Boston Trust Company Limited & Anor v Szerelmey Limited & Ors

A person may be a de facto director where, viewed objectively and in the round, he assumes the status and functions of a director and acts as a decision-maker. A shadow director is established where the properly appointed directors are accustomed to act in accordance with that person’s directions or instructions; complete control of the company is unnecessary.

For the duty to promote the success of a company, the court applies a subjective test where the director actually considered the company’s interests. If he did not, the question is whether an intelligent and honest director could reasonably have believed that the transaction was likely to promote the company’s success for the benefit of its members as a whole. Using company remuneration powers to pressure a member in a personal dispute was an improper purpose and breached the statutory duties.

The claimants, trustees and shareholders in the Tellisford group, brought a multiple derivative claim concerning four categories of transactions involving three operating companies: an asset transfer and leaseback, labour-supply arrangements, guarantees and loans for related companies, and management fees paid for the benefit of Mr Gordon Verhoef.

The claim alleged breaches of directors’ duties by Mr Verhoef before and after his appointment as a de jure director. The court first determined whether he had been a de facto or shadow director before 6 June 2017 and whether the recipient companies were partly owned through the Erutuf Trust. It then considered whether the claims fell within an exception to the rule in Foss v Harbottle and whether the transactions involved breaches of duty.

1. Directorship status. Mr Verhoef was a de facto director before his formal appointment. Looking at the circumstances in the round, he was a key decision-maker in the operating companies. Relevant matters included his strategic involvement, continuity of role after formal appointment, attendance at the companies’ premises, his own evidence that he made decisions, contemporaneous instructions, and his ability to stop financial information being provided to the other stakeholder. Labels such as consultant or the absence of formal holding-out were not determinative. The same evidence would have established shadow directorship had de facto directorship not been found.
2. Statutory duties. As a de facto director, Mr Verhoef owed the general duties in Companies Act 2006, sections 171, 172 and 177, by virtue of section 250. The general duties also applied to him as a shadow director to the extent capable of applying.
3. Derivative claims and transactions. The asset, labour, guarantee and loan arrangements did not fall within the relevant exception to the rule in Foss v Harbottle where the recipient companies were owned in equivalent proportions through the parties’ holding structures. The arrangements were directed towards protecting the wider business and could reasonably be regarded as promoting the operating companies’ long-term success. No breach of the proper-purpose or success-promoting duties was established. The guarantees and loans, other than the Heritage York loans, would otherwise have involved a personal benefit to Mr Verhoef sufficient to engage the derivative claim exception, but no breach was proved.
4. Management fees. Mr Verhoef decided that the operating companies would pay him alone what had previously been a profit share divided between him and Mr Krause. The purpose was to put pressure on Mr Krause in negotiations. That was an improper purpose under section 171 and unfair treatment of a member contrary to section 172. The payments also failed the objective test. The receiving companies were liable in knowing receipt, and no equitable allowance was made because the claim was unpleaded and insufficiently evidenced.
5. Disposition. The claim succeeded in relation to the consultancy or management fees paid, or payable, for Mr Verhoef. The balance of the claim was dismissed. Consequential matters were left for a further hearing if not agreed.