Out Of The Shadows Into The Light: 'Shadow Directors' Now Recognized In Bahamian Companies Law

Recent Bahamian companies' law reform that took effect during 2012 introduced the shadow director1 concept which provides a direct means of accountability under company law of persons who in fact had influence over the management of a Bahamian company.

What is a "shadow director"?

"shadow director" means, in relation to a company, any person in accordance with whose directions or instructions the directors of the company are accustomed to act, but the person is not deemed to be a shadow director by reason only that the directors act on advice given by him in a professional capacity.2

What are the implications for financial advisers, shareholders and creditors?

If a person is deemed to be a shadow director, he will take on all the legal obligations and liabilities of a formally appointed director/officer under the relevant Companies Act provisions.

Shadow directors have been referred to in early English common law by a variety of colourful epithets such as 'lurking in the shadows', and 'puppet masters'. Early cases descriptively imply a high threshold of control necessary to fulfill the role of shadow director. Later English cases, however, provide more structured limitations to the term and a purposive approach to its interpretation, translating to a lower qualifying threshold.

In the English decision of Re Hydrodam (Corby) Ltd3 it was stated that in order to be a shadow director, the person must have voted or given directions to the company. The English case of Re Unisoft Group Ltd (No 3)4 continued with this relatively high threshold for shadow directors, determining that the control they had to exert had to be akin to a puppet master or the 'cat's paw' controlling the actions of the board. If the whole or the majority of the multi-member board of directors were accustomed to act on his or her directions, that person was considered a shadow director.5

Later cases of Secretary of State for Trade and Industry v Deverell, and Re Mea Corporation provide less colourful, but arguably more helpful, guidance in determining who or what defines a shadow director. In the Deverell case, the mischief rule approach was adopted. Lord Justice Morritt stated,

'The purpose of the legislation is to identify those, other than professional advisers, with real influence in the corporate affairs of the company. But it is not necessary that such influence should be exercised over the whole field of its corporate activities.'6

The determination of whether it was...