MH Corporate

Friday 24 October 2014

Court of Appeal Decision on De Facto and Shadow Directors

The recent Court of Appeal decision in Smithton Ltd (formerly Hobart Capital Markets Ltd) v Naggar and others [2014] EWCA Civ 939 is a reminder about the points of general practical importance for identifying de facto and shadow directors.

The definitions of de facto director and shadow director have been determined by statute and case law. Without ever having been formally appointed as a director, a person may become a de facto director if they have performed the functions of a director, or become a shadow director if they are able to persuade the directors of a company to act in a certain way. The question which arose in this case, and which often arises in practice given the substantial duties (and potential liabilities) imposed on a company director, is whether a director of the holding company of a group of companies has become a director of its subsidiaries.