Fully Responsible
Under the Corporations Act 2001 (Cth), a company director has strict legal obligations. These obligations do not disappear simply because the director says they were only acting in name.
A director must act with care and diligence, act in good faith, and ensure that the company complies with its legal and financial obligations. This includes keeping proper financial records, lodging tax and compliance documents on time, supervising company assets, and preventing improper transactions or asset transfers.
If a company continues trading while insolvent, a director may also be exposed to civil or criminal liability unless they can show that they took reasonable steps to prevent the company from incurring further debts.
In other words, if you are registered with ASIC as a director, you cannot assume that saying “I was only a nominee director” will protect you from liability.
Key Legal Point 2: The Real Controller May Also Be Liable
Australian regulators and courts do not only look at the name recorded on the company register. They may also examine who truly controlled the company’s money, business decisions, documents, and transactions.
A person who controls a company behind the scenes may be treated as a shadow director or de facto director. This means they may be held responsible in a similar way to a formally appointed director.
If the real controller instructs a nominee director to carry out unlawful transactions, transfer assets, issue false invoices, falsify records, or conceal beneficial ownership, that person may also face civil penalties, criminal prosecution, asset freezing orders, or other enforcement action.
Common Misunderstandings About Nominee Directors
Many people agree to become a nominee director because they believe the risk is low. In practice, the legal position is very different.
A common misunderstanding is: “I am only registered in name, so I am not responsible.” In reality, a registered director remains responsible for the company’s legal obligations, including tax compliance, financial records, and lawful business conduct.
Another misconception is: “Someone else manages the accounts, so they will be responsible if anything goes wrong.” ASIC may still hold all relevant directors accountable, especially where a director failed to make reasonable enquiries or supervise the company’s affairs.
Some people also believe that if they control the money but are not listed as a director, they cannot be pursued. This is also incorrect. If a person makes the real decisions and controls the company in practice, they may be treated as a shadow director or de facto director.
Finally, many assume that if the company collapses, the issue ends there. However, after liquidation, liquidators, creditors, or regulators may still investigate directors personally, seek compensation, or apply for director disqualification orders.
How to Reduce the Legal Risks
If you are currently acting as a nominee director, or if a company has been set up using the name of a family member, friend, or associate, you should take the risks seriously.
You should first confirm exactly what role is recorded under ASIC’s company register. Do not ignore a formal director title simply because you believe it is only symbolic.
You should also actively review the company’s financial records, bank statements, transactions, tax lodgements, and business activities. A director who does not ask questions may still be criticised for failing to meet their duties.
If you are not actually involved in the business and do not have access to company information, you should consider resigning as director and ensuring the company’s ASIC records are formally updated.
You should also avoid participating in suspicious arrangements, including unlawful tax avoidance, asset transfers, false loans, fake invoices, or transactions designed to hide the true ownership or control of company assets.
If the company is facing tax issues, liquidation, creditor disputes, or an ASIC investigation, you should seek legal advice immediately before making statements, attending interviews, or signing documents.
Facing an ASIC Investigation or Director Liability Allegation?
If you have acted as a nominee director, been involved in a company controlled by someone else, received correspondence from ASIC, or been asked to attend an examination or interview, you should not try to deal with the matter alone.
Early legal advice can help you understand your position, respond properly to regulators, protect your assets, and reduce the risk of personal liability.
The team at Jenny Xu Lawyers has experience assisting clients with ASIC investigations, company law disputes, director liability issues, and white-collar crime matters. We can assess your risks, develop a practical legal strategy, and help you respond effectively.
Disclaimer: The above content is for general informational purposes only and should not be regarded as legal advice. The information provided may change over time. You should always seek professional advice before taking any action.