Back

Our offices will be closed over the Easter weekend from 5:30pm on Thursday 28 March. We will reopen as usual at 9am on Tuesday 2 April.

Get in Touch Menu

Shadow and de facto directors – are you at risk?

03 November 2014

In the day-to-day running of a company, businesses are often overseen by individuals who are not legal directors registered at Companies House.

However, those who undertake such roles should be aware that the law may treat them as directors even if they are not legally registered. This has important consequences, as such individuals are exposing themselves to personal liability (both civil and criminal) for their acts or omissions in directing the company.

The law categorises three types of director:

  • a de jure director – is registered at Companies House (including alternate directors whose appointment should normally be registered at Companies House)
  • a shadow director – is defined by the Companies Act as ‘any person in accordance with whose directions or instructions the directors of a company are accustomed to act’ (section 251 CA 2006)
  • a de facto director – is ‘any person occupying the position of director, by whatever name called’ (section 250 CA 2006). This could, for example, include invalidly appointed directors.

The Court of Appeal in the recent case of Smithton Limited v Naggar, issued guidance on how to determine whether a person is a de facto or shadow director. The case considered whether a director of a holding company had become a director of its subsidiary – a question which often arises in practice. It is important for group companies and their directors to understand when liability as a de facto or a shadow director may arise. Although in law such an assessment will always be a question of fact and degree in every case, the decision does provide some insight into what practical points a court would take into account, for instance:

  • whether the person had assumed the status and function of a director so as to make himself responsible as if he were a director. The question whether or not he acted as a director is to be determined objectively and irrespective of the director’s motivation or belief – so:
  1. did the company consider the person to be a director and held him out as such?
  2. did third parties consider him to be a director?
  • the fact that a person is consulted about directorial decisions, or his approval is sought, does not in general make him a director because he is not making the decisions.

Many corporate structures will have individuals who exert influence but are not registered as directors at Companies House, particularly if they are owners, and it can therefore be worth remembering the obligations and risks that they expose themselves to if they do act in such a way.

If you need support reviewing or discussing your corporate structure, do not hesitate to get in touch with our expert team. We’d be delighted to help.

Contact us

Our corporate & commercial team is rated by national legal guides The Legal 500 and Chambers UK. The department’s expert lawyers can help businesses big or small on a variety of corporate challenges that may arise.

Disclaimer: All legal information is correct at the time of publication but please be aware that laws may change over time. This article contains general legal information but should not be relied upon as legal advice. Please seek professional legal advice about your specific situation - contact us; we’d be delighted to help.
Contact
Chris Wills LLB (Hons)
Partner
View profile
Related services
Share this article
Resources to help

Related articles

Changes to company law – what businesses need to know

Corporate

This week, initial changes to company law – including the biggest changes to Companies House since it began – will start to take effect. Here, our corporate and commercial team…

Chris Wills LLB (Hons)
Partner

Act to combat economic crime has received royal assent

Corporate

Earlier this year we reported on the register of overseas entities, which was created under the Economic Crime (Transparency and Enforcement) Act 2022. This move formed part of a significant…

Chris Wills LLB (Hons)
Partner

Overview: Family investment companies

Corporate

A growing trend of late has been the increasing use of family investment companies. Our corporate & commercial team gives an overview of what they are and their benefits. What…

Helen Howes LLM
Associate, solicitor
Contact us