Tuesday, November 8, 2016

What does 'sufficiently influenced' mean?

Particularly in relation to investments by self-managed superannuation fund (SMSFs) into geared unit trusts that might potentially be a 'related party', the concept of whether a director is 'sufficiently influenced' by other persons is always important.

Generally, a director will be considered to be sufficiently influenced by a third party where they act in accordance with that other party’s directions or wishes.

While the concept is relatively easy to define, its application in any specific factual scenario will almost always depend on an interpretation of the circumstances.

Some examples of where a director has been held to be sufficiently influenced by another person include:
  1. A husband and wife (who were the only directors of a company) have been held to be influenced by their sons, because they never made any substantive decision without consultation with the sons and their intention was to ultimately appoint the sons as directors.
  2. A company has been held to be controlled solely by one director, even where there was an independent third party as a co-director, because the third party had no input into the management of the company and had simply been appointed to create the impression that the board was independent.
  3. A sole director company, where the director was an independent appointment, was held to be controlled by the ultimate shareholders of the company, as the director simply acted in accordance with the directions of the shareholders.
Ultimately, the Tax Office has confirmed that it is necessary to take into account all of the evidence and conduct between parties and the concept of a party 'significantly influencing' a third party will exist where it can be said to be likely that the other party would act in accordance with the wishes expressed.

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