Re Hydrodan (Corby) Ltd [1994] B.C.C. 161
Citation:Re Hydrodan (Corby) Ltd [1994] B.C.C. 161
Rule of thumb:What happens if a director is taking advice & orders from another individual who is not listed as a director? This is a ‘shadow director’ case – the individual giving the advice & orders is deemed a de facto shadow director with the named director deemed a de jure director but not a de facto one. The people & organisation involved in this setup are breaking the law. A shadow director can be held personally liable to creditors of the company.
Judgment:
The Court in this case distinguished between the 3 different types of directors – ‘de jure’ directors, ‘de facto’ directors and ‘shadow’ directors. A ‘de jure’ director was a director who was listed as a director at companies house, a ‘de facto’ director was someone who did not appear as a company director at Companies House but was carrying out functions of a director and holding themselves out as a director to third parties, and a ‘shadow director’ was someone who did not appear in the company records but controlled the directors who acted upon their advice. The Court further held that all 3 could be held liable for wrongful trading – the position when the company has gone below the minimum level of capital it requires within it to trade sustainably. In all cases of ‘de jure’, ‘de facto’ and shadow directors being held liable evidence has to be supplied of what they were doing as there is no general presumption of liability, otherwise they are not liable, ‘Liability for wrongful trading is imposed by s. 214 of the Insolvency Act 1986. The statutory liability is imposed exclusively upon persons who are or were at the material time directors of the company in liquidation... But s. 214(7) provides that in the section ‘director’ includes a shadow director. A shadow director is defined in s. 251 of the Insolvency Act 1986 in these terms ‘“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 … The liquidator submitted that where a body corporate is a director of a company, whether it be a de jure, de facto or shadow director, its own directors must ipso facto be shadow directors of the company. In my judgment that simply does not follow. Attendance at board meetings and voting, with others, may in certain limited circumstances expose a director to personal liability to the company of which he is a director or its creditors. But it does not, without more, constitute him a director of any company of which his company is a director.’ Millet J
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