Corporate Management

• Author: Suzanne Ffolkes Goldson
• Profession: Attorney-at-Law and Senior Lecturer in the Faculty of Law at The University of the West Indies, Mona
• Pages: 54-76

3. Corporate Management

e worldwide emphasis on corporate governance has been largely due to the

various nancial scandals, in most cases, involving the abuse of power by directors

and ocers of companies. ere is no doubt that good corporate governance

builds investment condence and ultimately inures to the benet of the society in

which companies operate. Corporate Governance principles have been introduced

throughout the Commonwealth through Corporate Governance Codes (soft law),

case law and legislation. Provisions relating to the duties, responsibilities and liabilities

of directors and ocers of the company under the Companies Act 2004 reect some

of the developments in corporate governance by setting high standards relating to

duciary duties, duties of care, diligence and skill and accountability through disclosure

and recognition of the interests of shareholders and other stakeholders. Most of the

provisions are adopted from Canada (e.g. directors’ duciary duties and duties of

care, diligence and skill) while others are adopted from the UK (e.g. shadow directors,

director disqualication), and still others are a creation of the Jamaican Parliament

(e.g. duty of care, diligence, and skill, due diligence defence). In addition to guidance

from the Canadian and UK courts, the local courts, therefore, have an opportunity to

develop the local jurisprudence.

Denition of Directors

Section 172 provides that a private company shall have at least one director but

a public company shall have at least three directors, at least two of whom are not

employees of the company or any of its aliates. Section 2 provides that ‘director’

includes any person occupying the position of director by whatever name called. A

director may, therefore, be de jure or de facto. A de jure director is one who has been

properly appointed as a director of the company, however, a de facto director has not

been properly appointed but inter alia, holds himself out to be a director and is held

out to be a director, by the other directors.

In Smithton Limited v Naggar,1 Hobart, a subsidiary of DDI, brought an action

against Naggar, a director of DDI, to recoup losses of the subsidiary on the basis that

Naggar was a de facto or shadow director of Hobart. In nding that Naggar was neither

1. [2013] EWHC 1961 (Ch.) [35-44] see also HMRC v Holland [2010] 1 WLR 2793; see

also Re Paycheck Services 3 Ltd., Revenue and Customs Commissioners v Holland [2010]

UKSC 5. Re UKLI Ltd. Secretary of State for Business, Innovation and Skills v Chohan and

others [2013] EWHC 680 Ch.

a de facto director nor a shadow director, Arden LJ, outlined some factors which may

be taken into account in determining whether a person is a de facto director:

1. A person may bede factodirector even if there was no invalid appointment.

e question is whether he has assumed responsibility to act as a director.

2. To answer that question, the court may have to determine in what capacity

the director was acting.

3. e court will in general also have to determine the corporate governance

structure of the company so as to decide in relation to the company’s

business whether the defendant›s acts were directorial in nature.

4. e court is required to look at what the director actually did and not any

job title actually given to him.

5. A defendant does not avoid liability if he shows that he in good faith thought

he was not acting as a director. e question of whether or not he acted as

a director is to be determined objectively and irrespective of the defendant’s

motivation or belief.

6. e court must look at the cumulative eect of the activities relied on. e

court should look at all the circumstances ‘in the round’ (per Jonathan

Parker J inSecretary of State v Jones2).

7. It is also important to look at the acts in their context. A single act might

lead to liability in an exceptional case.

8. Relevant factors include:

i. whether the company considered him to be a director and held him

out as such;

ii. whether third parties considered that he was a director;

9. e fact that a person is consulted about directorial decisions or his approval

does not in general, make him a director because he is not making the

decision.

10. Acts outside the period when he is said to have been ade factodirector may

throw light on whether he was ade factodirector in the relevant period.

A ‘shadow director’ is dened by section 2 of the Act as a person in accordance

with whose directions or instructions the directors of the company are accustomed

to act. e concept of shadow director was known to the law in the repealed Jamaica

Companies Act 1965 in the context of insolvency, but has now been given a title and

included in other sections of the Companies Act 2004 following the United Kingdom

Companies Act 1985 s 741(2).3 However, the concept of ‘shadow director’ is not

2. [1999] BCC 336.

3. See Secretary of State for Trade and Industry v Deverell [2000] BCC 1057; Secretary of State

for Trade and Industry v Aviss [2006] EWHC 1846 (Ch.), [2007] BCC 288.

Corporate Management

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