Markovic: Are Company Consultants Potential New Targets for Liquidators?

ARE COMPANY CONSULTANTS POTENTIAL NEW TARGETS

FOR LIQUIDATORS?

MARTIN MARKOVIC*

Introduction
It is acknowledged that ‘it is increasingly common for a wide range of corporate
functions to be performed by consultants or other contractors who are not strictly
“employees”’. 1 Consultants and business advisers (hereinafter referred to as
‘consultants’) may need to tread carefully when providing their services to corporate
clients. If consultants participate in the making of decisions that affect a substantial
part of a corporation’s business, they will fall within the statutory definition of
‘senior manager’ and ‘officer’ pursuant to s 9 of the Corporations Act 2001 (Cth)
(Corporations Act). These consultants, therefore, would become subject to duties
imposed by the Common Law 2 and the Corporations Act 3 upon company senior
managers. However, these consultants would not be subject to the significant
statutory duty to prevent insolvent trading4 as this duty only applies to parties who
fall within the statutory definition of ‘director’ under s 9 of the Corporations Act. This
article provides the first detailed examination of the potential risk to consultants who
provide services to corporate clients of falling within the statutory definition of ‘de
facto director’ pursuant to s 9 of the Corporations Act. Consultants at risk of de facto
director status of corporate clients in financial crisis may become attractive new
targets for liquidators. There have been numerous cases in Australia and the United
Kingdom dealing with the issue of de facto director status. However, in only a small
number of cases, have consultants been subject to claims of de facto director status.
This article sets out the statutory definition of de facto director and briefly discusses
issues concerning the burden of proof of establishing that a party falls within the
statutory definition of de facto director. It then provides an examination of specific

* BEc(Hons),MBA,LLM (The University of Adelaide) Senior Lecturer in Commercial Law,

Business School, The University of Adelaide.
1 See Corporate Duties Below Board Level Discussion Paper, May 2005, Corporations and
Markets Advisory Committee at p21 citing HIH Royal Commission Report, The Failure of
HIH Insurance (April 2003).
2 Green v Bestobell Industries Pty Ltd (1982) WAR 1.
3 Corporations Act 2001 (Cth) ss 180‐184.
4 Corporations Act 2001 (Cth) s 588G.

Produced by The Berkeley Electronic Press, 2008 1

 Bond Law Review, Vol. 20 [2008], Iss. 2, Art. 3

topics to clarify whether they are key indicators of risk of de facto director status. As
part of this examination the article provides a review of the limited case authorities in
Australia and the United Kingdom where consultants have been subject to claims of
de facto director status. Finally, a summary of key findings is provided in the
conclusion.

Statutory Definition of De Facto Director

Pursuant to s 9 of the Corporations Act5 ‘director’ is defined as:

Unless a contrary intention appears: …

‘director’ of a company or other body means:

(a) a person who:

(i) is appointed to the position of director; or

(ii) is appointed to the position of alternate director and is acting in

that capacity;

(b) unless the contrary intention appears, a person who is not validly
appointed as a director if:

(i) they act in the position of a director; or

(ii) the directors of the company or body are accustomed to act in

accordance with the person’s instructions or wishes.

Subparagraph (b)(ii) does not apply merely because the directors act on advice
given by the person in the proper performance of functions attaching to the
person’s professional capacity, or the person’s business relationship with the
directors or the company or body;

The statutory definition of ‘director’ has the following Note:

Note: Paragraph (b) – Contrary intention – Examples of provision for which a

person referred to in paragraph (b) would not be included in the term
“director” are:

 section 249C (power to call meetings of a company’s members)

 subsection 251A(3) (signing minutes of meetings)

5 Note the contrast to pursuant s 22(5) of the Companies Act 1986 (UK) “Director includes any
person occupying the position of a director, by whatever name called and includes a
shadow director.”

http://epublications.bond.edu.au/blr/vol20/iss2/3 2
Geotechnical Engineering Bored pile design in stiff clay I: codes of
Volume 165 Issue GE4 practice
Vardanega, Kolody, Pennington, Morrison and
Simpson

