Shadow Directors In The BVI: Who Are They, What Duties Do They Owe And What Are Their Risks?

As a major incorporation jurisdiction, the issue of shadow directorships is an important and practical one for the BVI. There are 3 types of company director recognised by BVI law1: (1) those who are validly appointed as director ("de jure" directors); (2) those who assume to act as director, without having been appointed validly or at all ("de facto" directors); and (3) shadow directors.

Whilst it is well-established that de facto directors owe the same fiduciary duties as de jure directors, the position is far from clear in relation to shadow directors. With that in mind, and in light of the number of shadow directorships (or, at the very least, potential shadow directorships) in the BVI2, this article is intended to provide a summary of the present legal position, both in terms of who is a shadow director, and in relation to what duties such directors owe to their BVI companies.

What is a Shadow Director?

According to the Insolvency Act 2003 ("IA 2003"), a "shadow director" is "a person in accordance with whose directions or instructions a director or the board of a corporate body may be required or accustomed to act"3. There are a number of authorities on the meaning of those words, but ultimately it is a question of fact in each case whether or not directions or instructions were given and whether or not the directors (or at least a governing majority of the board) were "required" or "accustomed" to act on the basis of them. The mere giving of instructions or directions does not make someone a shadow director; it is only where they are translated into action by the board (on more than one occasion) that the question arises.

What duties do Shadow Directors owe to a BVI company?

Presently there is no BVI authority that directly addresses this question.

However, some assistance may be derived from considering the English decision, Ultraframe (UK) Ltd v Gary Fielding and Ors [2005] EWHC 1638 (Ch) in which Lewison J (as he then was) took the view that a shadow director does not usually owe any fiduciary duties to the company, unless he has voluntarily assumed responsibility in relation to a particular asset, for example by becoming the sole signatory on the company's bank account. That view was nevertheless rejected by Newey J (as he then was) in Vivendi SA and anor v Richards and anor [2013] EWHC 3006 (Ch), who stated, in contrast, that shadow directors do (at the very least) owe fiduciary duties in relation to the directions or...