Quasi directors - in deeper than you realise?

You may take on a role in a company for a variety of reasons without realising that you could be treated as a de facto or shadow director, with some of the duties and potential liabilities of a formally appointed director.

What if you advise the directors on what to do? What if you attend board meetings? What if you represent a corporate shareholder in discussions? By stepping into these roles, you may enter the grey area of a ‘quasi-director’. This can have serious consequences: you could be held liable as if you were a director, without necessarily having the same protections or access to company funds.

Types of ‘quasi-director’

There are several circumstances in which someone assisting a company’s directors may be treated as a director and face associated liabilities. Some are more obvious than others.

What's the role of a Non-executive director?

A non-executive director is a formally appointed director who is not usually involved in the company’s day-to-day management. They may be independent of the company’s executive team and devote only part of their time to its affairs.

Non-executive directors owe duties to the company, including fiduciary duties and the duty to exercise reasonable care, skill and diligence. The standard expected will depend on the circumstances, including the director’s knowledge and experience.

At a minimum, a non-executive director must take reasonable steps to put themselves in a position to guide and monitor the company’s management.

Shadow directors are quasi directors

If the company’s directors are accustomed to acting in accordance with your instructions or directions, you may be considered a shadow director. Shadow directors can be subject to certain statutory duties and liabilities, although the precise position depends on the relevant legal provision and circumstances.

This status arises from the nature of a person’s involvement rather than formal appointment. A majority shareholder, management consultant or director of another group company may therefore be unaware that their conduct could bring them within the definition of a shadow director.

‘I didn’t know I was acting as a director’

A genuine belief that you were not acting as a director will not necessarily protect you from liability.

However, the court will consider the company’s governance structure and the surrounding circumstances when assessing your role and conduct.

Does giving a director advice always mean I will have director’s liabilities?

No. Being consulted about board decisions does not, by itself, generally make someone a director. Advising the board is different from directing its decisions, which should remain the responsibility of the directors themselves.

When will a ‘quasi-director’ be held liable?

Depending on their role and the relevant legal provisions, de facto and shadow directors may face some of the same risks as formally appointed directors. These can include:

• Fraudulent or wrongful trading;
• Director disqualification; and
• Asset freezing claims.

They may also face claims of unfair prejudice by minority shareholders or potential liability under personal guarantees, depending on the circumstances.

If you are concerned that your involvement in a company’s affairs could expose you to director-related duties or liabilities, we can review the circumstances and assess your potential position. Call us on 0207 438 1060.