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What is lurking in the shadows?

It is that time of year again – when the Grim Reaper calls the spirits from their slumber to engage in the Danse Macabre (try not to think of the stirring music of Camille Saint-Saens, I dare you, when you read these words, not hearing that music is like trying not to chew a fruit pastille).

While the UK may have not grasped Halloween to the same business minded extent of the US, we certainly do enjoy this time of year. There are businesses throughout the UK that experience surges during (and, indeed, only exist for) Halloween – all you need to do is walk down a high street to see the pop-up Halloween shops.

So what is the link to corporate law and business? Well, rather than discuss the vast amounts of money we all spend on Halloween, I would like to highlight something which could affect companies all year round: shadow directors.

So what is a shadow director?

A shadow director situation exists where the directors of a company are “accustomed to acting on the instructions or directions of another person” who is not a director. Shadow directors are people who have influence over a company but are hidden; in the shadows. An example of this might be, Mr Smith is a director of the company but, in practice, when dealing with company matters, he really only does what Mrs Smith tells him to do and, therefore, Mrs Smith is a shadow director.

Whether someone is a shadow director or not depends on the circumstances but one important point to remember is: a shadow director certainly has to have influence but does not have to influence all the company’s activities.

So what are consequences?

Shadow directors are treated as if they were directors and have the same duties, so:
• They are subject to governance requirements such as the need for shareholder approval in the event of a loan being made to them;

• They may be subject to certain insolvency offences – depending on the actions of a company, a shadow director can be liable for fraudulent or wrongful trading;

• They may also be subject to a disqualification order; and

• They are required to declare the nature and extent of their interests in a similar manner to directors.

Are you a Shadow Director?

What can you do to minimise your risks?

Is your company’s corporate governance up to scratch?

To discuss these issues, or any other business law matters, please contact the Young & Partners LLP corporate team on 01383 721 621 or me Steven Wicks by e-mail.

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