Types of Director
There are three types of Company Director:
De Jure Director: This type of Director is formally appointed and registered at Companies House. They owe the fiduciary duties of good faith and loyalty as well as the common law duties to exercise skill and care to the company/shareholders. They also owe statutory duties including those set out in the Companies Act 2006, such as a) the duty to act within their powers, b) the duty to promote the success of the company, and c) the duty to avoid conflicts of interest.
De Facto Director: This type of Director is any person occupying the position of a director, (by whatever name called). They will owe fiduciary duties as well as duties imposed by statute because de facto directors come under the general definition of a director in s250 of the Companies Act 2006.
It is however not always clear whether or not someone is a de facto director but in the case of Smithton Ltd v Naggar and others , it was held that one of the key factors in determining whether someone was a de facto director was a) whether that person was part of the corporate governance system of the company and b) whether he assumed the status and function of a director so as to make himself responsible as if he were a director. The judge also gave further guidance on the matter, namely:
- That a job title will not be a deciding factor – the court will also look at what the director actually did;
- It is not a defence to show that the director, in good faith, thought he was not acting as a director. This question will be determined objectively;
- Any acts done by the director should be looked at in the relevant context;
- A relevant factor will be whether the company considered the individual to be a director and held them out as such, and whether third parties considered the individual to be a director;
- The fact that a person is consulted about directorial decisions, or their approval is sought on such decisions, does not in general make them a director because they are not making the decision.
Shadow Director: This type of Director is someone upon who’s instructions or directions are acted upon by the Director(s) person and defined in s251 of the Companies Act 2006. Whilst there are some specific requirements in this Act, which state the shadow directors are liable in the same way as de jure directors, (such as regarding wrongful trading, director disqualification and the declaration of interest in existing transactions), whether they owed fiduciary duties was establised in the case of Vivendi SA and anor v Richards and anor . Here the High Court held that a shadow director will typically owe fiduciary duties in relation at least to the directions or instructions that he gives to the de jure directors. More particularly, the court held that a shadow director will normally owe the duty of good faith (or loyalty) when giving such directions or instructions. The court also stated that a person who gives directions or instructions to a company’s de jure directors in the belief that they will be acted on, can fairly be described as assuming responsibility for the company’s affairs, at least as regards the directions or instructions that person gives.
So, if a person comes within the definition of a shadow director, they should look to act in accordance with the duties imposed on de jure directors, as failure to do so may result in liability.