2 ðL 3
,
Description Partial factor  term
6DÆ cu dz 7
4 A b N c cu 5
:
Qd ¼ G þ 1 3V ¼ o
þ 1: 4
Variable load 1.3 2 22: 1: 6 2: 0
Permanent load 1.0 1
Skin friction 1.5 (driven piles) 5
1.6 (bored piles)
Base resistance 1.7 (driven piles) 6 For the 15 m pile (12 m into the clay) of 0.45 m diameter
2.0 (bored piles) DA1-1
Note: Partial factors on resistances can be reduced with explicit
verification of serviceability limit state (not applicable for this  
example).
: : : 832:6 225:2
Qd ¼ 1 35G þ 1 5(0 25G) ¼ þ : 1: 4
23: 1: 0 10
Table 6. DA1-2 partial factors used

if the modification of the results makes use of a model factor, it 24: 1:725G ¼ ½832:6 þ 225:2=1:4
should take account of: the range of uncertainty in the results of the
method of analysis; any systematic errors known to be associated with
the method of analysis.
G ¼ 438.0 kN
V ¼ 109.5 kN
The UK NA introduces a model factor termed ªRd : In this Qwork ¼ 547.5 kN
example it is applied to the calculated shaft and base resistances The equivalent factor of safety is 1057.8/547.5 ¼ 1.93.
to account for the fact that the analysis model is empirically DA1-2 (governs)
based. The UK NA requires a value of 1.4 (which would be
reduced to 1.2 if there were load testing). This term is represented
in Equation 6 at the 7 term; for more information on pile design  
: : : 832:6 225:2
to Eurocode 7 see Bond and Simpson (2010). Qd ¼ 1 0G þ 1 3(0 25G) ¼ þ : 1: 4
25: 1: 6 20
9.3 Design calculations
For a DA1-1 calculation Equation 5 reduces to Equation 25 and
for a DA1-2 calculation Equation 5 reduces to Equation 22,
assuming that no load testing is carried out 26: 1:325G ¼ ð832:6=1:6 þ 225:2=2Þ=1:4

Qd ¼ 1 G þ 2 V
G ¼ 341.2 kN
2 ð 3
L , V ¼ 85.3 kN
6DÆ ð cu =3 Þdz 7 Qwork ¼ 426.5 kN
4 Ab Nc ð cu =4 Þ5
¼ o
þ 7 The equivalent factor of safety is 1057.8/426.5 ¼ 2.48.
5: 5 6
10. EC 7 – design approach 2 (Irish national
annex)
To demonstrate the use of DA2 for the calculation of pile load
DA1-1; terms 3 , 4 , 5 and 6 are equal to unity and have been carrying capacity, the Irish NA (NSAI, 2005) has been selected.
omitted The Irish NA is unique in that it allows for any of the three
design approaches to be used for geotechnical works.
" ðL #,
10.1 Design parameters
Qd ¼ 1:35G þ 1:5V ¼ DÆ cu dz þ Ab Nc cu 1: 4 Table 7 presents the parameters to be used for the Irish adoption
21: o
of DA2.

10.2 Design calculation

DA1-2; terms 1 , 3 and 4 are equal to unity and have been Therefore, for DA2 design to the Irish NA Equation 5 reduces to
omitted Equation 27

222
Geotechnical Engineering Bored pile design in stiff clay I: codes of
Volume 165 Issue GE4 practice
Vardanega, Kolody, Pennington, Morrison and
Simpson

( j) The major reason SNiP appears unconservative is that the

d ¼ 35

107.7
388.4
447.5
174.0
partial factor on resistance (1.4) and the partial factor on
actions (1.2) are both relatively low. It is not known if the
estimates of skin friction are conservative or not as the source
of the data in SNiP Tables 2 and 7 (Figures 11 and 12 in this

d ¼ 30

89.2
341.1
405.1
160.5
paper) is unclear. A comparison with Æcu values derived
suggests that they are high at shallow depth and low at
greater depth. Overall for the 12 m pile, there is little
difference between the SNiP representative resistance and

d ¼ 25

79.1
303.5
365.0
146.8
that derived from the ‘Æ’ method. It would be interesting to
know performance statistics for piled foundation systems
constructed under the SNiP framework.

