Instant Access Properties Ltd v Rosser & Ors

A person may be both a de facto and a shadow director, and status depends on what the person actually did in the context of the company’s corporate governance. Whether a shadow director owes fiduciary duties is fact-sensitive. The court should identify the responsibility assumed and the scope of any duty, rather than automatically imposing the full range of duties owed by a de jure director.

A contractual obligation constitutes legal consideration even if its economic value is disputed. A claim that consideration was inadequate requires evidence of value. Shareholder ratification requires full knowledge of the material facts. Fraudulent trading requires participation in a business carried on with intent to defraud creditors or for a fraudulent purpose.

The claimant company, acting through its liquidators, alleged that arrangements under which commission was shared with Leadenhall and Darrencrest defrauded the company. Claims were brought against the alleged de facto or shadow directors, the de jure director and professional advisers for breach of fiduciary duty, negligence, dishonest assistance, conspiracy and fraudulent trading.

The principal issues were whether Mr Moore and Mr Rosser were de facto or shadow directors; what fiduciary duties they owed; whether the commission arrangements involved inadequate consideration, third-party benefits or self-dealing; whether shareholder ratification was effective; and whether the conduct amounted to fraudulent trading.

1. Disposition. All claims against all defendants were dismissed.
2. Directorial status. The distinction between de facto and shadow directors has become blurred, and a person may be both. The question is factual and requires attention to the person’s actual activities and the company’s corporate governance. Mr Moore and Mr Rosser were shadow directors in relation to some activities of IAP, but were not de facto directors. The de jure directors were accustomed to act on their directions or instructions.
3. Fiduciary duties of shadow directors. It is not necessary or helpful to define the duties of a typical shadow director in the abstract. The court should ask whether the individual assumed fiduciary duties to the company and, if so, identify their scope. Duties may be limited to particular activities or transactions. A shadow director’s good faith and the position of the de jure directors may be relevant, including whether an equivalent de jure director would have been relieved from liability.
4. Commission arrangements. The agreement with Leadenhall was binding and imposed obligations on Leadenhall, so there was legal consideration. The claimants produced no evidence showing that the services had no economic value or that a different commission split represented the proper market value. The arrangements were therefore not shown to involve no or inadequate consideration. The arrangements also had a legitimate commercial purpose and were not shown to be dishonest or fraudulent.
5. Third-party benefit and self-dealing. The duty concerning benefits from third parties did not apply to agreements made with IAP itself. The evidence did not establish that Mr Moore or Mr Rosser used their position in relation to IAP to obtain benefits from developers. As to self-dealing, the de jure directors knew the nature and extent of their interests. Even if a breach had occurred, the court held that a de jure director would likely have been relieved from liability and that it would be unacceptable to impose a stricter result on these shadow directors acting in good faith.
6. Ratification and other claims. Shareholder ratification requires full knowledge of the material facts. The resolution would have ratified the self-dealing aspect of the arrangements, but not an inadequacy-of-consideration breach if the shareholders had been told that the arrangements were at arm’s length. The claims for negligence, dishonest assistance, conspiracy and fraudulent trading failed because the underlying breaches and loss were not established. The false documents did not cause loss to IAP, HMRC or creditors.