Secretary of State for Trade and Industry v Hall & Anor

For the purposes of director-disqualification proceedings, a person who controls a corporate director is not thereby a director of the company served by that corporate director. The person must have assumed the status and functions of a director, or caused the corporate director to take actions which would have made it a de facto director if it had not already been duly appointed.

A director cannot avoid personal responsibilities by deliberate inactivity or wholesale delegation. That principle applies to a person who is in fact a director. It does not extend the statutory meaning of director to someone who has never acted as a director and whose controlled company deliberately remained inactive. A corporate-directorship structure may instead be addressed through public-interest winding-up proceedings and consequential disqualification applications.

The Secretary of State applied under section 6 of the Company Directors Disqualification Act 1986 to disqualify Ken Hall and John Andrew Henry Nuttall in connection with the insolvency of Mercury Solutions UK Ltd.

Mr Hall had actively managed Mercury and did not participate in the proceedings. Mr Nuttall controlled Legal Directors Ltd, which was Mercury’s duly appointed corporate director, but accepted that neither he nor Legal Directors Ltd had taken part in Mercury’s management. Legal Directors Ltd had also been a corporate director of six other companies which had defaulted in filing documents.

The central issue concerning Mr Nuttall was whether the court could treat him as a de facto or shadow director because he controlled the corporate director, despite having taken no active role in the companies’ affairs.

1. Mr Nuttall’s application failed for want of jurisdiction. The court could not disqualify him under section 6 of the Company Directors Disqualification Act 1986 because he was not a director of Mercury or the other companies within the statutory meaning.

2. A director has a continuing duty to acquire sufficient knowledge of the company’s business and cannot escape statutory responsibilities by deliberate inactivity, an internal allocation of functions or a decision not to participate in management. The duties to maintain proper accounting records under section 221 of the Companies Act 1985 and to ensure that required returns are filed fall on all directors.

3. The statutory definition of director is materially the same in the disqualification and insolvency legislation. Mr Nuttall was not a shadow director because there was no evidence that Mercury’s active directors were accustomed to act in accordance with his directions or instructions.

4. Control of a corporate director does not, without more, make its own director a de facto director of the subject company. The relevant question is what the individual procured the corporate director to do. The corporate director must have taken steps concerning the subject company which would have constituted it a de facto director if it had not already been a de jure director. The degree of control over the corporate director is relevant, but control alone is insufficient.

5. Here, Mr Nuttall and Legal Directors Ltd had positively declined to assume the status and functions of directors of Mercury. Mr Nuttall therefore had no duty under section 221 of the Companies Act 1985 to ensure that Mercury kept proper books, or to ensure that the six other companies made returns.

6. The court rejected the suggested lacuna in public protection. The Secretary of State could seek the public-interest winding up of a corporate director or parent under section 124A of the Insolvency Act 1986 and, where appropriate, seek disqualification of the relevant directors under section 8 of the Company Directors Disqualification Act 1986.

7. Mr Hall’s conduct justified a four-year disqualification. The court considered the facts of Mercury’s collapse not to be particularly serious, but considered four years sufficient for public protection.

This was a first-instance application. Proceedings against Mr Ahlmann were discontinued after he undertook not to act as a director for five years.