2 September 2010 by Matthew Miller

In The Shadows

Sorry to disappoint all you Hank Marvin fans, but this blog has nothing to do with the band.

I have had several meetings recently where the issue of shadow directors has come up, all in the context of friends or family members giving advice and guidance to owner-managed businesses.

The law defines a shadow director as “someone in accordance with whose directions or instructions the directors of a company are accustomed to act”. But whether someone is a shadow director of a company is a matter of fact. It depends on the particular circumstances of the case.

If a person is found to be a shadow director of a company, the consequences are potentially quite onerous. That person will (probably without them even knowing) be subject to the various statutory and common law duties which apply to ordinary company directors e.g. a duty to act in good faith, to avoid conflicts of interest and to act in the best interests of the relevant company.

In the context of an insolvent company, the consequences of being a shadow director are even more serious, principally because of the enhanced duties owed to the company’s creditors. A shadow director of an insolvent company can commit a number of offences under the Insolvency Act 1986, some of which can lead to criminal liability.

As a worst-case example (to illustrate the point), you might have a number of conversations or meetings with a friend of yours because his or her company is in trouble and he or she needs some guidance or a second opinion, or perhaps because you are a shareholder in the company but not ordinarily involved day-to-day. Next thing you know, the company is being liquidated and the creditors are suggesting that you were a shadow director and that, as such, you should be liable for misconduct or wrongful trading. This a worst-case scenario, but it is by no means far-fetched.

Also, HM Revenue & Customs take the view that the existence of a shadow director raises the suspicion that he or she is attempting to conceal something by effectively managing the company, but not being listed as one of its registered directors.

If you are asked to give substantive advice or guidance to one or more directors of a company, don’t think that you cannot help, because you certainly can. However, do make sure that you understand the risks and that you comply with the duties applying to directors generally. If you are not sure what those duties are, or how they will apply to you, take appropriate legal advice. You should also take legal advice if you know (or you subsequently find out) that the company is in financial trouble.

1 September 2010 by Lynne Burdon

Client feedback – does it really change the way we behave?

We have completed 12 client surveys since our first one in July 2004.

2 September 2010 by Lynne Burdon

Freedom to instruct Bolt Burdon when using your Legal Expenses Insurance

I am pleased to read this morning that the Financial Services Authority has ordered legal expenses insurers to prove that they comply with European law that gives policy holders rights to choose their own solicitor.

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