De Facto Director – Key Issues

No statutory definition for this, but some assistance maybe found in s.250 of the Companies Act 2006, (“CA06”):
In the Companies Acts “director” includes any person occupying the position of director, by whatever name called.’
This definition is also given in s.251 of the Insolvency Act 1986 (“IA 86”)
Once established, de facto directors owe the same duties as de jure directors (Ultraframe v Fielding [2005] EWHC1638 (Ch) para 1257).
To identify a de facto director, there is no single decisive test to be applied; the circumstances of the case must be taken into account (HMRC v Holland [2010] UKSC 51)
However, useful guidance has been given, by Jacob J in Secretary of State v Tjolle [1998] 1 BCLC 333, at 343-344 cited with approval in Holland:
“For myself I think it may be difficult to postulate any one decisive test. I think what is involved is very much a question of degree. The court takes into account all the relevant factors. Those factors include at least whether or not there was a holding out by the company of the individual as a director, whether the individual used the title, whether the individual had proper information (eg management accounts) on which to base decisions, and whether the individual had to make major decisions and so on. Taking all these factors into account, one asks ‘was this individual part of the corporate governing structure’, answering it as a kind of jury question. In deciding this, one bears very much in mind why one is asking the question. That is why I think the passage I quoted from Millett J is important. There would be no justification for the law making a person liable to misfeasance or disqualification proceedings unless they were truly in a position to exercise the powers and discharge the functions of a director. Otherwise they would be made liable for events over which they had no real control, either in fact or law.”
A useful list of matters to consider  can be found in Re UKLI Ltd [2013] EWHC 680 (Ch) at paras 40 and 41:
“40. A matter of debate has been whether it is a necessary ingredient of de facto directorship that the person in question should have been held out by the company as a director, as Millett J considered in Re Hydrodam (that being the essential difference, on that analysis, between a de facto and a shadow director). Authorities subsequent to Re Hydrodam have tended to downplay this ingredient to being a useful indicator, but not an essential requirement: see, for example, the decision of Etherton J (as he then was) in Secretary of State for Trade and Industry v Hollier [2006] EWHC 1804 (Ch), [2007] BCC 11 at paragraphs 61 to 81.

  1. There is a valuable review and summary of the effect of these authorities in the (unreported) decision of Chief Registrar Baister in the UKPFM Ltd proceedings in which Mr Chohan was disqualified [Case No. 3232 of 2006]. Although I have introduced some small variations I agree with the Chief Registrar that the following characteristics are all relevant, though not every one is required to be established, and there is inevitably some overlap between them:

(1) A de facto director must presume to act as if he were a director.
(2) He must be or have been in point of fact part of the corporate governing structure and participated in directing the affairs of the company in relation to the acts or conduct complained of.
(3) He must be either the sole person directing the affairs of the company or a substantial or predominant influence and force in so doing as regards the matters of which complaint is made. Influence is not otherwise likely to be sufficient.
(4) I am not myself persuaded that an “equality of footing” test is required: I prefer the looser fact-based approach advocated by Jacob J, and consider the indicia to be whether the person concerned has undertaken acts or functions such as to suggest that his remit to act in relation to the management of the company is the same as if he were a de jure director
(5) The functions he performs and the acts of which complaint is made must be such as could only be undertaken by a director, not ones which could properly be performed by a manager or other employee below board level
(6) It is relevant whether the person was held out as a director or claimed or purported to act as such: but that, and/or use of the title, is not a necessary requirement, and even that may not always be sufficient.
(7) His role may relate to part of the affairs of the company only, so long as that part is the part of which complaint is made. 
(8) Lack of accountability to others may be an indicator; so also may the fact of involvement in major decisions.
(9) The power to intervene to prevent some act on behalf of the company may suffice.
(10) The person concerned must be someone who was more than a mere agent, employee or advisor.”
There is no decisive test; there is a ‘question to ask’, per Holland at 94
“If the question is, as I believe, whether Mr Holland was part of the corporate governing structure of the composite companies and whether he assumed a role in those companies which imposed on him the fiduciary duties of a director, then I would answer that he was not”
Disclaimer:

The aforesaid is not legal advice and is not to be relied upon as such. No liability is accepted by the writer for any reliance placed on the same. 
If you have a specific query then you should seek independent legal advice on the same.

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