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De Facto and Shadow Directors of Companies

Posted by M. Margaret Gonsalves-Sabola | Mar 15, 2018 | 0 Comments

De facto and shadow directors of companies 460x260 c

In addition to directors appointed under the law, companies may have de facto and shadow directors. Someone who acts as a director but who has not been validly appointed is called a de facto director. In re Canadian Land Reclaiming and Colonising Co.: Coventry and Dixon's Case(1880) 14 Ch. D. 660. For example, if a person ran a company believing he had been appointed as a director, but in fact he would have been disqualified from acting as a director at the time of his appointment, he may be a de facto director. De facto directors can manage along with de jure directors, or they may be the only ones managing the company. In re Richborough Furniture Ltd. [1996] B.C.C. 155; Secretary of State for Trade and Industry v Hickling [1996] B.C.C. 678.

In addition to de jure directors and de facto directors, Bahamian law recognizes so-called “shadow directors”. When directors of a company are accustomed to following the directions or instructions of a person regarding the company, that person is a shadow director. Companies (Winding-Up Amendment) Act 2011, Section 183. For example, the former owner of a company who retires but who continues to give instructions to the new directors about important aspects of the company's business may be a shadow director. Professionals doing work for the company, however, are not shadow directors just because directors act on their advice.

At common law de facto directors owe the same duties to companies as do de jure directors. Bahamian statutes make all directors – de jure, de facto, or shadow directors – subject to criminal liability for fraud, destruction of documents, and other misconduct committed with the intent to defraud the company's creditors. Companies (Winding-Up Amendment) Act 2011, Sections 228-231; International Business Companies Act, Section 89.

As a result of the de facto and shadow director designations, companies should ensure that they follow proper procedures in appointing directors and do not allow people who are not directors to direct the company's actions. Potential company directors should ensure that they are eligible to serve as directors and are appointed properly. Finally, anyone closely associated with a company who is not its director should take care not to give instructions or directions such that he would be considered a shadow director and be subject to potential liability.

To find out more about laws governing company directors, visit Gonsalves-Sabola Chambers online or call the office at +1 242 326 6400.

About the Author

M. Margaret Gonsalves-Sabola

M. Margaret Gonsalves-Sabola is a civil and commercial litigation attorney and an accredited civil and commercial mediator. Margaret has over 21 years' experience in legal practice in the United Kingdom, Jamaica and The Bahamas.

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