Vol 8 (2011) - Issue 3

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De Facto Directorships: Multiple Tests Prevail

Introduction

For some 150 years or so the courts have been grappling with the vexed issue of how best to determine whether a person’s conduct with respect to participating in the management of a company is such as to render him or her a de facto director notwithstanding that such a person is not a de jure director. In the older case law the issue typically arises where the validity of a person’s acts in relation to the affairs of a company is challenged in circumstances where that person’s appointment as director was defective or his appointment as de jure director had ceased at some time prior to the conduct in question. In more recent times, the courts have been confronted with the situation where the claim involves a person whose activities are such as to make him an integral part of the company’s governance and, therefore, a de facto director for the purposes of the insolvency legislation relating to wrongful trading by, and disqualification of, directors. Perhaps not surprisingly, given the variable factual situations encountered in this regard, the courts have long taken an open-textured approach and have developed a range of tests for determining the issue. These were recently subjected to detailed examination in Revenue and Customs Commissions v Holland, Paycheck Services 3 Ltd, Re, where the Supreme Court, confirming that no single test was determinative, held that the respondent who was a director of one company, which was the corporate director of 42 'composite' companies, was not, on that basis alone, a de facto director of those companies.