18 May 2023 by

Are you a de facto director?

What is a de facto director?

Under the Companies Act 2006, the definition of a director is very broad (and not particularly clear).  It states that a “director” includes any person occupying the position of director, by whatever name called.

As a result, a person might meet the definition of a director without being formally appointed as one, provided they are carrying out the functions of a director. This person could be a shareholder, a company secretary, an employee or a third party. A person in this situation may be deemed to be a de facto director.

What does this mean?

 A de facto director owes all the same legal duties to the company as a validly appointed director, despite the fact that they have not been appointed as a director.

Therefore, it is important to recognise when someone might be a de facto director. They could be carrying out the functions of a director unknowingly and, as a result, be at risk of unknowingly breaching their legal duties.  This could make them subject to personal liabilities.

Generally, it is not desirable for a company to have de facto directors, as this increases uncertainty over the corporate structure and muddies reporting lines and authorities.

The guidelines 

 Over the years, case law has considered and refined how to identify a de facto director. In 2010, the case of Re UKLI Ltd1 set out ten guidelines for determining whether someone is a de facto director. More recently, the 2023 case of Aston v Jones2 reinforced some of these principles:

  1. To be a de facto director, a person must assume the status and function of a director. The court will consider their actual activities, rather than their job title.
  1. They must be part of the corporate governance structure of the company.In other words, they must have participated in directing the affairs of the company.
  2. They must be either the sole person directing the affairs of the company or a substantial or predominant influence and force.

These guidelines are just that – a guide. The main takeaway is to assess the powers of the individuals in your company and individuals based at other companies you are working with. The recent case referred to above explained that it does not matter whether the person believed they were acting as a director or not. Instead, if someone else perceives them to be a director, they may in fact be considered a de facto director.

If you have any questions relating to companies, shareholders or directors, please contact our Corporate & Commercial team.

1Re UKLI Ltd: Secretary of State for Business, Innovation and Skills v Chohan and others [2013] EWHC 680 (Ch)

2Aston Risk Management Ltd v Jones and others [2023] EWHC 603 (Ch)

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