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De facto and shadow directors

This Practice Note summarises the law relating to de facto and shadow directors of a company pursuant to the Companies Act 2006 (CA 2006) and common law.Definition of 'director'CA 2006 broadly defines a director as 'any person occupying the position of director, by whatever name called'.Within that definition, case law has established that there are two categories of director:•de jure directors, being those directors that have been validly appointed in accordance with the company's articles of association and CA 2006, and•de facto directorsA third category of director, known as shadow directors, is defined separately in CA 2006.Note that a person could be both a shadow director and a de facto director, eg if they assume the functions of a director as regards one part of the company's activities and gives directions to the board in relation to a different part of the company's activities.The remainder of this Practice Note focuses on the law regarding de facto and shadow directors.De facto directorsA de facto director is a person that acts as...

Directors' duties—nature, scope, interpretation and application

Directors are the agents of a company who manage its day-to-day business and owe a number of duties to it. The Companies Act 2006 (CA 2006) codified for the first time certain common law and equitable duties that had been developed by the courts over hundreds of years and also modified company law in certain areas.CA 2006, ss 171–177 set out the statutory duties (the general duties) owed by a director to their company:•the duty to act in accordance with the company's constitution and only exercise powers for the purposes for which they are conferred•the duty to act in a way the director considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole and in doing so have regard to various matters (duty to promote the success of the company). Pursuant to the Companies (Miscellaneous Reporting) Regulations 2018, SI 2018/860, companies that have to prepare a strategic report will need to include a separately identifiable...

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Briefing for directors—general duties under the Companies Act 2006

Briefing for directors—general duties under the Companies Act 2006 Every director of a company owes a number of duties to the company they are appointed to. Many of those duties have been developed by the courts over hundreds of years. The main directors' duties are set out in statute in sections 171 to 177 of the Companies Act 2006 (CA 2006). This briefing is intended to give you, the directors [and the company secretary] of [insert company name] [Limited OR PLC] (the Company) an overview of the general duties set out in the CA 2006 and to provide some practical guidance to help you comply with those duties. The failure by a director to comply with any of the general duties has potentially serious consequences for that director. This briefing is not intended to give legal advice, which should be sought on any specific issues that arise in relation to directors' duties. Who owes the general duties? Every director of a company owes each of the...

Special administration—letter to all known creditors: notice of appointment of special administrators

Special administration—letter to all known creditors: notice of appointment of special administrators [TO BE TYPED ON THE HEADED NOTEPAPER OF THE SPECIAL ADMINISTRATORS’ FIRM] TO ALL KNOWN CREDITORS [ENTER DATE] [name of Investment Bank]—in special administration (the ‘Investment Bank’) I write to advise you that I was appointed as Joint Special Administrator of the Investment Bank on [date] together with my partner, [name of other special administrator]. A formal notice of appointment is attached. Under the Investment Bank Special Administration Regulations 2011, SI 2011/245 (the ‘Regulations’) the purpose of the special administration is to achieve the following objectives: • ensure the return of client assets as soon as reasonably practicable • ensure timely engagement with market infrastructure bodies and the authorities pursuant to Regulation 13, and • to either: — rescue the investment bank as a going concern, or — wind it up in the best interests of creditors In this matter, the [Financial Conduct Authority OR Prudential Regulation Authority] has consented to the special administration...

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Might a lender holding a legal mortgage (or Scottish pledge) of shares be a PSC?

Might a lender holding a legal mortgage (or Scottish pledge) of shares be a PSC? Might a lender holding a legal mortgage (or Scottish pledge) of shares be considered a PSC? Based on a direct interpretation of the conditions (Conditions) set out in the Companies Act 2006 (CA 2006), Sch 1A, Pt 1 it would appear possible in certain circumstances for a lender or collateral-taker to be a PSC or relevant legal entity (RLE). While various aspects of the statutory guidance seek to provide lenders with certain protection from this conclusion (see below), such protection is by no means guaranteed in all circumstances. Relevant legislation The Condition for being a PSC which is most likely to apply to a lender to a company (as opposed to a shareholder) is Condition 4: X has the right to exercise, or actually exercises, significant influence or control over company Y. Paragraph 23 of CA 2006, Sch 1A, Pt 3, further states: Rights attached to shares held by...

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Supreme Court confirms that section 213 of the Insolvency Act 1986 is not restricted to those involved in the management or control of the company’s business (Bilta (UK) Ltd (in liquidation) and others v Tradition Financial Services Ltd; Nathanael Eurl Ltd (in liquidation) and another v Tradition Financial Services Ltd)

The Supreme Court unanimously dismissed both appeals. Applying ordinary principles of statutory interpretation, the court affirmed that the language of section 213 of the Insolvency Act 1986 (IA 1986) does not restrict liability to those involved in the management or control of the company’s business such as directors or managers, but could very well apply to someone routinely transacting with the company in the knowledge that the company was carrying on a fraudulent business. In addition, the court held that where claimant companies had been struck off and then later restored to the register, the deemed existence of the claimant companies during the period in which they were in fact in dissolution did not necessitate assuming that they lacked directors or other officers during that time. That was a question of probability to be determined on the evidence: the burden of proof was on the claimant companies and they had failed to discharge it. Accordingly, the dishonest assistance claim remained time-barred. Andrew Westwood KC, barrister practising from Maitland Chambers, comments...

View the latest UK Parliament Acts documents on Shadow directors

251 “Shadow director”

(1)     In the Companies Acts “shadow director”, in relation to a company, means a person in accordance with whose directions or instructions the directors of the company are accustomed to act.(2)     A person is not to be regarded as a shadow director by reason only that the directors act[—(a)     on advice given by that person in a professional capacity;(b)     in accordance with instructions, a direction, guidance or advice given by that person in the exercise of a function conferred by or under an enactment;(c)     in accordance with guidance or advice given by that person in

251 Expressions used generally

In this Group of Parts, except in so far as the context otherwise requires—“administrative receiver” means—(a)     an administrative receiver as defined by section 29(2) in Chapter I of Part III, or(b)     a receiver appointed under section 51 in Chapter II of that Part in a case where the whole (or substantially the whole) of the company's property is attached by the floating charge;[“agent” does not include a person's counsel acting as such;][“books and papers” and “books or papers” includes accounts, deeds, writing and documents;]“business day” means any day other than a Saturday, a Sunday, Christmas Day, Good Friday or a day which is a bank holiday in any part of Great Britain;“chattel leasing agreement” means an agreement for the bailment or,