d ¼ 20

74.1
275.6
329.2
133.6
Acknowledgements
Thanks must go to the Cambridge Commonwealth Trust and Ove
Arup and Partners for providing financial support to the first
author. The first author offers thanks to Professor Malcolm

d ¼ 15

61.4
236.0
288.5
119.8
Bolton for his supervision. The authors would also like to thank
Professor Harry Poulos for providing a draft copy of AS2159-
2009 for examination and for his advice on an early draft of the
paper.
d ¼ 10

52.2
203.7
252.2
106.6
Appendix – SNiP design charts
For the shaft resistance of piles in clay, cubic equations of the
form in Equation 42 were fitted to the data tables from SNiP. The
47.1
186.7
234.4
100.7
d¼8

regression coefficients are shown in Table 12 and the plotted

functions in Figure 13.

42: f i ¼ a(I L )3 þ b(I L )2 þ c(I L ) þ z

41.2
168.2
214.7
93.7
d¼6

For the base resistance of piles in clay, linear equations of the

form shown below were fitted to the data tables from SNiP. The
58.9
198.2
226.4
93.0
d¼5

regression coefficients are shown in Table 13 and the plotted

functions in Figure 14.
76.6
225.8
235.1
91.1
d¼4

43: R ¼ A(I L ) þ K
48.0
168.5
195.9
80.4

Depth of stratum: m
d¼3
displacement and bored piles, fi : kPa

200
1 2
180
3 4
Shaft resistance for driven,

Table 12. Fitted coefficients (Table 2, SNiP)

160 5 6
43.8
151.3
174.5
70.6
d¼2

140 8 10
120 15 20
100 25 30
35
80
90.1
230.7
206.0
67.2
d¼1

60
40
20
Stratum depth,

0
0 0·1 0·2 0·3 0·4 0·5 0·6 0·7 0·8 0·9 1·0 1·1
Liquidity index, IL
d: m

Figure 13. Graphical representation of Table 2 in SNiP 2.02.03-85

b
a

c
z

230
Geotechnical Engineering Bored pile design in stiff clay I: codes of
Volume 165 Issue GE4 practice
Vardanega, Kolody, Pennington, Morrison and
Simpson

Design resistance, R: d¼3 d¼5 d¼7 d ¼ 10 d ¼ 12 d ¼ 15 d ¼ 18 d ¼ 20 d ¼ 30 d ¼ 40

kPa below the pile tip

A 1054 1107 1196 1250 1446 1679 1911 2107 3300 5000
K 845 875 1116 1325 1541 1811 2088 2304 3300 4500

Table 13. Fitted coefficients (Table 7, SNiP)

Pile base depth: m

Balkema, Rotterdam, the Netherlands, pp. 301–309.
5000 3 5
10 NEN (Netherlands Standardization Institute) (2007) Eurocode 7:
4500 7
Base resistance at pile toe for

12 15 National Annex to NEN-EN 1997-1 – Geotechnical design –

4000 18 20 Part 1: General rules. NEN, Delft, the Netherlands.
bored piles, R: kPa

