No hiding in the shadows: disqualification of an unappointed director
The High Court recently gave useful guidance on the factors that will be considered when assessing whether an individual may be either a shadow or de facto director. In this case, an individual who had been responsible for running an insolvent company, but claimed he had not been formally appointed as a director, was found to be both a shadow and de facto director and was subsequently disqualified from acting as a director for 12 years.
A shadow director is defined in section 251(1) of the Companies Act 2006 as a person in accordance with whose directions or instructions the directors of the company are accustomed to act. There are limited exceptions for those who act purely in a professional capacity when providing advice — such as lawyers. A de facto director on the other hand is a person who performs the functions of a director but who has not been formally appointed as a director.
Both shadow and de facto directors are liable, in largely the same way that a run-of-the-mill director is, for issues such as wrongful trading, and to director disqualification under the Company Directors Disqualification Act 1986 (CDDA), and they also have statutory obligations such as the duty to act in the way they consider, in good faith, would be most likely to promote the success of the company for the benefit of the members as a whole…
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