HomeFWJ TakeawaySmall Business, Enterprise and Employment Act 2015: Shadow Directors

Shadow Directors and their increased responsibilities – COMMENCEMENT 26 MAY 2015

This is part of a series of posts on the Small Business, Enterprise & Employment Bill that has now come into force on 26 March 2015 following the grant of Royal Assent and is now the Small Business, Enterprise and Employment Act 2015 (“the Act”).

This series of posts is intended to update the readers of the key changes, which should radically transform the transparency of the marketplace as regards the operation, control, ownership and risk associated to limited companies in the UK.

We have not addressed all of the issues described in our previous posts, to avoid duplication, but would welcome any queries from the reader in this respect.

The commencement of these changes is different dependant on which part of the Act is being reviewed (Section 164 of the Act defines commencement) and we have highlighted below the relevant commencement dates. Where we below stated “to be announced” this means it has not yet come into force and will commence upon the making of a Commencement Order.

The changes as set out below will be extremely important to all directors, companies and individuals with business in the future and it cannot be emphasised too strongly how important it is that you are prepared for these proposed changes. At Francis Wilks & Jones we can advise on all matters subject to these posts.

We refer to our previous blog which outlined how a shadow director is defined under Section 251(2) of the Companies Act 2006. The previous definition has now been amended by Section 90 of the Act but seeks to carve out any such definition in respect of advisors (e.g. accountants) and instructions/guidance given by a representative of government.

Section 89 of the Act introduces a new Subsection (5) to Section 170 of the Companies Act 2006, such that the duties of directors also to shadow directors (as defined by section 90). This is something that has been continuously present through the common law (especially in respect of proceedings brought for breach of fiduciary duties or misfeasance) but which now clarifies that shadow directors can be likewise personally liable for losses by the company.

Further, Section 105 of the Act also provides that where a shadow director exercises a “requisite amount of influence” over a disqualified director, the shadow director may also be disqualified from acting as a director (with the appropriate criminal consequences for acting as a shadow director in the future).

Quite often non-executive directors, either appointed or not appointed can fall into the category of shadow directors and thus any individual with influence over the company’s affairs may potentially be at risk as a result of this change.

Indeed, as a result of these changes, a non-executive or non-registered director, particularly as often occurs in small family businesses where an inactive family member is undoubtedly involved in directing the company, that such parties may be personally liable for another director’s breach of fiduciary duties and may be disqualified and may have his/her personal assets at risk should any Court subsequently determined that they were a shadow director.

Should you require further assistance or have any query in respect of these changes please do not hesitate to contact Francis Wilks & Jones and we can assist with these matters.

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