Defining Directorship: De Facto Directors And The BVI Business Company

Section 2 of the BVI Business Companies Act ("the BCA") defines a "director" to include a person occupying or acting in the position of director by whatever name called. For practical purposes, this definition is identical to section 250 of the UK Companies Act, 2006 which defines a director as "any person occupying the position of a director, by whatever name called". Difficult questions often arise in connection with BVI companies where the directors formally appointed are corporate directors provided by fiduciary service providers, while the directors of the corporate directors in turn may also be professional directors.

The effect of section 250 of the UK Companies Act, and the test to be applied in determining whether a person is a de facto director, was recently considered by the English Court of Appeal in Smithton Ltd v Guy Naggar & Others [2014] EWCA Civ. 939 [2014] WLR (D) 306. Given the similarity in wording of the UK and BVI Acts in this respect, this case is persuasive authority in the BVI and provides useful guidance for those dealing with BVI companies about who is to be treated as a director and in what circumstances.

In determining whether a person is a "director" within the above statutory definition, the English Court of Appeal in Smithton suggests that the question to be asked is whether his or its acts are of the quality of directorial acts, tested against the usual split of powers between shareholders and directors. In other words, since the powers of management of the company's business are vested in the directors and the shareholders have limited power to intervene, one must consider the characteristics of the acts performed against this dichotomy. On that basis, a de facto director means a person who either alone or with others has ultimate control of the management of any part of the company's business. In this respect, the English Court of Appeal echoed the Supreme Court in HMRC v Holland [2010] 1 WLR 2793, where Lord Collins said there was no one definitive test for a de facto director, the question being whether the person was part of the corporate governance system of the company and whether he or it assumed the status and function of a director, so as to make himself responsible as if he were a director.

Therefore, the question whether a director is a de facto director is, in every case, a question of fact and degree. The answer requires careful analysis of the corporate governance structure of the particular...