3500 30
3000
2500
2000
1500
1000
500
0 Poulos HG (2004) An approach for assessing geotechnical
0 0·1 0·2 0·3 0·4
Liquidity index, IL
Figure 14. Graphical representation of Table 7 in SNiP 2.2.03-85
REFERENCES
AASHTO (American Association of State Highway and
Transportation Officials) (2007) LRFD Bridge Design
Specifications, 4th edn. AASHTO, Washington, DC, USA
(with 2008 interim revisions).
Bond AJ and Simpson B (2010) Pile design to Eurocode 7 and the
UK National Annex Part 2: UK National Annex. Ground
Engineering 43(1): 28–31.
BSI (1986) BS 8004: 1986: Code of practice for foundations. BSI,
Milton Keynes, UK.
BSI (2007) National Annex to Eurocode 7: BS EN 1997-1-2004:
Geotechnical design – part 1: general rules. BSI, Milton
Keynes, UK.
BSI (2010) Eurocode 7: BS EN 1997-1-2004: Geotechincal design
– part 1: general rules. BSI, Milton Keynes, UK
(incorporating corrigenda February 2009).
LDSA (London District Surveyors Association) (ed.) (2000)
Guidance Notes for the Design of Straight Shafted Bored
Piles in London Clay. LDSA Publications, Bromley, UK,
Guidance Note 1.
Meyerhof GG (1976) Bearing capacity and settlement of pile
foundations (11th Terzaghi Lecture). Journal of the
Geotechnical Engineering Division, ASCE 102(3): 195–228.
Muir Wood D (1983) Index properties and critical state soil
mechanics. In Proceedings of the Symposium on Recent
Developments in Laboratory and Field Tests and Analysis of
Geotechnical Problems, Bangkok, 6–9 December 1983.
40
NSAI (National Standards Authority Ireland) (2005) National
Annex Eurocode 7: I. S. EN 1997-1-2005: Geotechnical
design – Part 1: General rules. NSAI, Dublin, Ireland.
Patel D (1992) Interpretation of results of pile tests in London
Clay. In: Piling: European Practice and Worldwide Trends
(Sands MJ (ed.)). Thomas Telford, London, UK, pp. 100–
110.
0·5 0·6
reduction factors for pile design. In Proceedings of the 9th
Australia New Zealand Conference on Geomechanics
Auckland, New Zealand (New Zealand Geotechnical Society
and Australian Geomechanics Society (eds)), vol. 1, pp. 109–
115.
Reid A and Taylor J (2010) The misuse of SPTs in fine soils and
the implications of Eurocode 7. Ground Engineering 43(7):
28–31.
Simpson B, Calabresi G, Sommer H and Wallays M (1980) Design
parameters for stiff clays. In Proceedings of the 7th European
Conference on Soil Mechanics and Geotechnical
Engineering, Brighton, Design Parameters in Geotechnical
Engineering (British Geotechnical Association (ed.)), vol. 4,
pp. 91–125.
Simpson B, Morrison P, Yasuda S, Townsend B and Gazetas G
(2009) State of the art report: Analysis and design. In
Proceedings of the 17th International Conference Soil
Mechanics Geotechnical Engineering, Alexandria, Egypt, The
Academia and Practice of Geotechnical Engineering, 5–9
October 2009 (Hamza M, Shahien M and El-Mossallamy Y
(eds)). IOS Press, vol. 4, pp. 2873–2929.
Skempton AW (1959) Cast in-situ bored piles in London Clay.
Géotechnique 9(4): 153–173.
SNiP (1985a) SNiP 2.02.03-85: Pile foundations. Federal Registry
of National Building Codes and Standards of Russia,
Moscow, Russia.
SNiP (1985b) SNiP 2.01.07-85: Loads and effects. Federal
Registry of National Building Codes and Standards of Russia,
Moscow, Russia.
Standards Australia (2002) AS/NZS1170.0-2002: Structural
design actions – part 0: general principles. Standards
Australia, Sydney, New South Wales, Australia.

