In the recent case of Holland v Revenue and Customs & another, the Supreme Court looked at the following question: to what extent a director of a corporate director of a principal company could be considered a de facto director of a particular company.


Section 212 of the Insolvency Act 1986 (IA 1986) enables a liquidator, official receiver, creditor or contributory to bring an application against an officer of a company who has been guilty of misfeasance or breached any fiduciary or other duty to the company.

Pursuant to section 251 IA 1986 an 'officer' in relation to a corporate body includes a director, manager or secretary. A 'director' includes any person occupying the position of a director by whatever name called. This may include a de facto director. A de facto director is a person who acts as a director of a company but is never validly appointed.

A company may be a director of another company - a corporate director. However, under the Companies Act 2006, there must at least one director of the company who is a natural person.

The question the Supreme Court considered in the recent case of Holland v Revenue and Customs & another[1] was to what extent a director of a corporate director (which in turn was a director of a principal company) should be considered a de facto director of the principal company.


Mr and Mrs Holland (together, the defendants) set up a company called Paycheck Services Limited (P) to administer the business and tax affairs of contractors in various sectors (mainly in information technology). Forty-two contracting companies were set up for this purpose. The defendants were directors of and set up two new companies: (1) Paycheck (Directors Services) Ltd (PD) and (2) Paycheck (Secretarial Services) Ltd (PS), to act as a corporate director and corporate secretary, respectively, of these 42 contracting companies.

The company structure was intended to enable the 42 companies to pay corporation tax at the lower small companies rate. However, Mr Holland was treated as being in control of the 42 companies, so the companies were treated as being associated for tax purposes. As a result, the companies were liable for a higher rate of corporation tax and the companies became insolvent.

HMRC brought a claim against the defendants on the basis that they were liable under Section 212 IA 1986 to account for dividends paid out by the 42 companies.

As the defendants were directors of PD, the question arose as to what extent they could be construed as de facto directors of the 42 companies.

At first instance the deputy judge dismissed the claims against Mrs Holland but concluded that Mr Holland was a de facto director of the 42 companies and so was liable for HMRC's claim pursuant to Section 212 IA 1986. The Court of Appeal allowed Mr Holland's appeal, dismissed the originating application and dismissed the cross-appeal by HMRC. HMRC appealed to the Supreme Court.


The Supreme Court dismissed HMRC's appeal, holding that:-

  • the question as to whether Mr Holland was acting as de facto director of the 42 companies should be approached on the basis that he and the corporate director (PD) were in law separate people, with their own separate legal personality and merely acting as a director of a corporate director (PD) was not enough on its own to make Mr Holland a de facto director of the 42 companies.
  • as long as Mr Holland discharged his duties and responsibilities as a director of the corporate director (PD), it was within this capacity that his acts should be attributed and not as a de facto director of the 42 companies.


The court makes it clear that the mere fact that a director (Mr Holland in this case) of a corporate director (PD) of a company (the 42 companies) is not on its own enough to make a director a de facto director of a company.

This case raises an interesting policy argument as to whether natural directors who cause a corporate director to breach its duty to a company should bear commercial responsibility for that breach (there were two dissenting decisions of Lord Walker and Clarke in this regard). However, the majority held that adopting a test that points simply to the acts carried out by a director and considering whether that director had a real influence over its affairs would create too much uncertainty.

Points to remember

  • Obtain advice before creating company structures; and
  • A director of a corporate director must be careful to make sure that his / her acts are within the ambit of the role as a director of a corporate director as opposed to acts that could be construed as being on behalf of the principal company.