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Friday 24 October 2014

MH Corporate

Court of Appeal Decision on De Facto and Shadow Directors

The recent Court of Appeal decision in Smithton Ltd (formerly Hobart Capital Markets Ltd) v Naggar and others [2014] EWCA Civ 939 is a reminder about the points of general practical importance for identifying de facto and shadow directors.

The definitions of de facto director and shadow director have been determined by statute and case law. Without ever having been formally appointed as a director, a person may become a de facto director if they have performed the functions of a director, or become a shadow director if they are able to persuade the directors of a company to act in a certain way. The question which arose in this case, and which often arises in practice given the substantial duties (and potential liabilities) imposed on a company director, is whether a director of the holding company of a group of companies has become a director of its subsidiaries.

The Importance of Being Clear

In the recent case of Heritage Oil and Gas Ltd & Anor v Tullow Uganda Ltd [2014] EWCA Civ 1048, the Court of Appeal reinforced the importance of using clear language when drafting a provision that is intended to operate as a condition precedent.

The appellant, Heritage, argued that Tullow could not bring a claim under an indemnity because, amongst other things, it had failed to comply with the notice provisions requiring it to give Heritage 20 business days’ notice of any tax claim.

Why It’s Not Always Good To Get A Promotion

We are often asked by companies wishing to raise money how they may do so lawfully. They may have entered into an agreement with a third party which agrees to procure finance for them. This is a heavily regulated area, with significant consequences for breaching the law. It is commonly referred to as the Financial Promotion Regime. Below, I summarise some of the key points which arise out of the regime and their consequences in an equity fund raising scenario. I do not address here any potentially overlapping issues arising from the Markets in Financial Instruments Directive.

The Bearer of Bad News?

The Small Business, Enterprise and Employment Bill (the “Bill”) had its second reading in the House of Commons on 16 July 2014, and shall soon be timetabled to continue its march towards royal assent.

The rationale underpinning the Bill is the frequently resurrected (although seemingly never-ending) goal of cutting bureaucracy to stimulate enterprise, or, as it is more windily described in Research Paper 14/39, “[to] reduce regulatory burdens and facilitate the inception, financing and growth of business”.

The Bill’s scope includes addressing the transparency of company ownership, which has led to proposals for the abolition of the type of security known as ‘bearer shares’. As it is not easy to identify the owner of a bearer share, their existence has long been demonised as a dark corner of the UK’s otherwise bright and open regime of company ownership.


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