231
Geotechnical Engineering
Volume 165 Issue GE4
Standards Australia (2009) AS2159-2009: Piling – design and
installation. Standards Australia, Sydney, New South Wales,
Australia.
Stroud MA (1974) The standard penetration test in sensitive clays
and soft rocks. Proceedings of the European Seminar on
Penetration Testing, Stockholm, Sweden, vol. 2:2, pp. 366–
375.
Tomlinson MJ (1986) Foundation Design and Construction, 5th
Bored pile design in stiff clay I: codes of
practice
Vardanega, Kolody, Pennington, Morrison and
Simpson
edn. Longman Group, Harlow, UK.
Vardanega PJ and Bolton MD (2011) Strength mobilization in
clays and silts. Canadian Geotechnical Journal 48(10):
1485–1503.
Vardanega PJ, Williamson MG and Bolton MD (2012) Bored pile
design in stiff clay II: mechanisms and uncertainty.
Proceedings of the Institution of Civil Engineers –
Geotechnical Engineering 165(4): 233–246.
Contribution by Nick O’Riordan and Brandon
Kluzniak
Vardanega et al. (2012) have produced an interesting examination
of various code approaches to the design of bored piles in stiff clay
(Vardanega et al., 2012). Included in the codes considered was the
Aashto (2007) load and resistance factor design (LRFD) bridge
design specification document, and strict application of that
document produced an equivalent lumped factor of safety, F, of
between 3.41 and 3.85, using undrained strength data. These are by
far the highest values of F found by the authors, and imply that the
Aashto design method will produce a larger, less efficient pile than
other codes considered.
Pile design practice in the USA varies from state to state, and
some states have published amendments to Aashto (2007) to take
account of local conditions. In California for example, Caltrans
(2011), at Table 10.5.5.2.4-1 for bored (‘drilled’) pile construc-
tion, replaces the Aashto resistance factor on pile shaft resistance
of 0.45 with 0.7, and the Aashto resistance factor on pile base
resistance of 0.4 with 0.5. Caltrans (2011) cites engineering
judgement and past design practice as the primary reasons for
these amendments. Caltrans (2011) stresses the importance of
construction quality control, and states that the ‘full effectiveness
of the tip resistance should only be permitted when cleaning of
the bottom of the drilled shaft is specified and can be acceptably
completed before concrete is placed.’
Using the full Caltrans (2011) amendments, we calculate a value
of F of 2.58, which falls perhaps fortuitously within the range
2.43 to 2.66 calculated using Eurocode 7.
Readers may be somewhat surprised at Caltrans’ use of, in effect,
an equivalent Æ value of 0.7 for a stiff clay. This value can be
related to a reliability index, , that represents the number of
standard deviations between the mean safety margin and the
failure limit (Paikowsky, 2004). Using this approach, an Æ value
of 0.7 would imply a  value of about 2.5, rather than about 3.5
if using the lower, Aashto-specified resistance factors.
However, in California it is often the case that the governing load
case is from short-term, rapid loading from seismic action, in which
a stiff clay could exhibit higher stiffness and strength. Guha (1995)
showed an increase in stiffness and strength, for the Old Bay Clay
contemplated by the authors, of approximately 5% per order-of-
magnitude increase in strain rate over that produced from slow
undrained strength testing in a conventional laboratory. The high Æ
factor of 0.7 may in part reflect an allowance for such rate effects.
Finally, we draw the authors’ attention to FHWA (2010), in which
Aashto (2007) is rigorously reviewed. Great stress is given to pile
load testing and back-analysis in order to provide continuing
refinement of parameters for the design of piles.
Authors’ reply
We welcome the clarification from the discussers regarding the
Caltrans modifications to the Aashto design approach for piles. It
seems that the USA may be no more ‘united’ than Europe in terms
of geotechnical standards. In the original paper (Vardanega et al.,
2012), a review was undertaken to compare the different design
approaches (DA1, DA2 and DA3) in Eurocode 7. A similar
comparative study could be undertaken with the different modifi-
cations or annexes to the Aashto design code from different
jurisdictions within the United States. It is interesting to note that
using the Caltrans modification of Aashto the pile design would be
fairly similar to that obtained using the Eurocode.
The discussers cite the work of Paikowsky (2004), which suggests
