Company law - Payment of illegal dividends

COMPANY — Director — Breach of duty — Insolvent company paying unlawful dividends — Defendant human director of corporate director of insolvent company — Whether to be treated as de facto director of insolvent company — Companies Act 1985, s 744 — Insolvency Act 1986, ss 212(1)(a), 251
Revenue and Customs Commissioners v Holland and another
[2009] EWCA Civ 625; [2009] WLR (D) 228

CA: Ward, Rimer, Elias LJJ: 2 July 2009

A human director of a corporate director could in certain circumstances be regarded as a de facto director of the subject company but he would not automatically be so regarded.
The Court of Appeal so stated when, inter alia, allowing the appeal of the first defendant, Michael Holland, from a decision of Mark Cawson QC, sitting as a deputy High Court judge of the Chancery Division on 24 June 2008 ([2009] Bus LR 1), finding for the claimant Revenue and Customs Commissioners on their application under s 212 of the Insolvency Act 1986 and holding that the defendant and his wife, Linda Holland, the second defendant, were guilty, as de facto directors of 42 insolvent companies, of misfeasance and breaches of duty in causing payment between specified dates of unlawful dividends. The first defendant was not a de jure director of any of the relevant companies: the sole director of each was a company of which he was a director. However, the judge found that he was a de facto director of each company and was thus answerable to the commissioners’ claim under s 212 of the 1986 Act.
RIMER LJ said that where s 212(1)(a) referred to “a person who is or has been an officer of the company” the word “officer” therein included a de facto director; and the definition of an “officer” in relation to a body corporate in s 744 of the Companies Act 1985 included “a director, manager or secretary”. Furthermore, s 251 of the 1986 Act incorporated that definition and defined a “director” as including “any person occupying the position of director by whatever name called”. The question was accordingly whether, on a true construction, the first defendant was by virtue of his activities to be considered a de facto director. The fact was, however, that although it was not the case that there could never be circumstances in which a director of a corporate director could or would so act as to cause himself to be regarded as a de facto director of the subject company, something more would be required than the mere performance by him of his duties as a de jure director of the corporate director; and on the instant facts the deputy judge’s conclusion that the first defendant was a de facto director could not stand.
ELIAS and WARD LJJ gave concurring judgments.