Secretary of State for Business, Energy and Industrial Strategy v Rahman

2020] EWHC 2213 (Ch)

Chancery Division, Bristol District Registry

“a de facto director is a director”

In this case the Secretary of State (‘SoS’) applied for a disqualification order against Mr R as a director under the Company Directors Disqualification Act 1986. However, the claim was unsuccessful and dismissed by the Court.

The judgment provides a helpful reminder to the meaning of a ‘de facto’ director and the importance of strong evidence to support the view that a person is a ‘de facto’ director.

 De facto director

“a de facto director is a director” i.e. a person with actual directorial control, acting on an equal footing in directing the affairs of the company.

 “In HMRC v Holland [2010] 1 WLR 2793, the Supreme Court by a majority held that the director of a corporate director of a company which became insolvent did not act as a de facto director of the insolvent company merely by discharging his duties and responsibilities as a director of the corporate director.”

 “In Smithton Ltd v Naggar [2015] 1 WLR 189, [33]-[45], Arden LJ considered the earlier authorities and made a number of points, including that the questions were whether the person had assumed responsibility to act as a director, what was the capacity in which the person was acting, what the person actually did, whether the defendant's acts were directorial in nature, whether the company considered the person to be a director and held that person out as such and whether third parties considered that that person was a director. She also made the point that a person does not avoid liability by showing that that person in good faith thought that he or she was not acting as a director. It is a question of fact and degree.”

 Evidence

The lack of supporting evidence by the SOS to clearly show Mr R as a de facto director was a key factor for the claim being dismissed. It is suggested that evidence should show that the person assumed the duties of a director (e.g. had a role in the governance of the company) and demonstrate on the balance of probabilities that the person was a de facto director of the company. Evidence should not merely show that there might be something further to look into.

The case also highlights the importance on following up evidence. For example, a notebook contained a phone number pointing to Mr R, which was used to support the view that Mr R was a de facto director. However, no individual thought to telephone the number and check it belonged to Mr R. In later correspondence it was shown that Mr R had a different phone number.