Secretary of State for Trade & Industry v Hollier & Ors

For the purposes of the Company Directors Disqualification Act 1986, a de facto director is identified by asking whether the person formed part of the company’s corporate governing structure. The essential distinction is between participation in collective decisions on corporate policy, strategy and implementation, and advice or assistance provided as an agent, employee or adviser.

The question is objective and depends on all the circumstances. Day-to-day control, formal holding out, access to company information and involvement across the whole business are relevant but not essential. A person may be a de facto director in relation to only part of a company’s activities.

The Secretary of State sought disqualification orders under section 8 of the Company Directors Disqualification Act 1986 against members of the Hollier family concerning the management of the Amba companies and Nextime.com plc.

Several defendants gave undertakings during the proceedings. The judgment therefore concerned Jayson Hollier, Adrian Hollier and Barbara Ann Hollier. The central issues were whether Jayson and Adrian had acted as de facto directors of the Amba companies, whether Jayson and Barbara Hollier had acted as de facto directors of Nextime, and whether any established conduct made them unfit to be concerned in company management.

1. The claim against Jayson Hollier was dismissed. The Secretary of State failed to prove that he had any beneficial interest in the Amba companies or that he was a de facto director of those companies or of Nextime.

2. For the purposes of the Company Directors Disqualification Act 1986, the touchstone of de facto directorship is participation in the company’s corporate governing structure. The relevant distinction is between participation, or a right to participate, in collective decisions on policy, strategy and implementation, and assistance or advice given as an agent, employee or adviser. A person who remains subordinate to the de jure directors does not satisfy the test.

3. The question is objective and must be determined from all relevant facts. Formal holding out, use of the title, access to company information and involvement in decision-making may be highly relevant, but none is invariably decisive. A person may be a de facto director without day-to-day control and despite involvement in only part of the company’s activities. Family loyalty and financial interest may support or negate the inference, depending on the circumstances. The concepts of de facto and shadow directorship are distinct, although the facts may sometimes overlap.

4. The Secretary of State bears the burden of proof. The standard is the ordinary civil standard, but the evidence must be sufficiently cogent to reflect the seriousness of the allegations and the consequences of disqualification.

5. Barbara Hollier was a de facto director of Nextime from its outset. From June 2000 she took overall control, changed the bank mandate, controlled the company’s books and payments, and made important decisions about its business. Her conduct established unfitness under section 8(2). She knowingly permitted trading despite serious financial difficulties, inadequate capital and no realistic prospect of sufficient investment, encouraged continued banking facilities on a misleading basis, and failed adequately to co-operate with the investigation. A disqualification order was appropriate.

6. Adrian Hollier was a de facto director of the Amba companies. He exercised control and gave instructions across a wide range of activities, including finance, creditor relations, negotiations and administration. He permitted Rescue to trade when there was no reasonable prospect of paying creditors, bore responsibility for serious financial and statutory failures, and failed adequately to co-operate with the investigation. The case of unfitness under section 8(2) was established and a disqualification order should be made.

7. The period of disqualification for Adrian Hollier and Barbara Hollier was reserved for further argument.