Properly appointed directors are known as de jure directors whereas those controlling a company's affairs without being appointed are either de facto or shadow directors.
This article examines recent court rulings on de facto directors:
In the case of Re Snelling House Ltd in liquidation, a liquidator brought proceedings against someone who claimed to be a consultant but who it transpired was married to the only director. Furthermore, the consultant had given an undertaking which disqualified him from acting as a director of any company. His past record included a prison sentence for dishonesty.
The company had, through receivers, sold its only asset, a property, upon which the purchasers had paid a sum representing the vat if it turned out that vat was chargeable. It was eventually established that vat was not chargeable and the money should have been returned to the purchaser. The consultant then transferred the money for the benefit of himself and his family after which the company went into insolvent liquidation.
The court ruled that the consultant was a de facto director for various reasons including the following:-
In the case of F Options (F) v Prestwood Properties Ltd (P), a liquidator was seeking to set aside a transaction which he alleged was a preference. Again vat was involved being a partial repayment to F and the money received was transferred to P and a Mr Saunders who was not recorded as being a director of either company, having resigned from F in 2003. P was a company with Mr Saunders' aunt as sole director but matters were left to Mr Saunders.
Again the court held that Mr Saunders was a de facto director. The director who was named as Mr Saunders replacement lived in Australia and had nothing to do with the running of the business whereas Mr Saunders had signed Companies House and HMRC forms describing himself as a director. He had also described himself as a director to third parties.
There are few court decisions on this subject and so it is useful to have these as a guide. Quite how useful is unclear as in both cases the court found the de facto directors' conduct clear evidence of their status. What remains uncertain is the attitude of the courts to (say) a consultant to a company who on a rare occasion oversteps the mark (whatever that might be) in an effort to assist a company.
No doubt these two cases will encourage more challenges to the status of individuals who are not named as directors but who are known to have an involvement with a company now in liquidation. In the absence of anything else, professional advisers and company doctors have protection from such claims. What is unsettling is that just having a claim brought against one is enough of an expense, irrespective of whether one is able to successfully resist the claim or not.
Original case summaries provided by Bircham Dyson Bell.
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