Lime and Black BPS Limited (in liquidation) v Dharminder Singh Gill & Ors

A person may be a de facto director without formal appointment where, viewed objectively and cumulatively, they assume the status and functions of a director within the company’s corporate governance structure. The court must examine what the person actually did, in context, and may consider whether the company or third parties treated them as a director. Informal corporate administration does not lower the applicable standard.

A de facto director owes the statutory duties applicable to directors. Equitable compensation for breach is measured by the loss caused by the breach, rather than automatically by the company’s wider liability to a third party. Payments made or authorised by the de facto director may constitute the recoverable loss where they would otherwise have remained available to the company.

The claimant company, acting through its liquidators, sued five defendants for breaches of fiduciary duty and related equitable and common-law liabilities arising from an alleged VAT fraud. The claims were compromised against all defendants except the second defendant, an accountant who had provided services to the company through his sole-trader business.

The central issues were whether he was a de facto director, whether he breached the duties owed by directors by participating in or permitting improper payments, and what loss those breaches caused. Alternative claims for dishonest assistance, knowing receipt and unlawful means conspiracy were also pleaded, but were not pursued or did not require determination.

1. De facto directorship. The court applied the approach in Revenue and Customs Commissioners v Holland; Re Paycheck Services 3 Ltd and Smithton Ltd v Naggar. The question was factual and objective. The court examined the defendant’s actual conduct, the company’s governance structure and the cumulative effect of the relevant activities.
2. The defendant was involved in the conception of the company, administered its workplace pension scheme, set up an IFX payments account, and processed and authorised payments from the IFX and Payfect accounts. Those acts were directorial in nature when considered cumulatively and against the company’s loose and limited corporate governance. The absence of formal appointment, use of the title director, or evidence that he was held out as a director did not prevent the conclusion that he was a de facto director.
3. As a de facto director, he owed the duties in sections 171 to 175 of the Companies Act 2006, interpreted in light of the common-law and equitable principles on which the statutory codification was based. The primary duties relied upon were those in sections 172 and 175.
4. The company proved that payments made to the defendant from its bank accounts, and payments to other recipients from the IFX or Payfect accounts, were made in breach of the duties owed by him. He failed to prove that payments received by him were genuine fees for professional services. The company’s full VAT liability was not, however, the appropriate measure of loss. The recoverable loss was the sum of payments which would have remained available to the company had he not breached his duties, excluding payments from the HSBC account for which he was not responsible.
5. The claim for equitable compensation for breach of trust was not pursued and would have added nothing. The alternative claims did not require determination. Judgment was entered for the claimant, with the amount to be calculated in accordance with the identified loss.