Duties attach to directors, so the definition decides who carries them. Section 107 of the Companies Act 1997 casts the net wide, and does so differently for different provisions.
Section 107(1)(a) — the core
(a) a person occupying the position of director of the company by whatever name called.
The title is irrelevant. A person described as a “governor”, a “trustee”, a “committee member” or a “principal” who in fact occupies the position of director is one. Paragraph (a) applies for all purposes of the Act.
Sections 107(1)(b) to (d) — four extensions, each with its own reach
| Who | Applies for the purposes of |
|---|---|
| (b)(i) a person in accordance with whose directions or instructions a director may be required or is accustomed to act | ss 112 to 119, 123 to 127, 344 and 350 |
| (b)(ii) a person in accordance with whose directions or instructions the board may be required or is accustomed to act | |
| (b)(iii) a person who exercises, is entitled to exercise, controls or is entitled to control the exercise of powers which, apart from the constitution, would fall to be exercised by the board | |
| (c) a person to whom a power or duty of the board has been directly delegated with their consent or acquiescence, or who exercises it with the consent or acquiescence of the board | ss 112 to 127, 344 and 350 |
| (d) a person in accordance with whose directions or instructions a person in (a) to (c) may be required or is accustomed to act in respect of their duties and powers as a director | ss 123 to 127 |
Paragraph (b) is the shadow director provision, and its reach covers sections 112 to 119 — the duty of good faith and best interests, the duty to comply with the Act and constitution, care and diligence, use of information and advice, and the whole interested transaction regime.
It also covers section 344 (transactions for inadequate or excessive consideration with directors and certain other persons) and section 350 (the Court’s power to require persons to repay money or return property). So a person who controls a company from behind the register is squarely exposed in a liquidation.
Note that paragraph (c) extends further — to sections 112 to 127 — catching a delegate who takes on board powers, including the share dealing restrictions in sections 126 and 127.
Sections 107(2) and (5) — who is excluded
“Director” does not include a receiver.
Subsections (1)(b) to (d) do not include a person to the extent that the person acts only in a professional capacity.
A lawyer, accountant or consultant whose advice the board habitually follows is not thereby a director — but only “to the extent that the person acts only in a professional capacity”. An adviser who steps beyond advising and starts directing, or who takes a delegated board power under paragraph (c), loses the protection for that conduct.
A receiver is excluded because Part XVII imposes its own duties — sections 268 to 271 — and its own liabilities under section 281.
Sections 107(3) and (4) — shareholders deemed directors
Where the constitution confers on shareholders a power that would otherwise fall to be exercised by the board, any shareholder who exercises that power, or who takes part in deciding whether to exercise it, is deemed to be a director for the purposes of sections 112 to 116.
Where the constitution requires a director or the board to exercise or refrain from exercising a power in accordance with a decision or direction of shareholders, any shareholder who takes part in (a) making a decision that the power should or should not be exercised, or (b) deciding whether to give a direction, is deemed to be a director for the purposes of sections 112 to 116.
A constitution can reserve decisions to shareholders — joint venture constitutions often do. But subsections (3) and (4) attach the consequence: those shareholders take on the directors’ duties in sections 112 to 116 for that decision, including good faith and best interests of the company and care and diligence.
A shareholder cannot both control a decision and stand outside the duties that govern it. This is worth weighing before drafting reserved-matter clauses into a constitution.
Section 108 — what the “board” is
(a) directors who number not less than the required quorum acting together as a board of directors; or
(b) where the company has only one director, that director.
So a decision taken by directors who do not constitute a quorum is not a decision of the board. Quorum is governed by Schedule 4 unless the constitution provides otherwise, under section 138. In a one-director company, that director is the board — a common position given that section 11 requires only one director.
Where the definition bites
- Duties. Sections 112 to 116 apply to everyone within the relevant limb — including shadow directors and deemed-director shareholders.
- Interested transactions. Sections 117 to 119 reach a shadow director’s interests as well.
- Company information and share dealing. Sections 123 to 127 have the widest reach, catching paragraph (d) as well.
- Liquidation recoveries. Sections 344 and 350 expressly pick up the extended definition, so a controller behind the scenes can be ordered to repay money or return property.
- Insolvent trading and records. Sections 348 and 348A impose liability on directors — and a person occupying the position by whatever name called is one under paragraph (a).
- Disqualification. Sections 425, 426 and 428 ban a person not only from being a director but from taking part in the management of a company — which is the disqualification counterpart of the shadow director concept.
Sources
- Companies Act 1997 — ss 11, 107–109, 112–127, 138, 268–271, 281, 344, 348, 348A, 350, 425, 426, 428; Schedule 4
Before relying on anything here, read the current text of the Companies Act 1997 and check for later amendments. If a decision matters to you, get advice — start with the Office of the Public Solicitor, or find a firm in the law firms directory.