Death of a sole director and shareholder
Well, yes and no. For instance, someone who is involved in the day to day management of a business, but has not been formally appointed as a director or someone who tells the board what to do may also be considered to be a director for the purposes of company law.
Directors who have not been formally appointed might nonetheless be subject to the same statutory duties and obligations, and potential sanctions, as are imposed on formally appointed directors. For this reason, the answer to someone’s status may only be evident after some digging.
There are three categories of director recognised in law.
A de jure director is the most common form of director. A de jure director is someone who has been validly appointed as a director. Their appointment must be registered at Companies House using Form AP01 (or Form AP02 in the case of a director that is a corporate body or firm) and their details will appear on the public register.
A de facto director can be broadly described as being a person who occupies the position of director by way of their conduct but they are not validly appointed as such. This includes someone who acts as a director but they use a title other than director. It may also include a person who for all intents and purposes is a director but for some reason their appointment is defective.
Case law suggests that in order to determine whether someone is a de facto director, that person must undertake responsibilities that only a director of the company (and not, for example, a manager below board level) could perform. Whether or not their actions are those that only a director of the company could carry out is determined objectively. It is not sufficient for someone to argue that they thought, in good faith, they were not acting as a director.
A shadow director is defined in the Companies Act 2006 as a person in accordance with whose directions or instructions the directors of a company are accustomed to act.
This definition is not intended to catch people who, in their capacity as professional advisors, provide advice to the board which the directors then act upon (note it may catch non-professional advisors who instruct the board). There are also certain exemptions for a corporate director that is holding company of a subsidiary and as such the directors of the subsidiary are accustomed to act in accordance with its directions or instructions.
An example of a shadow director would be a shareholder or an investor or, in many cases, a person who has been disqualified from acting as a director, who instructs the board to pursue a certain course of action.
It is well established that de jure directors owe various duties to a company, including the general statutory duties set out at sections 171 to 177 of the Companies Act 2006, e.g. acting within their powers, to avoid conflicts of interest and to exercise reasonable care, skill and diligence.
To what extent, if at all, do these duties apply to de facto directors and shadow directors?
De facto directors fall within the definition of ‘director’ contained in s. 250 Companies Act 2006 (i.e. a director by conduct) and are therefore subject to the same duties as de jure directors.
The general duties also apply to shadow directors to the extent that they are capable of applying (the starting point being that the general duties apply unless they are not capable of applying).
In the event that a company fails, the spotlight will fall on the board, whether the individuals concerned are de jure, de facto or shadow directors. Like de jure directors, de facto directors and shadow directors may be subject to criminal liability, disqualification, and liability for wrongful trading under the Insolvency Act 1986 if they are found to have breached their duties. In particular, directors may be personally liable to account to the company for any loss of profit or benefit received, as a result of a breach of their duties.
It is therefore important for someone who has not been formally appointed as a director to understand whether they may nonetheless be deemed to be a director.
If you are unsure whether your role within the company amounts to holding the office of director in all but name then you should seek legal advice so as to make sure you understand your legal duties.
If you have any concerns or require further information about directors’ duties and their potential implications, please contact a member of our directors and officers team.
Luke Gregory is an Associate in the Corporate and Commercial team, he works on a broad range of corporate and commercial matters including advising on company incorporation, bespoke articles of association and shareholder agreements, corporate governance, and Companies Act procedures such as off-market share buybacks and the removal of company directors. Contact Luke.
In Part 1 of our two-part series on the Department for Business, Energy and Industrial Strategy's (BEIS) White Paper on audit and corporate governance reform (Restoring Trust in Audit and Corporate Governance), we focussed on whether the proposals regarding corporate governance are likely to make the UK a more or less attractive destination for investors.
In 2012, as a recently elected MP, Kwasi Kwarteng co-authored “Britannia Unchained: Global Lessons for Growth and Properity”, a political pamphlet which championed risk-taking and innovation in the UK economy, and which ever since has led some to label him a fervent Brexiteer. Appointed as the Business Secretary in January 2021, only a few months later his department (BEIS) published one of the longest and most ambitious government White Papers in recent years.
A recent case has highlighted a trend that that we have seen over recent years, with Employment Tribunals finding that the dismissal of a senior executive can be fair where there has been a breakdown in relations amongst a management team and one director / executive is considered to be more at fault (Moore v Phoenix Product Development Ltd EAT/0070/20). Also, the procedural requirements for such dismissals may be more limited, in this case, the fact that no right of appeal was offered did not render the dismissal unfair.
