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Case law: High Court gives guidance on ‘de facto’ directors

Limited companies will welcome guidance on how to determine whether they have ‘de facto’ directors – those not formally appointed as directors but treated by a court as having fiduciary and other duties to the company as if they had been formally appointed because they have behaved as if they were full directors – following a recent High Court ruling.

August 2019

This update was published in Legal Alert - August 2019

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In a complex case, one issue for the court was whether one of the parties involved was a de facto director of a company. It is important to both the company and the relevant individual to know whether the individual is a de facto director (or shadow director – a person in accordance with whose directions or instructions the directors of a company are accustomed to act) as they are also subject to many of the duties and responsibilities – and therefore the liabilities – of formally appointed (‘de jure’) directors.

The court referred to the following principles giving useful guidance on how to determine whether someone is a de facto director:

  • The court must determine the corporate governance structure of the company so it can then decide whether, looked at objectively and taking into account all relevant evidence, the relevant person was part of that structure and whether their acts were directorial in nature. If they are, and their acts were, they have assumed the role of de facto director.
  • Being involved in management or exercising influence on management decisions is not in itself enough.
  • If a person has assumed the role of director, the court must decide whether they were acting in that capacity when carrying out any wrongful acts, given that:
    • An act can only be done in the capacity of a de facto director if it can only be done by someone in the capacity of director.
    • An act which is in the form of directions or instructions to a properly appointed director will be the act of a shadow director. While there is some overlap between the concepts of shadow director and de facto, an act carried out as the former cannot also be an act carried out as the latter.
    • An act done in some other capacity (for example, as an employee or agent) cannot have been done as a de facto director.

Operative date

  • Now

Recommendation

  • Companies, and individuals involved in their management, should remain alert to the possibility that an individual may have become a de facto director and subject to many of the duties, responsibilities and liabilities of de jure directors.

Case ref: Popely & Popely v Popely and others [2019] EWHC 1507

Disclaimer: This article from Atom Content Marketing is for general guidance only, for businesses in the United Kingdom governed by the laws of England. Atom Content Marketing, expert contributors and ICAEW (as distributor) disclaim all liability for any errors or omissions.

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