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Summary LAWS10083 Wrongful TradingShadow Directors
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LAWS10083 Wrongful TradingShadow Directors
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Wrongful Trading/Shadow DirectorsWill just focus on Shadow Directors part of the Seminar.
The concept of a shadow director is under the companies act/Insolvency act - s.251
for both.
They are not an official director of a company. If you go to companies house you see
the official directors. You will not see shadow directors. Shadow director tries to call
the shots from the shadows. They are exerting influence over the board, behind the
scenes.
This is in contrast to a de facto director - who is also not an official director, but is
acting as if they are a director. De facto - is not an official director - but says i am a
director.
How to determine if they are a shadow director?
There is no specific test - no box ticking test - you're looking at the role the individual
plays in the company. What responsibilities they've assumed, the status and their
function. Then they will be liable in their role, through their status and their function
etc. They will have a more overt role.
Shadow directors – Two Examples
1. Where you have a family company, mother/father - children on the board and the
parent decides they will retire from the company, but not be involved with the
management of the company. But of course like some parents, they cannot keep away
from the company, and continue to tell the children what to do. They dish out advice
that is followed. If they are simply doing what they are told, that is a shadow director.
Not exercising independent judgement as stated under s.173.
2. Where someone is a majority or sole shareholder of a company, or they are
disqualified as director - they are not allowed to be a director for a certain time. They
are magically employed by the company as a consultant, and they are heavily
consulted. They can be an employee of a company, we can consult them and make the
decisions - but everyone knows the reality that they simply do as they are told. The
disqualified director, who cannot be a director, would be telling people what to do -
breaching their disqual order and are being a shadow director.
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