In the recent case of TMG Brokers Ltd (In Liquidation) (also known as: Baker v Staines) the High Court held a director of a company to be jointly and severally liable for payments made by his co-director out of the company’s bank account which were made without proper authority and amounted to disguised distributions of capital. The fact that he had placed trust in the other director for the company's financial affairs did not excuse him from performing his duties.
Following the release of the Hill Report at the start of last month, the FCA has announced that it is going to open a consultation into changing the Listing Rules and connected guidance with a view to encouraging the listing of Special Purpose Acquisition Vehicles (SPACs).
Following a request by the Department of Business, Energy and Industrial Strategy (“BEIS”) ICSA has prepared a report assessing the effectiveness of the independent board evaluation process introduced in the 2018 update of the UK Corporate Governance Code (the “UK Code”).
What happens when a director commits fraud by misappropriating company assets? Or what of the director who continues trading knowing that the company has no realistic prospect of paying its debts as and when they fall due? To whom does a director owe duties at that point and what recourse is there against that director? This article explores these questions.
Disputes between directors often arise because of, and/or result in, disputes about company money. Directors need to be alert to how they are required to act, particularly in times of conflict.
It is well known that directors owe duties to the company of which they are a director and, in certain circumstances, its shareholders, creditors and employees. Many people believe that if you have not been formally appointed as a director, i.e. you do not appear on Companies House records as a director, you will not owe the usual directors’ duties and, therefore, cannot be in breach of such duties or subject to sanctions for breach.
All providers registered with the Care Quality Commission (“CQC) must assure themselves that all directors who are responsible for delivering care to service users are fit and proper – in other words, they must be able to diligently carry out their responsibility to ensure the quality and safety of care. This forms part of the providers’ duty to ensure the service is well-led, which is one of the focus points during an inspection. Not only does the CQC monitor compliance at the point of registration, but it is an on-going duty and can lead to enforcement action where it is not met.
In the recent case of Barrowfen Properties Ltd v (1) Girish Dahyabhai Patel (2) Stevens & Bolton LLP (3) Barrowfen Properties II  EWHC 2536 (Ch), the High Court extended the iniquity exception to breaches of a director’s statutory duties.
It goes without saying that Insolvency Practitioners must behave honestly and with integrity in all their professional dealings. IPs must handle money and assets in a way which justifies the trust placed in them, but some professionals don’t realise that the way they behave on a Saturday night may be just as relevant to their ability to continue in their chosen profession as the way they behave on a Monday morning.
In response to the coronavirus (“COVID-19”) pandemic, the government introduced a number of loan schemes in order to assist businesses struggling financially. Recent reports suggest that these schemes, as outlined below, have become a target for fraudulent loan applications, by both genuine businesses and also organised criminal enterprises. This blog briefly examines the various loan schemes in place and the criminal offences which are likely to be the focus of investigating authorities in the coming months.
Court of Appeal overturns injunction in favour of son who sought to restrain his family from participating in the management of their caravan park business - Loveridge –v- Loveridge  EWCA Civ 1104.
Brother and sister Mark and Rachel Penfold were directors of a waste management company. In February 2016 an employee of the business suffered a serious injury when his arm was caught in a conveyer he was operating whilst at work. The Health and Safety Executive prosecuted the company and both individuals under the Provision and Use of Work Equipment Regulations 1998 (PUWER).
We live in uncertain and financially very troubling times. The coronavirus pandemic and the unprecedented measures put in place to tackle it have caused severe disruption to businesses. Big names such as Harveys, TM Lewin, Intu and the owners of Café Rouge and Bella Italia all went into administration at the beginning of the month. They will not be the last.
It is a sad reality that the Covid-19 Pandemic is likely to lead to a spike in the number of companies being put into insolvency. This has the potential to leave parties with claims against those companies with a reduced prospect of full recovery, even if their claims are strong. As a result, claimants may look for alternative targets, including ways in which they could sue directors personally.
Company succession planning is critical to ensure that a company can continue to run in the unfortunate event that a director (or shareholder) dies. If there are other surviving directors, they are able to step in and run the company, but what happens when a sole company director dies?
The impact of COVID-19 is being felt in many different ways. For those going through a separation or divorce, the pandemic has added a layer of uncertainty and stress to an already difficult process. This is particularly so for those who own a business (or whose spouse does), where the value of their business may have been affected and they are concerned with the impact on a financial settlement. In this blog, we look at the complexities of valuing businesses in divorce proceedings at this unprecedented time and provide some practical considerations.
In Hunt (as Liquidator of System Building Services Group Ltd) v Michie & Ors  EWHC 54 (Ch), ICC Judge Barber has confirmed that directors of insolvent companies remain subject to fiduciary duties, even after those companies enter into an insolvency procedure.
Skip to content Home About Us Insights Services Contact Accessibility