Directors are appointed for good reasons. They have to be formally registered at Companies House, perform statutory duties and are bound by the law to exercise reasonable care, skill, diligence in their stewardship and avoid conflicts of interest.
A shadow director is somebody who assumes the role and responsibilities of a director without being formally appointed. Sometimes this is a way for disqualified directors to retain control of a company or for other unappointed people to act as a director without the annoyance of letting Companies House know or obey any of their other “crazy” rules.
Some people love their jobs so much they just can’t stay away; others want to use their experience to help their friends or family with their business and some are just crooks.
If a company enters insolvency then there will be a directors’ investigation to determine what happened and who, if anybody was responsible. This doesn’t just include directors but if it’s established that people were acting as shadow directors then even though they haven’t been formally appointed, they will be held as liable as the official named directors.
A recent example is the case of Absolute Resource Management. They were an IT consultancy based in Luton, incorporated in 2007, began trading in 2009 under a sole director registered as Carol Perry. They were liquidated in 2016 when the liquidator’s report triggered an investigation. This subsequently discovered that a Mr Keith Perry, Carol’s brother, had been acting as shadow director since 2010.
Mr Perry had already been disqualified from being a director for seven years in 2010 for his previous conduct as director of the similar sounding Absolute Service Management (Beds) Limited. His ban was for not maintaining adequate accounting records or paying appropriate taxes.
Sadly he seems to have a problem remembering to pay taxes as Absolute Resource Management failed to pay them for three and a half years from March 2013. When the company stopped trading they owed HMRC more than £220,000.
Mr Perry was subsequently banned from being a director for 11 years now while sister Carol has been banned for four years for failing in her directors' duty to ensure the company fulfilled its tax obligations.
If you’re a director and worried about an investigation into your company then Contact us. We’ll explain the ins and outs of the process and what to do to make sure you represent yourself and your actions in the best possible light - because after all, light dispels shadows!