De Facto and Shadow Directors: When You Are Liable Without Being Appointed

A shadow director is someone who helps control a company from behind the scenes, the unseen hand that directs operations. A less familiar term is a de facto director, which is someone who openly performs the role of a director without a legal appointment or official registration. The distinction is important. Company law attaches significant duties and liabilities to people whose role in running a business extends beyond their formal title or the records at Companies House. In making a determination, the court will ignore formal titles and examine what the person actually does and whether they assumed the responsibilities and status of a director.

Categories of Company Director

There are three categories of company directors legally recognised under company law, each with distinct characteristics:

Category of Director	Key Feature
De jure	Formally appointed to the board in accordance with the company’s constitution and relevant company law.
De facto	Assumes the position and core duties of a director without formal appointment.
Shadow	Remains separate from the board, but the directors habitually follow that person’s directions.

Can You Be a Director Without Being Appointed?

The short answer is yes, but the courts do not view every senior employee, shareholder or influential person as a director. The central question regarding who is a company director is what the person actually does.

Under UK company law, courts will apply specific tests to distinguish between different types of directors. Courts principally use section 251 of the Companies Act 2006 to determine if a person is a shadow director, where their influence results in habitual compliance by the board. External consultants, such as accountants or lawyers, are excluded when they act in a professional capacity.

For de facto directors, established case law asks:

• whether the individual was part of the company’s governance system
• whether they acted as part of the governing board
• whether they held themselves out to third parties as a director

In Revenue and Customs Commissioners v Holland [2010] UKSC 51, the Supreme Court confirmed that there is no single decisive test. All relevant circumstances must be considered in determining whether the individual has assumed the responsibilities of a director.

De Facto Director vs Shadow Director

The distinction between de facto director vs shadow director is best understood by determining where the individual sits within the company’s decision-making structure.

A de facto director has assumed the position of a director and may make decisions as part of the company’s governing structure. The relevant factors considered can include whether the individual:

• Makes decisions on corporate policy or strategy that usually fall within the scope of the board
• Controls or directs the company’s finances
• Deals with important contracts or legal matters on behalf of the company
• Appoints or manages senior personnel
• Takes responsibility for the company’s affairs as a whole

A shadow director, by contrast, operates behind the scenes, yet holds control over a company’s operations. Common signs can include a person who:

• Holds no official title and does not claim to be a director
• Gives directions or orders regarding high-level, strategic corporate decisions
• Exerts control where the board of directors habitually acts upon their directions
• Provides instructions that go beyond genuine professional advice
• Influences the company consistently and habitually rather than through a one-off piece of advice

Can One Person Be Both a De Facto and a Shadow Director?

A person can fall within both categories if their behaviour fits both definitions across different activities. That was the conclusion reached in Cavendish IP Solutions Limited v On and On Consultants Limited & Anor [2026] EWHC 2247 (Ch).

The court found the second defendant, Neil Macpherson, operated in both roles for One Property Group (UK) Limited. For compliance and formalities, he acted as a shadow director by instructing the sole appointed director. In other aspects of company business, however, he acted as a director and therefore was a de facto director.

The case demonstrates different ways in which a person can acquire director status. The distinction can be critical in determining the precise duties and liabilities attributed to an individual.

The Impact of Nominee Arrangements

Nominee arrangements can create particular risks where the person formally appointed to the board is not actually making the company’s decisions. An example might involve an individual who owns or controls a business from overseas appointing a UK-based nominee as its director. 

The nominee appears on Companies House records and signs documents but routinely acts on instructions received from the person abroad.

In Cavendish, the company’s ultimate owner was an offshore entrepreneur, while Mr Macpherson was responsible for running the company’s financial and business affairs. The appointed director gave evidence that he did what Mr Macpherson told him to do and signed documents provided to him. Mr Macpherson and the ultimate owner made the significant business decisions.

The lesson is that formal separation of ownership, appointment and control does not necessarily determine who is legally responsible for running a company.

Can Payment Through Another Company Make a Difference?

