Can you avoid directors’ duties by staying off the register?

Company directors owe a number of duties to the company and Companies House must be notified whenever a director is appointed. It is a misconception that these responsibilities can be avoided simply by not formally appointing a director. Under long established law, ‘de facto’ directors have the same duties as validly appointed directors – even if they’re not registered at Companies House. A recent case has reiterated the position.

De facto directors

Under the Companies Act 2006, a director is “any person occupying the position of director, by whatever name called”. This is obviously a slightly circular definition – effectively, you’re a director if you’re a director. However, case law has established that there are three types of director:
– those who have been validly appointed under the company’s constitution and company law;
– de facto directors; and
– shadow directors (which are beyond the scope of this article).

A de facto director is someone who acts as a director, even though they have not been formally appointed. This is not just a question of being involved in the company’s management – the de facto director must be acting on the company’s behalf on matters that should only properly be dealt with by a director. In other words, the de facto director will be making key business decisions.

As noted above, de facto directors have all the same responsibilities as any other director.

Can a de facto director be disqualified from acting as a director?

Significantly, a person who is disqualified as a director after being found unfit to manage a company cannot get around that disqualification simply by acting as a de facto director. Similarly, a person can be disqualified from acting as a director, even if they only ever acted as de facto director.

In the recent case of Secretary of State for Business, Energy and Industrial Strategy v Luthfur Rahman [2020] EWHC, it was alleged that Mr Rahman was a de facto director of a company that had illegally employed migrant workers and that, as such, he should be disqualified from acting as a director.

Mr Rahman had never been formally appointed as a director of the company, which ran a restaurant. In fact, the company’s only director was a Mr Sharof. However, the restaurant’s alcohol licence was in Mr Rahman’s name and he was the designated premises supervisor. When Home Office immigration officers raided the premises, one of the workers suggested that Mr Rahman was “the boss”.

Nevertheless, the court decided there wasn’t enough evidence to show that Mr Rahman was a de facto director. Even though he was on the alcohol licence and had helped with the running of the business, he had not assumed the responsibilities of a director. This meant he was not disqualified as a director. However, if it had been possible to prove that he was a de facto director, he would have been disqualified for five years.

This case underlines that people involved in the key decision-making processes of a company cannot necessarily shirk their legal responsibilities, simply by not being validly appointed as directors. Mr Rahman was not a de facto director but many people are, even if they’re not aware of it. The list of the company’s directors maintained by Companies House is by no means a definitive record of the people who are responsible as directors.

For more information please contact Tim Lucas on 07785 545 354 or by email on TimothyLucas@BoltBurdon.co.uk.