There’s no disguising a director

Corporate and Commercial / 02 August 2017

An individual might not want to be formally appointed as a company director for several reasons. This might be due to the required transparency of their personal details or involvement with an organisation, their exposure to statutory duties, liability for wrongful trading or the risk of director disqualification.

We learned at the end of July 2017 that Camila Batmanghelidjh, the former chief executive of Kids Company charity, will face proceedings against her which, if successful, will result in a director disqualification order against her, notwithstanding that she was not formally appointed a director of the charity.

Individuals who exercise director functions, but are not appointed as directors, may still find themselves recognised in law as “de facto” directors, and therefore owe the company the same fiduciary duties as a validly appointed director.

The Insolvency Service, which will make the application to the Court for the disqualification order against Camila Batmanghelidjh, will allege that she was a de facto director and should therefore be disqualified from acting as a director. The disqualification would be for a period between two-and-a-half and six years.

de facto director is “someone who assumes to act as a director, although never actually or validly appointed”, regardless of their title or their motivation. There is no single, definitive test for what constitutes a de facto director. Case law offers some guidance on the key considerations:

  • Did the director undertake functions which could properly be discharged only by a director of the company?
  • Is the director part of the company’s corporate governance system?
  • Did the director assume the status and function of a director so as to be responsible in the same way as a validly appointed director?
  • To what extent was the director involved in the running of the business and how much reliance did the other directors place on the non-appointed director’s advice or suggestions?

Being clear on your status within a company is fundamental to understanding your exposure to any liabilities.

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