Tuesday, 20 January 2015

Shadow Directors And Their Increased Responsibilities

This is part of a series of blogs on the Small Business, Enterprise & Employment Bill (“the Bill”) that is proposed to come into force in April 2015.

Section 251(2) of the Companies Act 2006 provides a definition of a shadow director of a company. A shadow director is not a director recognised on the Register of Directors in a company or listed as a director at Companies House, but nevertheless acts to instruct or direct directors in the management of the company and makes decisions critical to the company’s affairs.
Section 78(1) of the Bill seeks to incorporate a new Section 170(5) of the Companies Act 2006 such as to apply the duties of directors also to shadow directors. This is something that has been continuously present through the common law (especially in respect of proceedings brought for breach of fiduciary duties or misfeasance) but which now clarifies that shadow directors can be likewise personally liable for losses by the company.
Further, Section 93 of the Bill also provides that where a shadow director exercises a “requisite amount of influence” over a disqualified director, the shadow director may also be disqualified from acting as a director (with the appropriate criminal consequences for acting as a shadow director in the future as a result of the changes referred to in the last paragraph).
Quite often non-executive directors, either appointed or not appointed can fall into the category of shadow directors and thus any individual with influence over the company’s affairs may potentially be at risk as a result of this change. The proposed regulations do however make provision for professional advice and widens the exemption for professional advisers to ensure such individuals are not accidentally caught within these definitions.

Should you require further assistance or have concerns as to whether you may fall within the widened scope of the definition of shadow directors, with the consequential liability, or any other query in respect of the above matters please do not hesitate to contact Francis Wilks & Jones and we can assist with these matters.