Shadow Director - The definition - What is a shadow director?
Liquidation - Insolvency - What is a shadow director? - The Insolvency Act 1986
For insolvency law purposes a Shadow Director is defined in The Insolvency Act 1986 as as "a person in accordance with whose directions or instructions the directors of the company are accustomed to act".
However, a person is not treated as a shadow director merely because the directors act on advice he gives in a professional capacity. The fact that one member of a board acts on the instructions of a third party does not necessarily mean that the third party is a shadow director; the capacity to influence the whole board (or at least a majority) is the key issue.
In Re: M C Bacon (case law) the Judge described two examples of a shadow director:
- The fraudster who operates through shelf companies controlled by nominees, and
- The bankrupt (or disqualified director) who continues to manage a company through their spouse.
These examples assist in better understanding the definition of a shadow director. A shadow director though not registered as a director at Companies House is treated for all insolvency purposes as if he were an actual director of the company - and is subject to the same legal exposure as an actual director to the provisions of The Insolvency Act 1986 and The Companies Act 2006.