Sometimes when setting up a new venture clients are surprised to hear that they can use nominee companies as directors rather than appointing individuals to the board. With an increasing raft of corporate governance guidance to follow, this may seem like an attractive option. However, the recent case of Secretary of State for Trade and Industry-v- Hall and another EWHC1995(Ch) is a useful reminder that the individuals on the board of the nominee company ought not to assume that they will escape responsibility in respect of a breach by the subject company.
In this case N (an individual) was the sole director of a nominee company that in turn was a corporate director of several other subject companies. When one of the subject companies went into liquidation, the Secretary of State applied to disqualify N from acting as a director, on the grounds that he was either a legal, de facto or shadow director of the company in liquidation and had caused the nominee company to fail in its duty to file various documents at Companies House on behalf of the companies of which it was a director, including in some cases company accounts.
Although in this instance the Court held that N was not a legal, de facto or shadow director of the company in liquidation, the following points were clarified:
- it is possible for an individual through his control of a corporate director to make himself a de facto director of the subject company;
- the court will take account of the degree of control which the individual director has over the corporate director;
- corporate directors along with individual directors require to have an understanding of a company's business in order to discharge their duties as directors;
- failure to discharge such duties may lead to disqualification of directors as well as potential penalties for breach of statute.