HomeFWJ takeawayTakeawayShadow directors and their duties: Instant Access Properties v Rosser and others; Murphy and another v Rosser and others

Francis Wilks & Jones successfully defended Mr Rosser, the first defendant in the proceedings, against a claim that was brought by the Liquidators of Instant Access Properties Limited (in Liquidation) (“the Company”) against the de jure directors of the Company, others alleged to be de facto or shadow directors and the Company’s advisors alleging breach of fiduciary duty, fraudulently trading and conspiracy.

The case brought into question, specifically in relation to our client, the definition of a de facto or ‘shadow’ director and the duties they may or may not owe.

The case

Instant Access Properties Ltd (in liquidation) v Rosser and others; Murphy and another (as joint Liquidators of Instant Access Properties Ltd) v Rosser and others [2018] EWHC 756 (Ch), [2018] All ER (D) 48 (Apr)

The facts

The company operated a membership scheme offering members the chance to buy properties in the UK and abroad. The claim related to commissions from developers which the company shared with two offshore companies who were alleged to have common ownership with the company and to have provided no services in respect of such commission payments.

A claim was brought by the liquidators against the de jure directors of the company, others alleged to be de facto or shadow directors and the company’s advisers alleging breach of fiduciary duty and fraudulent trading (pursuant to Section 213 of the Insolvency Act 1986). The liquidators also added an unlawful means of conspiracy claim, the unlawful means being the various breaches of fiduciary duty.

We represented Mr Rosser, one of the three defendants. It was alleged that he (and the others) had failed to act bona fide in the best interests of the company, had operated with a conflict of interest or had obtained benefits for themselves in breach of the Regal Hastings doctrine. Mr Rosser disputed that he was either a shadow or de facto director but in the alternative denied both that he owed the duties alleged or was in breach of any such duties.

Decision

The claim against Mr Rosser was unsuccessful and all claims against him were dismissed. In addition, he was ordered all his costs.

On the basis of the evidence put forward by Rosser and the others at trial, the judge was satisfied that:

1. Mr Rosser had not been a de facto director and had only been a shadow director in respect of certain company activities;

2. The distinction was in fact irrelevant because he had not owed all the duties alleged;

3. Even if he had owed all the duties alleged, he was not in breach, still less dishonest breach, of them.

Key points to note

  • The judge’s findings that there was no breach of fiduciary duty were heavily influenced by the extensive evidence led by Mr Rosser to show that very substantial work had been done by those providing their services through the offshore companies. The claimants failed to adduce any evidence whatsoever to show that such work had not in fact been done, or that some other commission share would have been appropriate.
  • The claimants’ decision to pursue allegations of fraud in these circumstances led the judge to conclude in respect of costs that the claims had been opportunistic, weak and speculative. As a result, Mr Rosser was ordered all his costs on the indemnity basis despite the claimants seeking to argue that they had enjoyed a partial success on the shadow director issue.
  • The judge did not consider that Mr Rosser had been part of a false paper trail created by one of the company’s de jure directors to try to lend additional credence to the legitimacy of the arrangements between the company and the offshore companies. As a result, the judge held that, even if Mr Rosser had been in breach of any of his duties (which the judge did not consider he was), there would have been no basis for a finding that any such breach was dishonest or fraudulent.
  • The judge recognised the inherent absurdity in the claimants’ suggestion that any such breach could have been dishonest given that the people who were involved in the company on the one hand and the offshore companies on the other meant that they would have been defrauding themselves.

As well as constituting a complete vindication for Mr Rosser and the professional advisers, the judge’s judgment was important in establishing that:

1. When appraising the duties owed by the shadow directors, there needs to be an acute focus on the particular facts of the case.

2. The same focus is required when ascertaining the extent to which it can be shown that such director has assumed responsibility so as to justify the imposition of such duties.

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