that the partial factors for pile design can be determined from
statistical calibration – again based on data. This implies that the
database used to calibrate any partial factor set is ‘representative’
of the designs that will be carried out under its auspices.
Eurocode 7 assigns partial factors based on the experience of
experts, who would have access to various databases, but it does
not claim to have a load-test database that represents pile designs
for the whole of Europe. The key is to have access to a database
that is representative of the designs that will be done under the
auspices of the code.
Other codes also facilitate risk analysis, but not using explicit
statistical procedures. Vardanega et al. (2012) reviewed the
approaches described in AS2159-2009 (Standards Australia,
2009) and Poulos (2004), where the code drafters set limits on
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Geotechnical Engineering
Volume 167 Issue GE1
the geotechnical reduction factors (similar to partial factors), and
a risk analysis matrix is used to search for a value of the
reduction factor applicable to the specific design project being
undertaken. This gives the design engineer the flexibility to
reduce the partial factors if good ground investigation data and
load testing are carried out, or increase them if designing in an
unfamiliar soil deposit. The code itself gives advice on the
elements of geotechnical risk that the designer must consider; in
other words, they recognise that a ‘one size fits all’ approach is
perhaps limited. Eurocode 7 aims to achieve a similar result by
encouraging the designer to vary the characteristic values of soil
properties in relation to the quality of the supporting data, while
keeping the values of partial factors constant.
The discussion of the adhesion factor Æ for bored pile design is
interesting. The parameter Æ relates to the soil deposit being
studied; the value Æ ¼ 0.5 is commonly used in London Clay.
Increasing Æ to account for rate effects in clay might be
warranted, but only if load-test data were also available (e.g.
Burland et al., 1966). For example, previous use of ‘constant rate
of penetration’ tests generally showed slightly higher values of Æ
for London Clay (Patel, 1992). For static loading, Æ ¼ 0.7 used in
the Caltrans amendment, as noted by the discussers, does seem
surprisingly high for a stiff clay (API, 1984); the overall
reliability of the design will depend not only on this and the
applied strength reduction factor, but also on the factors applied
to loads. We understand that, in practice, the use of this value is
often replaced by results from load testing.
REFERENCES
Aashto (2007) LRFD bridge design specifications. Customary US
Units, 4th edn. American Association of State Highway and
Transportation Officials, Washington, DC, USA.
API (1984) Planning, Designing and Constructing Fixed Offshore
88
Discussion
Vardanega, Kolody, Pennington et al.
Platforms. American Petroleum Institute, Washington, DC,
USA.
Burland JB, Butler FG and Dunican P (1966) The behaviour and
design of large diameter bored piles in stiff clay. Proceedings
of the ICE Symposium on Large Bored Piles, London, UK,
pp. 51–71.
Caltrans (2011) California Amendments to Aashto LRFD Bridge
Design Specifications, 4th edn. California Department of
Transportation, Sacramento, CA.
FHWA (Federal Highway Administration) (2010) Drilled Shafts:
Construction Procedures and LRFD Design Methods, Report
No FHWA NHI-10-016. National Highway Institute,
Washington, DC, USA.
Guha S (1995) Dynamic Characteristics of Old Bay Clay
Deposits in the East San Francisco Bay Area. PhD thesis,
Purdue University, Ann Arbor, MI, USA.
Paikowsky S (2004) Load and Resistance Factors for Deep
Foundations, NCHRP Report 507. Transportation Research
Board, Washington, DC, USA.
Patel D (1992) Interpretation of results of pile tests in London
Clay. In Piling: European Practice and Worldwide Trends
(Sands MJ (ed.)). Thomas Telford, London, UK, pp. 100–
110.
Poulos HG (2004) An approach for assessing geotechnical
reduction factors for pile design. Proceedings of the 9th
Australia New Zealand Conference on Geomechanics,
Auckland, New Zealand, vol. 1, pp. 109–115.
Standards Australia (2009) AS2159-2009: Piling: design
and installation. Standards Australia, Sydney, NSW,
Australia.
Vardanega PJ, Kolody E, Pennington SH, Morrison PRJ and
Simpson B (2012) Bored pile design in stiff clay I: codes of
practice. Proceedings of the Institution of Civil Engineers –
Geotechnical Engineering 165(4): 213–232.