Can a director of a holding company be considered a de facto director of the subsidiary company?

A de facto director is an individual who, despite not having been formally appointed as one, assumes the responsibilities of a company director. Importantly, de-facto directors hold the same responsibilities as directors under company law and are subject to directors' duties. The label of a de facto director can therefore have huge ramifications on the responsibilities and liabilities of an individual.

The case of Aston Risk Management Ltd v Jones

A recent case put to the test whether Mr Jones, a director of a holding company in a corporate group, was a de facto director of a subsidiary company within that group.

In this case, the court determined that the director of the holding company was, indeed, a de facto director of the subsidiary. The additional responsibilities and liability associated with that were vast.

The facts explained

The subsidiary company entered into creditors' voluntary liquidation, leading to a subsequent legal claim against Mr. Jones. While holding a directorial role in the holding company, he had not been officially appointed as a director of the subsidiary.

The court considered several factors that suggested Mr. Jones was acting as a de facto director of the subsidiary:

1. He had assumed a role analogous to that of the subsidiary's chief executive officer
2. He referred to himself, and held himself out, as the IT director and chief technical officer of the subsidiary
3. He had assumed the right to approve and veto payments from the subsidiary's bank account
4. He had acted on behalf of the subsidiary in relation to human resources matters, such as the hiring and firing of staff
5. He took a leading role in the day-to-day management and operation of the business of the subsidiary, including the settling, monitoring and enforcement of targets.

As a result, Mr Jones breached his directors' duties, and became liable for the authorisation of a payment by the subsidiary that should not have been made.

Consequently, the court ordered Mr. Jones to reimburse the subsidiary for the payment.

How could this affect you?

As de facto directors can be personally liable or even commit a criminal offence if they breach the directors' duties, it is important to analyse to what capacity someone represents a company. Understanding the legal implications of de facto directors is essential to avoid personal liability and potential legal consequences.

If you are unsure as to your status as a director or the status of those who work with you, please contact Sophie Birkbeck in our Corporate team at sbirkbeck@vwv.co.uk or 020 7665 0962