To date there has been some uncertainty about the extent to which directors’ fiduciary duties apply to shadow directors because the imposition of a fiduciary duty depends on the person concerned having undertaken or assumed a responsibility. For example, in Ultraframe UK Ltd v Fielding  EWHC 1638 (Ch) it was held that although a de facto director owes directors’ duties, the “indirect influence exerted by a paradigm shadow director who does not directly deal with or claim the right to deal directly with the company’s assets will not usually… be enough to impose fiduciary duties upon him”. Other first instance cases assumed shadow directors were subject to fiduciary duties (e.g. Yukong Line Limited v Rendsburg Investments Corporation  1 WLR 294). More recently, in Vivendi SA Centenary Holdings III Ltd v Richards & Ors  EWHC 3006 (Ch), the judge concluded that the judge in Ultraframe had understated the extent to which shadow directors owe fiduciary duties concluding that a shadow director would typically owe such duties in relation at least to the directions or instructions that he gave to the de jure directors.
The Small Business, Enterprise and Employment Act 2015 (SBEE) has now clarified this uncertainty. From 26 May 2015 the Companies Act 2006 (CA 2006) is amended to state that, “The general duties apply to a shadow director of a company where and to the extent that they are capable of so applying”.
SBEE also slightly amends the definition of “shadow director”. Currently the definition states that “A person is not to be regarded as a shadow director by reason only that the directors act on advice given by him in a professional capacity”. Under SBEE this exclusion is slightly extended to also include where directors act in accordance with instructions, a direction, guidance or advice given by that person in the exercise of a function conferred by or under an enactment or by a person in their capacity as a minister of the crown.
Impact – the legislative extension of directors’ duties to shadow directors is intended to ensure that shadow directors are also accountable for any wrongdoing and provides welcome clarity in this area.
Background - a shadow director is a person “in accordance with whose directions or instructions the directors of the company are accustomed to act” (section 251, CA 2006). The person is not held out to be a director and does not claim to be one.