Company Law Reform Bill [HL]

Clauses 146 to 150 retain the requirements of Sections 288 and 289 of the 1985 Act as regards companies keeping a register with up-to-date particulars of all their directors and notifying the registrar of their particulars and any change in their particulars. Section 288(6) of the 1985 Act extends this requirement to shadow directors; Clause 151 does likewise. It must be remembered that not every shadow director is trying to conceal his, or her, identity. But these provisions are needed to prevent the easy evasion of the legislation by persons who control companies but who either do not wish to be appointed to the board or, more typically, cannot be appointed because they are undischarged bankrupts or the subject of disqualification orders under the Company Directors Disqualification Act 1986. It is right that if such a person is a shadow director of a company, he or she should be liable for any default in the duty to keep an up-to-date register of directors, seeing as it must include their particulars. However Amendments Nos. 141 and 146 would relieve the shadow director of such liability. Amendment No. 147 would remove the director’s liability for failure to register a shadow director’s particulars unless,"““it is proved that he (ie the director) was actually aware of the facts which constituted that person a shadow director and that he knew or ought reasonably to have known having regard to the general skill and experience that he actually possessed and to the function which he was actually carrying out as a director that those facts constituted the person shadow director””." I understand the noble Lord’s concern lest someone be unwittingly guilty of an offence. I recognise that there have been occasions when whether a particular person was, or was not, a shadow director has been a matter of some contention. But I would point out that no officer is liable unless in default. Clause 730 provides that,"““An officer is ‘in default’ for the purposes of the provision if he authorises or permits, participates in, or fails to take all reasonable steps to prevent, the contravention””." The effect of the amendment is to reverse the burden of proof in this respect. The question is whether this provides sufficient protection given the wide meaning of ““shadow director”” and the risk that, for example, a bank might fear that it would come within the definition. Experience since the concept was first introduced has been that the banks have not been held liable as shadow directors in large numbers of cases. That seems to me to suggest that the definition is not as wide as is feared. I therefore suggest that the concerns may be exaggerated. Finally, I turn to Amendment No. 288, which would water down the liability of a shadow director arising from a public company’s failure to comply with a direction to appoint a company secretary. As the amendment would have it, such a shadow director would be liable only if he was aware of the direction or should have been aware of it. But if the directors are acting in accordance with the shadow director’s instructions, it is only right that the shadow director, if in default, should, as with the other directors, be liable. I do not consider that it would be helpful to provide a different test for the liability of shadow directors in this context.