Can I Just Be A Director At Companies House?

The answer to the question Can I just be a director at Companies House? was answered in the case of Secretary of State for Business and Trade v Low [2024] EWHC 1812 (Ch).

The answer is no you cannot engage in a course of conduct as a director that leads to director abdication of responsibility. This in particular is not permitted if in doing so a director is in breach of director’s duties. 

There are various classes of director: de jure, shadow and de facto. A de jure director is a Companies House registered director, a shadow director is one who can direct the activities of the official directors registered and a de facto director is one who although not registered nevertheless holds themselves out as one.

The idea that someone could be a director just at Companies House is perhaps consistent with them being a de jure director but then enabling perhaps another individual to in effect do the directing of the company’s affairs. Therein lies the potential problem.

Being Disqualified As A Director Involves Unfit Conduct

You do not get yourself disqualified as a director for trivial matters that are not sufficiently serious:

Mere imprudence is usually insufficient to justify a disqualification order. The court must be satisfied, on the facts of the case before it, that the director’s conduct is serious. In Re Bath Glass Ltd, The Official Receiver v Elliott and Sharp (1988) 4 BCC 130, Peter Gibson J said of the standard of unfitness required for disqualification:

“To reach a finding of unfitness the court must be satisfied that the director has been guilty of a serious failure or serious failures, whether deliberate or through incompetence, to perform those duties of directors which are attendant on the privilege of trading through companies with limited liability. Any misconduct of the respondent qua director may be relevant, even if it does not fall within a specific section of the Companies Act or the Insolvency Act”.

Acting As A Front For Another Director

The Court tends to take a dim view of directors who sign up for the job but then seek to avoid the responsibility, particularly when it has subsequent oversight of the matter after it all goes a pear shaped on insolvency. 

This is unsurprising given the strict duties codified as directors’ duties in Part 10 Chapter 2 of the Companies Act 2006.

This applies even when it is someone else who has activated the course of dealings that cause losses to be incurred by creditors on insolvency. 

It is a complete non-starter for a registered director to sit back and adopt an insouciant approach by letting someone else take the reins looking to say: 

“Sorry chaps it was not my fault I was just a director in name only at Companies House”

when the company goes into insolvent liquidation and there are losses suffered by creditors.

Although granted this is a notably imperfect analogy, in essence, if you are driving your car as the only party with a driving licence, you cannot swap seats with an unlicensed individual who crashes and smashes it into another car and then envisage you can overcome the problems by saying “Sorry I wasn’t driving”. 

Being A Director Front When There Is Misconduct

The Low case involved VAT fraud matters and it shows the risk of acting as a front (inadvertently or otherwise) for another person when doing so in the position of a director:

Despite the lack of any supporting documentary evidence, having heard Mr Low’s evidence, I have concluded on the balance of probabilities, that he was indeed a “front” for Warren Bartlett or some other third party’s illegal trading. I find that it is more likely than not that he knew that Warren Bartlett was facing some form of prosecution but he nevertheless agreed to be appointed as a director of the Company and then agreed deliberately to conceal Warren Bartlett’s involvement.

I find it more likely than not that Mr Low was not aware of the communications sent by HMRC regarding the cancellation of its trading partners’ VAT registration and including the Company’s own VAT assessment notices. They were addressed to “FAO The Directors” and sent to the Company’s retail premises, when Mr Low worked elsewhere. Although HMRC’s emails were being sent to the Company’s wholesale email address – the same address that Mr Low had given to Ms Brennan – if, as I have found, Warren Bartlett or some other third party was more likely than not the real driving force behind the wholesale business, then it is also credible to the relevant degree, that (as he claims was the case) whilst Mr Low had access to that email account, he did not use it sufficiently often or to look at communications from HMRC – leaving such matters to the Company’s accountants and those who were principally behind the Company’s wholesale business.

Just Being A Director At Companies House

The Court addressed the matter of just being a director at Companies House:

Whilst I have accepted Mr Low’s evidence that there was a third party at all times behind the scenes, that does not absolve Mr Low of his responsibility for the Company’s part in supply chains that resulted in 12 missing trader claims and over a million pounds being lost to the public purse. He claims only to have been a director “at Companies House”. He appeared, up to and including the end of the trial, to fail to realise that his willingness to be appointed as a director of the Company whilst at the same time, deliberately and dishonestly concealing what he now claims was Warren Bartlett’s involvement, is precisely what enabled the Company to enter into and pursue its wholesale trading.

When Mr Low agreed to be a director of the Company he became responsible for all of the Company’s business, for all of the Company’s finances, for ensuring that it complied with its statutory obligations and that he complied with his statutory and common law duties to the Company’s members and its creditors.

Risk Of Just Being A Front For Companies House

This case shows it is a hopeless position to adopt in being a front as a director for another individual and the Court will not stand for it lightly. Indeed it is more likely to adopt a robust position.

In the Low case, the consequence was a disqualification order was made against Mr Low for 10 years which considering the maximum period that a director can be disqualified for is 15 years, this is towards the higher end of the scale:

In my judgment, during the periods of his directorships, Mr Low both caused and allowed the Company to participate in transactions which were connected with the fraudulent evasion of VAT. For the reasons set out above, he either knew or should have known that those trades bore a striking number of the features which should have alerted him to their forming part of MTIC fraud chains.

Whilst I accept Mr Low’s evidence that he allowed himself to be excluded from the Company’s finances, that was his choice. By agreeing to be a director of the Company he nevertheless became responsible for those same finances. In my judgment he is consequently responsible for allowing the Company, during the periods when he was a director, to make wrongful claims for VAT for 8 consecutive quarters ending 03/16 to 12/17 totalling £2,646,905.

By:

i) causing and allowing the Company to engage in transactions connected with the fraudulent evasion of VAT; and

ii) allowing the Company’s finances to be conducted in such a way that it made wrongful claims for VAT totalling in excess of £2.6 million,

Mr Low’s conduct as a director of the Company fell below the standards of probity and competence appropriate for persons fit to be directors of companies.

Having found that Mr Low’s conduct makes him unfit to be concerned in the management of a company, the CDDA obliges me to make a disqualification order against him.

The Secretary of State seeks a disqualification order for 12 years. Taking into account (i) the guidance set out in Re Sevenoaks Stationers (Retail) Ltd; (ii) the consistency of approach recommended in Warry; and bearing in mind that I have found that it is more likely than not that Mr Low was not the mastermind behind the Company’s wholesale trading but instead wilfully closed his eyes to and/or failed to take any steps to identify the glaringly obvious features of MTIC fraud reflected in the Company’s wholesale trading as well as dishonestly misrepresenting his role in that trading to HMRC (maintain his silence right up until he finally served a witness statement in these proceedings) I consider that he should be disqualified for a period at the top end of the middle bracket. I shall make an order that he be disqualified for 10 years.