The actions we take; the boundaries we cross; the duties we owe…- status of directors
The epitome of a company director in the eyes of the
layperson is too often his perceived inflated wallet. No doubt avid newspaper
readers will recall the works of cartoonists depicting directors as hoarders of
vast sums of money with enormous wallets. However, to coin a often-quoted
phrase, “with great power comes great responsibility”. Company directors are
under a catalogue of duties, as detailed in Part 10 of the Companies Act 2006,
and these are often conflicting and vague. Equally, provisions in the
Insolvency Act 1986 and the dangers of lifting the corporate veil for ills
conducted by shareholder-directors can both add to the dangers of the job.
It would be thought, then, that the best way of
avoiding such dangers is to be an “off-the-records director”. Legally referred
to as “shadow directors”, a phrase which refers to “a person in accordance with
whose directions or instructions the directors of the company are accustomed to
act” (Section 251 CA 2006), the law has ensured such practices do not allow the
evasion of liability. Where a person is found to control a company despite not
being a de jure director, the law thus sees them as a de facto/shadow director
and the liabilities that follow are one and the same. A third category,
separate from the fully registered de jure direction, is the de facto director
who falls fouls of the legal and procedural requirements to be constituted a de
jure director.
A recent decision of the High Court has considered
the test for establishing what constitutes a de facto director. Though the test
is somewhat vague, we are too aware that company law cannot be confined by the
scripts of the legislature or the utterances of the judiciary if it is to
remain sufficiently and desirably flexible to accommodate for the contextual
changes that are inevitable. The Court in Elsworth
Ethanol v Hartley [2014] EWHC 99 stated that the test for a de facto
director must consider the following:
1. All the
circumstances of the case; in considering all of the circumstances of the case,
the following are important but consideration need not be limited to them:
a.
Whether the
company held the person out as being a director;
b.
Whether this
individual made use of the title of director;
c.
Whether the
individual was part of the corporate governance structure of the company; and
d.
Whether the
individual was acting with other directors and whether he was on equal footing
with the other directors.
2. If the capacity of the person acting is unclear (whether they act as a director or through some other role) they should be given the benefit of the doubt.
The consequences that follow from being perceived as
a director of a company without being registered, be it a shadow or de jure
director, can be severely damaging. The exposure can place the individual under
an obligation to perform the duties of a direction under Part 10 CA 2006 and
the additional liabilities and obligations that follow are of equal concern.
With the above matters in mind, it is submitted that
whilst the test of the High Court in Elsworth
is appreciable on the grounds that it retains flexibility whilst providing
clarity, there is a valid concern that flexibility sacrifices certainty. Some
may argue that the “benefit of the doubt” provision helps individuals from
undue liability or obligations. However, this author argues that any link drawn
between the lack of clarity in the underlying test and a qualification clause
to the effect of the “benefit of a doubt” provision is a false analogy as the
concern is not sufficiently countered by the qualification.
The writer is a lawyer based in London, with a keen interest in Company, Employment and Immigration law. Previously, he has completed two Masters in Law at the University of Sussex and University College London. He is currently pursuing his third postgraduate legal qualification, undergoing training at BPP Law School in London on the Bar Professional Training Course and can be reached at: jay@londonlawtutor.com
Law Tutors Online, Top Law Tutors Online, UK Law Tutor, UK Law Teacher, UK Law Notes, Manchester Law Tutor, Birmingham Law Tutor, Nottingham Law Tutor, Sheffield Law Tutor, Oxford Law Tutor, Oxbridge Law Tutor, Cambridge Law Tutor, Bristol Law Tutor, Liverpool Law Tutor, Edinburgh Law Tutor, Glasgow Law Tutor, Belfast Law Tutor, Dublin Law Tutor, Toronto Law Tutor, Vancouver Law Tutor, Montreal Law Tutor, New York Law Tutor, San Francisco Law Tutor, Sydney Law Tutor, Melbourne Law Tutor, Singapore Law Tutor, Hong Kong Law Tutor, Seoul Law Tutor, Paris Law Tutor, Los Angeles Law Tutor, San Francisco Law Tutor, Dubai Law Tutor, Boston Law Tutor, Chicago Law Tutor, Doha Law Tutor, Riyadh Law Tutor, Kuwait Law Tutor, Law Essay Help, LLM Tutor, LLM Law Tutor, PhD Law Tutor, Law Dissertation Help, Law Essay Writer, Law Dissertation Tutor, Law Essay Tutor, UK Law Essay, UK Law Tutors and London Law Tutor are trading names of London Law Tutor Ltd. which is a company registered in England and Wales. Company Registration Number: 08253481. VAT Registration Number: 160291824 Registered Data Controller: ZA236376 Registered office: Berkeley Square House, Berkeley Square, London, UK W1J 6BD. All Rights Reserved. Copyright © 2012-2023.
