And The Law Says

Hiding in the shadows

May 22, 2015


By Chris Jones

One of the number of things the Small Business, Enterprise and Employment Act 2015, deals with is company transparency, in particular it does with away with corporate directors so that going forward, directors must be natural persons. Tagged on the end of the transparency part is a bit about shadow directors – an amendment to the Companies Act 2006 to apply the general duties set out in it more specifically. Previously and somewhat oddly the CA applied them by reference to  common law and equitable duties rather than across the board.

A shadow director (a phrase so good they defined it twice – Insolvency Act 1986 and Companies Act 2006) is in relation to a company, a person in accordance with “whose directions or instructions the directors of the company are accustomed to act”. It’s a source of some confusion and plenty of litigation. The definition expressly excludes situations where directors act on advice given by someone in a professional capacity (e.g. solicitors, accountants, turnaround advisers, so that’s good then). Historically, banks and others have always been concerned not to get so involved that they can be fixed with a shadow directorship.

It’s aimed at someone who pulls all the strings in the company without ever formally taking office (often because they’re already disqualified) to someone who may give directions/influence the other directors with regard to certain matters e.g. finance, paying creditors.

Question – given the ban on corporate directors does that mean that shadow directors too can only be natural persons meaning corporates such as banks are safe? Or does that not apply given that the new Act only refers to those actually appointed as directors?

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