Corporate Vehicles as Directors/Juristic Directors – shifting risk and responsibility?
De facto directors, de jure directors, unfit directors, shadow directors, executive directors and non-executive directors. These are all terms of art that are familiar to the insolvency lexicon. But another species of director is on the horizon that could cause a significant amount of trouble for the regulators (Insolvency Service - Enforcement Division), particularly in relation to culpability for fraudulent trading (s.213 Insolvency Act 1986 – IA86), wrongful trading (s.214 IA86) and directors’ disqualification (Company Directors Disqualification Act 1986 – CDDA86). The species of director is the corporate director (i.e. bodies corporate as directors, not directors of corporations). For the avoidance of doubt this species of director will be called the juristic director hereon in. There are a number of works on fraudulent and wrongful trading and directors disqualification. In relation to fraudulent and wrongful trading the work of Professor Andrew Keay is particularly illuminating. In relation to directors' disqualification we have the loose-leaf edited by His Honour Judge Abbas Mithani QC and also the text by Professor Adrian Walters and Mr Malcolm Davis-White QC.
Why are juristic directors a threat? Part 10 of the Companies Act 2006 (CA06) regulates company directors. The statute contains a number of provisions that relate to who can be a director of a company. In relation to juristic directors the following sections are noteworthy:
- s.155 CA06 - Companies required to have at least one director who is a natural person
It can therefore be assumed that companies can have unnatural persons as directors, i.e. juristic persons as juristic directors.
- s.164 CA06 - Particulars of directors to be registered: corporate directors and firms
The above contention is confirmed by this section which stipulates what details are required in relation to juristic directors.
- s.250 CA06 – “Director”
No specific reference is made within this definitional section to either natural or juristic directors.
- 251 “Shadow director”
(3) A body corporate is not to be regarded as a shadow director of any of its subsidiary companies for the purposes of–
Chapter 2 (general duties of directors),
Chapter 4 (transactions requiring members' approval), or
Chapter 6 (contract with sole member who is also a director),
by reason only that the directors of the subsidiary are accustomed to act in accordance with its directions or instructions
There is growing evidence of an increasing market in the services of juristic directors being offered as a mechanism to avoid potential liability by natural person directors (who may of course still be deemed shadow directors – s.251 CA06) for wrongful trading, fraudulent trading and unfitness pursuant to s.6 of the CDDA86. Any clause purporting to excuse a director from liability for breaches of their CA06 duties (e.g. s.174 CA06) is of course void (s.232 CA06). But this juristic director point surely takes the case further towards an attempt at abrogation of provisions that go beyond the statutory directors duties. This development will have to be closely monitored - regulators – beware!! Incidentally, does a juristic director also have to be at least 16 years old?! (s.157 (1) CA06).
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