Summary

An individual through his control of a corporate director could constitute himself a de facto director of a subsidiary company; whether he did so would depend on what he procured the corporate director to do.

Facts

The applicant secretary of state applied under the Company Directors Disqualification Act 1986 s.6 to disqualify the respondents (H and N) from acting as company directors. N had been the sole director of a company (L), which had been used by N for the purpose of providing secretarial and other administrative services. The services had included the provision of corporate directors. L had been appointed as a director of a company (M), which had been managed by its other directors, H and another. L had been convicted for failing to deliver annual returns or company accounts in respect of a number of companies. At about the time of the convictions, M had ceased trading. L had then ceased to be a director of M, and M had been placed into liquidation. At all relevant times L had been a director de jure of M. Thereafter, N had ceased to be a director of L, and L had been struck off the company register and dissolved. The case against N proceeded on the basis that he was responsible for L's inaction. N submitted that the court had no jurisdiction to disqualify him because he had never been duly appointed as a director of M or any of the other companies, and that, if he could be treated as a director of those companies, he had played no part in the management of the companies and could not be held responsible for their defaults. The secretary of state contended that the office of director required positive action and that, in consequence, deliberate inaction constituted behaviour that might lead to disqualification, and that a person in a position to control the actions of a company could constitute himself a de facto director of that company notwithstanding that he might not have ever actually exercised the powers pertinent to his position.

Held

Held, giving judgment accordingly, that (1) the obligation on directors to ensure that a company kept proper books and records and made the appropriate returns could not be avoided by a plea that the internal arrangements of the company meant that they had no management function, or that they had elected not to play any part in management, Firedart Ltd, Re (1994) 2 BCLC 340 Ch D applied. (2) Proceedings to disqualify, like proceedings under the Insolvency Act 1986 s.21(4) might both be said to be for the purpose of protecting the public against errant directors and required that it be established that N was a director of M. In order to be constituted a de facto director of a subject company, a director of a corporate de jure director had to cause the corporate director to take actions with relation to the subject company as would have constituted it a de facto director of that company. The degree of control that the director of the corporate director exercised over that company would be of relevance. Equally, the shareholder control of the corporate director might be relevant. In the instant case, N's control of L had been absolute, but the situation might be substantially different where the corporate director was controlled by a board with a number of members with different responsibilities. N had not, either individually or through his control of L, taken any step that had indicated that he or L had assumed the status and functions of a director of M. They had positively declined to do so. It followed that N, by contrast with L, had never been subject to a duty to ensure that M kept proper books of account in compliance with s.21 of the Company Act. There was no true lacuna in the protection that Parliament had intended the Company Act to give to the public. If the secretary of state took the view that corporate directorships were being abused by a single corporate director acquiring a mass of directorships of subject companies or by the parent company of a number of corporate directors achieving the same result, it was open to the secretary of state to present a petition against a corporate director or its parent to wind it up pursuant to s.124A of the Insolvency Act on public interest grounds and thereafter, if appropriate, to apply to disqualify any directors of those corporate directors, or relevant parent companies, under the Company Act s.8 (3) It was appropriate to disqualify H from acting as a director of a company for a period of four years, Hydrodan (Corby) Ltd (In Liquidation), Re (1994) BCC 161 Ch D applied, Secretary of State for Trade and Industry v Tjolle (1998) BCC 282 Ch D and Kaytech International Plc, Re (1999) BCC 390 CA (Civ Div) considered.

Judgment accordingly