When is a Company Director Not a Director? The Risks of Acting as a Director

When is a Company Director Not a Director? The Risks of Acting as a Director

Companies must take great care that senior company personnel avoid undertaking acts that mean they could be treated as directors for the purposes of the law.  This may result in adverse implications for both the company and the individual concerned.  The expert company lawyers at Bahamas firm ParrisWhittaker are highly experienced in providing full service legal advice to companies including in relation to directors and their duties and liabilities.

Acts ‘directorial’ in nature?

A number of cases have considered this issue in recent time.  A ruling of the UK Court of Appeal has ruled on the issue of whether or not a director of a holding company had become a director of a subsidiary company by reason of acts that were ‘directorial’ in nature(1).

This issue commonly arises in practice – a fact noted by the judge in this case who relied heavily on an important earlier ruling of the UK’s Supreme Court (SC) - the highest court in the UK.  In that case(2), the court highlighted the fact that there is no statutory definition of de facto directors and, therefore, guidance was necessary. 

A de facto director is someone who is a director in fact - whether by legal right or not. On the facts of that case, the court ruled that the individual in question was not a de facto director – he had not fulfilled the requirement for ‘something more’ than the discharge of his normal duties and responsibilities.

In this latest case, the court followed the SC ruling.  The judge described a de facto director as someone who has acted as a director on occasions, and this will depend on the facts in each case, for instance:

• Has the individual assumed responsibility to act as a director?
• In what capacity was he acting?
• What did the individual do, (not what was his job title ?
• Consider whether or not he acted as a director, not whether he believed he was

Corporate governance

A wider issue in many such cases is often whether the individual concerned was part of the corporate governance system of a subsidiary company, and whether he or she took on the status and function of a director so as to make him or herself responsible as though he or she was a director.

What does this mean?

Individuals acting on behalf of a company must be very clear as to the extent of their duties.  Companies should be aware of what their company directors and other personnel are doing in the course of their duties.  This is critical, because if a person is determined in law to be a director – he or she could be personally liable for acts carried out, and could bind the company.  

How can we help?

The commercial litigation lawyers at ParrisWhittaker have years of experience advising commercial organisations on their liabilities to third parties including where intellectual property matters are at issue.  If you have a potential claim against another organisation or you are facing legal action, we advise you to contact us straightaway for urgent advice.

(1) Smithton Ltd v Naggar  [2014] EWCA Civ 939
(2) Holland v HMRC [2010] UKSC 51