Company Officers
An individual who holds a senior position within a company, even though not formally recognised as a ‘Director’, and registered as such at Companies House, of may still face exposure to the same administrative consequences and personal liability for debt etc. as if formal registration had been completed.
There is no requirement for registration as ‘Director’ at Companies House before an individual may be construed as a Director of a company subjected to all attendant legal responsibilities.
Stuart Southall of Kangs Solicitors outlines the various ways in which the term ‘Director’ may attach to a person seen to be exercising a legal function within a company and the unexpected personal liability which may trap unwary individuals.
The Team at Kangs Solicitors has vast experience advising company officers, whether they be registered directors or senior company members on a wide range of matters affecting companies which include:
- Director Disqualification
- Company / Shareholder Disputes
- Insolvency
- Breach of Contract
- Intellectual Property Disputes – Trade Marks, Copyright and Patents
- Trade Mark Prosecution before the UKIPO
- Intellectual Property Exploitation
- Cryptocurrency
- Norwich Pharmacal/Bankers Trust Applications
- The quality of goods
- Proprietary Interests (in goods or money)
- Retention of Title
For an initial no obligation discussion, please contact our team at any of the offices detailed below:
0207 936 6396
0121 449 9888
0161 817 5020
07989 521210
London
Birmingham
Manchester
24 Hours number
What is a Company? | Kangs Company Law Offences Defence Solicitors
The description of ‘a company’ generally refers to a Formally Incorporated Private Company at Companies House usually limited by shares but, occasionally, by guarantee.
The Companies Act 2006 (‘the Act’) provides that, in respect of each company, full details must filed and accurately maintained, of:
- the Registered Office,
- the Director(s),
- the person(s) in overall control,
- its annual performance (i.e. the filing of its accounts)
Many companies have the commonality of its director(s) and shareholder(s), the owner(s) of the company, being the same individuals. However, there is no obligation for this to be the case and a director need not be a shareholder, or a shareholder, a director. The two standings are completely distinct.
Directors | Kangs Company Director Disqualification Solicitors
Officially, a company is controlled and administered by one or more individuals registered as ‘Director’ at Companies House.
Although a company is a recognised legal entity and has the same standing as an individual, in that it can enter into contracts, raise finance and be sued or bring proceedings etc. it acts through its director(s).
The law recognises three classifications of ‘Director’
‘De jure’ directors
This description describes those who most people would consider to be directors.
A ‘De jure’ director(s) exercises the ‘controlling mind’ or functioning of a company having:
- voluntarily accepted the responsibilities of running a company,
- been recorded at Companies House as a Director,
- by such activity accepted the obligations imposed by the Act.
These obligations include the duty to perform:
- within their powers for the benefit of the company,
- in the best interests of the company,
- with the intent to promote the success of the company; and
- in a manner not in conflict with the interests of the company.
‘De facto directors’ and ‘Shadow directors’
A ‘de facto’ director is a director in fact, or reality, but has not been formally appointed by registration at Companies House. Such a person presents as and, is believed, to be a director by third parties.
A ‘shadow director’ is one who conducts himself as a ‘Board member’ of the company, who is not officially recorded at Companies House as a Director, but, nevertheless, exercises influence and control over it.
Acting, or being perceived to act, in a manner that provides the impression of ‘control’ in a company frequently leads to the statutory obligations of ‘De jure’ directors vesting in them as the result of presenting as ‘De facto’ or ‘Shadow directors’.
Such conduct would include signing company cheques and documents.
The Act states:
Section 250
“’director’’ includes any person occupying the position of director, by whatever name called’.
Section 251
“’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’.
Potential Consequences Upon Liquidation | Kangs Insolvency Solicitors
By virtue of their perceived standing within a company, when it fails financially and becomes subjected to an insolvency process, such as liquidation, a ‘de facto’ or ‘shadow’ director will, potentially, fall to be scrutinised by the Insolvency Practitioner as part of the investigation into why the company failed.
As part of the Investigation process, the Insolvency Practitioner may require a detailed explanation as to:
- how the company’s liabilities arose,
- what steps were discussed in order to try and settle those liabilities,
- what procedures or outcomes were implemented to try and minimise the liabilities,
- determine the overall reasons for the company’s failure.
If after conducting an investigation the Insolvency Practitioner ultimately determines that any director, including ‘de facto’ or shadow director(s), knew or ought to have known that the company was experiencing trading difficulties that it could not, legitimately, trade out of, thereby trading wrongfully or fraudulently, the Insolvency Practitioner is lawfully entitled to pierce ‘the corporate veil’ and pursue any defaulting director(s) personally to recover the company’s losses by whatever means considered appropriate.
In addition to potential personal financial liability, any person considered to be a director, particularly in circumstances where there were reasons preventing registration as a ‘de jure’ director, may face proceedings pursuant to the Company Directors Disqualification Act 1986, leading to a Disqualification Order prohibiting further involvement with a company for the number of years applied by the Court.
An individual cannot avoid personal liability by being a ‘shadow’/de facto’ director any more than a ‘de jure’ director as shown above by Section 251 of the Act. Additionally, the Courts have determined that ‘shadow/de facto’ directors owe the same level of fiduciary duties as ‘de jure’ directors.
Who Can I Contact for Advice & Help? | Kangs Company Insolvency Offences Defence Solicitors
As can be seen from the above, the consequences of being unexpectedly determined as a ‘de facto’ or ‘shadow’ director in the event of, inter alia, the liquidation of a company can be very dramatic and it is therefore important to understand your status with any company with which you are connected.
If you are, or anticipate becoming, involved in company liquidation proceedings and are uncertain or worried as to your standing within that company, the Team at Kangs Solicitors will be pleased to assist and guide you.
Please do not hesitate to contact the Team at Kangs Solicitors through any of the following...
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