Phil MeekinView Profile
So, what is a shadow director and how could it affect you in an insolvency situation? As described in the definitions of the Insolvency Act 1986, a shadow director is a person in accordance with whose directions or instructions the directors of the company are accustomed to act.
What exactly is a shadow director?
A common example of where this situation might occur is within the finance function, but there are several other factors which also come into play when deciding whether you could be regarded as a shadow director:
- Whether or not the company portrayed you as a director – perhaps using the title in written communications.
- If third parties considered you to be a director – because you regularly negotiated on behalf of the company, for instance.
- Whether you assumed responsibility for an entire area of the business – you were the sole signatory on the company’s bank account, or took the lead when recruiting senior members of the management team, for example.
These factors will be taken into consideration during an insolvency procedure and will help the acting insolvency practitioner determine the outcome for any responsible directors.
In an insolvency situation, this distinction is important. A shadow director is considered to be just as accountable for the company as any formally appointed director.
If you think this describes your position within a company, you are equally as responsible as the formally appointed directors. You also have a duty to act in the best interest of the company at all times.
Bankrupts are not allowed to act as company directors, but if they’re acting as shadow directors they could fall foul of the law.