ET plc wholly owned MCP Ltd which wholly owned Landsaver MCP Limited, which wholly owned Hydrodam (Corby) Limited (‘HCL’). The only de jure directors of HCL were two Channel Island companies. HCL went into compulsory liquidation and its liquidator brought claims under section 214 of the 1986 Act for wrongful trading against 14 defendants, including ET, one of its subsidiaries and all its directors. Two of those directors were Mr Thomas and Dr Hardwick, who applied for the proceedings against them to be struck out.
Held: The liquidator had failed to plead or adduce any evidence to support the allegation that the directors of Eagle Trust were at any material time directors of Hydrodam, and the proceedings were struck out.
Directors may be of three kinds: ‘de jure directors, that is to say those who have been validly appointed to the office; de facto directors, that is to say, directors who assume to act as directors without having been appointed validly or at all; and shadow directors who are persons falling within the definition I have read [‘a person in accordance with whose directions or instructions the directors of the company are accustomed to act’]’
Millett J then explained that liability under section 214 extended to de facto as well as to de jure and shadow directors, but the statutory liability was ‘imposed exclusively upon directors of one or other of the three kinds that I have mentioned.’ That meant that the liquidator had to plead and prove against each defendant that he was such a director of HCL.
He explained the difference between a shadow and a de facto director, saying that the latter ‘is one who claims to act and purports to act as a director, although not validly appointed as such.’ A shadow director does not so claim or purport. HCL had two titular directors, namely the two Channel Island companies, a fact that might itself justify the inference that they were accustomed to act in accordance with the directions of others, in which case those others would be shadow directors. But no such case was pleaded.
Millett J said: ‘The liquidator submitted that where a body corporate is a director of a company, whether it be a de jure, de facto or shadow director, its own directors must ipso facto be shadow directors of the company. In my judgment that simply does not follow. Attendance at board meetings and voting, with others, may in certain limited circumstances expose a director to personal liability to the company of which he is a director or its creditors. But it does not, without more, constitute him a director of any company of which his company is a director.’
Millett J
[1994] 2 BCLC 180
Insolvency Act 1986 214
England and Wales
Cited by:
Cited – Holland v Revenue and Customs and Another CA 2-Jul-2009
The appellant supported IT workers. Through his own company, he set up companies in which his company was a director, and which companies in turn employed the IT workers securing substantial savings in higher rate Corporation Tax.
Held: The . .
Cited – Holland v Revenue and Customs and Another SC 24-Nov-2010
The Revenue sought an order under section 212 of the 1986 Act, for payment of the tax debts of the insolvent company by a de facto director. H had organised a scheme under which IT contractors had worked through companies created by him under a . .
Lists of cited by and citing cases may be incomplete.
Company, Insolvency
Leading Case
Updated: 02 November 2021; Ref: scu.377315