The way a company pays an individual does not determine whether they are a director. However, remuneration arrangements can form part of the evidence used by a court to determine what was happening at a company.

In Cavendish, Mr Macpherson was apparently receiving an annual salary of £12,000 from the company while working full-time or almost full-time. He also had considerable responsibility for its finances and operations. At the same time, the company made substantial payments to On and On Consultants Limited, a company formally owned and controlled by his wife. 

The evidence led the court to conclude that Mr Macpherson controlled On and On. The payments to it represented remuneration or rewards for work he was doing. In looking beyond the invoices and formal ownership of the consultancy to the underlying reality, the court found that the arrangement concealed the extent of Mr Macpherson’s remuneration and involvement.

Paying legitimate consultancy fees to a company does not necessarily create director liability. However, the arrangement may form part of a wider framework designed to separate the individual from the business they actually control. This may become important when the person’s true role comes under scrutiny.

Liability in Insolvency

In an insolvency, being a director brings specific responsibilities. An office holder has a duty to investigate who was actually responsible for decisions that may have harmed creditors. The absence of a person’s name from Companies House does not necessarily prevent involvement in that investigation.

The Insolvency Act 1986 contains provisions concerning transactions at an undervalue. Where the statutory conditions are met, transactions involving connected persons can be challenged, and sums may be recovered for the benefit of creditors. Wrongful trading and other insolvency-related liabilities can also apply to persons who fall within the relevant statutory definition of director.

The same is true of disqualification: the Company Directors Disqualification Act 1986 applies to any person occupying the position of director, whatever they are called, and to shadow directors.

Cavendish serves as an example where the company’s liabilities exceeded its assets throughout the relevant period. Payments to On and On were therefore treated as transactions at an undervalue because the company received little or nothing in return for these payments. The court found that the challenged payments included remuneration for Mr Macpherson and payments made for his benefit. Subject to reasonable remuneration, the payments were breaches of his duties, and these breaches were dishonest, meaning the usual limitation defence provided no protection.

The potential shadow director liability therefore extended beyond the question of whether the company should have registered Mr Macpherson at Companies House.

What Happens When the Liquidator Follows the Money?

In Cavendish the distinction between formal and actual directorship decided who owed the duties of a director.

The company had a sole registered director. Mr Macpherson was not formally appointed, yet the evidence showed that he managed the company’s financial affairs, controlled payments, managed employees and made important corporate decisions.

The appointed director also took instructions from Mr Macpherson about signing, filing and reporting documents. The court found that this made him a shadow director in relation to those formal matters and a de facto director in relation to the wider running of the company.

During the relevant period the company made payments totalling £377,165 to the connected consultancy controlled by his wife. These were challenged as transactions at an undervalue or preferences. A further £240,607.04 of payments to other recipients came under scrutiny, including £185,000 paid to another entity linked to Mr Macpherson.

The court found that the company had been balance-sheet insolvent and that On and On was connected with the company. A further finding reinforced the connection: Mr Macpherson was also a shadow director of On and On. His wife acted as its director in accordance with his instructions.

The case therefore illustrates that analysis does not stop with the registered director or the company’s own accounting description of a payment. A liquidator can examine who actually controlled the business, who benefited from transactions and whether connected-party payments can be recovered.

Influence Is Not Automatically Directorship

Section 251 states that a person is not treated as a shadow director just because directors act on their advice in a professional capacity. The protection reflects the legitimate role of professional third-party advisers and consultants.

Similarly, a founder who remains influential after appointing a managing director is not necessarily seen as a de facto director. The substance of the individual’s role is the key factor. The Companies House register establishes formal appointments but does not necessarily settle the legalities of the conduct behind them.

Directorship Follows Responsibility, Not Registration

The law recognises a distinction between being appointed as a director and acting as one. A de facto director assumes the position and functions of a director. A shadow director stands behind the formal board and gives directions or instructions that the directors are accustomed to following. 

The key questions are who occupies the position of director, who makes the decisions and who is responsible for the company’s affairs. Where those three things point to someone who was never formally appointed, personal liability and disqualification could follow.