England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		28/07/2006

Mr. Justice Evans-Lombe :

1. This is am application by the Secretary of State for Trade and Industry ("The Secretary of State") under the Company Directors Disqualification Act 1986 ("CDDA") against Ken Hall ("Mr Hall") and John Andrew Henry Nuttall ("Mr Nuttall") as directors of Mercury Solutions UK Ltd ("Mercury") for their disqualification from acting as directors under section 6 of the CDDA.
2. The background facts of these proceedings are as follows: Legal Directors Ltd ("LDL") was incorporated on the 9^th May 1997. At all material times since its incorporation Mr Nuttall and his brother Philip Nuttall have each held one of LDL's two issued shares. From incorporation until the 6^th April 1999 LDL's only director was a company, Procris Holdings Ltd. Thereafter from the 6^th April 1999 until the 17^th July 2003 Mr Nuttall was LDL's only director.
3. LDL was used by Mr Nuttall for the purpose of a business of providing secretarial and other administrative services to businessmen who wished to conduct their business through limited companies. One of the services was the provision of corporate directors of such companies.
4. On the 21^st December 2000 Mercury was incorporated and on the 12^th February 2001 LDL was appointed a director of Mercury. LDL became a corporate director of a number of other companies including Shearing Ltd, Vallis Vale Developments Ltd, See More Business Ltd, Pacifico Software Consultancy Ltd, Sunquest Holidays Mallorca Ltd and Walkers of Banbury 2000 Ltd ("the Six Companies").
5. Mercury commenced trading in May 2001 its business being the provision of foreign language translation. On the 10^th January 2003 Tom Ahlmann ("Mr Ahlmann") was appointed a director of Mercury in addition to LDL. On the 15^th May 2003 Mercury ceased trading and it was placed in insolvent liquidation on the 7^th July 2003. A statement of affairs of Mercury verified by affidavit by Mr Ahlmann shows a deficiency against creditors of £45,512. The Liquidator does not anticipate that any dividend will be paid in the liquidation. It seems that the business of Mercury was managed by Mr Ahlmann and Mr Hall who were the only directors who were paid a salary, £18,000 each in 2001 and thereafter £1,500 a month for five months. It seems that Mercury had a turnover of up to £23,000 a month during its period of trading. An unsuccessful attempt was made to increase this to £40,000 per month by the employment of additional staff and advertising. In the result Mercury's collapse was precipitated in April 2003 by the loss of an important client who contributed £15,500 per month of its turnover.
6. These proceedings were originally commenced against Mr Ahlmann in addition to Mr Hall and Mr Nuttall. On the 22^nd May 2003 Mr Ahlmann entered into an undertaking with the Secretary of State not to act as a director of companies for a period of five years and, in consequence, the proceedings were discontinued against him. Mr Hall, although duly served, has not reacted to the proceedings in any way. I was informed that he lives in Denmark. He did not appear when the case was called on before me. He has failed to comply with an "unless" order of Mr Registrar Jacques of 21^st November 2005 to file evidence in opposition.
7. In the affidavit of Mr Elliott Burns, a chief examiner in the investigations directorate of the Insolvency Service, at paragraph 52, there is set out a "statement of matters determining unfitness" in respect of Mr Hall and Mr Nuttall as follows:-

"Ken Hall

He failed to ensure that Mercury maintained or preserved proper accounting records; alternatively he failed to deliver them to the Liquidator. As a consequence of this the liquidator is unable to establish or verify matters concerning the company's trading life and position including the following specific matters:

• Mercury's turnover cannot be established or verified, and nor can its expenditure. In particular it cannot be established or verified whether cheques totalling £180,419 and described in the bank statements as "Encashed cheque" or "Cash" were spent to the benefit of Mercury. Nor can the company's expenditure on wages, salaries and outsourced work be established or verified.

• The position regarding the company's compliance with its obligations regarding PAYE, NIC and VAT cannot be established or verified.

• Mercury's position regarding its liabilities to trade and expense creditors cannot be established or verified.

• The details of various transactions that appear to relate to property cannot be established or verified. Nor is it possible to establish or verify that these transactions were to the benefit of Mercury.

Jonathan Andrew Henry Nuttall

Mercury

(i) He abnegated his duties as a director of Mercury by failing either to be involved, or to be adequately involved, in the management of Mercury.

(ii) As a director of Mercury he abnegated his responsibilities to ensure that Mercury maintained or preserved proper accounting records; alternatively he failed to deliver them to the Liquidator. As a consequence of this the liquidator is unable to establish or verify matters concerning the company's trading life and position including the following specific matters:

Mercury's turnover cannot be established or verified, and nor can its expenditure. In particular it cannot be established or verified whether cheques totalling £180,419 and described in the bank statements as "Encashed cheque" or "Cash" were spent to the benefit of Mercury. Nor can the company's expenditure on wages, salaries and outsourced work be established or verified.

The position regarding the company's compliance with its obligations regarding PAYE, NIC and VAT cannot be established or verified.

Mercury's position regarding its liabilities to trade and expense creditors cannot be established or verified.

• The details of various transactions that appear to relate to property cannot be established or verified. Nor is it possible to establish or verify that these transactions were to the benefit of Mercury.

Legal Directors Limited

By reference to the matters set out in the draft affidavit of Mr John Jones, which l believe will be sworn and filed in these proceedings:

(iii) He caused Legal Directors Limited to fail to file at Companies House, as required by the Companies Act 1985, documents on behalf of the following companies: Walkers of Banbury 2000 Ltd; Shearing Limited; Pacifico Software Consultancy Limited; Vallis Vale Developments Limited; See More Business Limited; and Sunquest Holidays Mallorca Limited."

8. The allegations against the Mr Nuttall with relation to LDL arise form the conviction of LDL in the Cardiff Magistrates' Court on the 29^th April 2003 and 22^nd May 2003 arising from its failure to deliver annual returns and from four prior convictions for similar failures. Particulars of these convictions are set out in affidavit of John Jones a manager in the prosecuting solicitors office in Companies House between paragraph 9 and 12 as follows:-

"FAILURES TO FILE DOCUMENTS

9. Legal Directors, being a director of the companies set out in the table below, was summonsed to appear at Cardiff Magistrates Court on 29 April 2003, in respect of allegations made against it by the Secretary of State for Trade and Industry and which are summarised in the table that follows.

Company Name	Summary of Allegation
Shearing Limited (JALJJ1 pages 1-4).	Failed to deliver to the Registrar of Companies House a copy of the accounts of the company in respect of its financial year ended 31/12/00.
Shearing Limited	Failed to deliver to the Registrar of Companies House a copy of the accounts of the company in respect of its financial year ended 31/12/01.
Vallis Vale Developments Limited (JALJJ1 pages 5-9)	Failed to deliver to the Registrar of Companies House a copy of an annual return for the year 2002.
Vallis Vale Developments Limited	Failed to deliver to the Registrar of Companies House a copy of the accounts of the company in respect of its financial year ended 30/11/00.
Vallis Vale Developments Limited	Failed to deliver to the Registrar of Companies House a copy of the accounts of the company in respect of its financial year ended 30/11/01.
See More Business Limited (JALJJ1 pages 10-14)	Failed to deliver to the Registrar of Companies a copy of an annual return for the year 2002.
See More Business Limited .	Failed to deliver to the Registrar of Companies House a copy of the accounts of the company in respect of its financial year ended 30/11/00.
See More Business Limited	Failed to deliver to the Registrar of Companies House a copy of the accounts of the company in respect of its financial year ended 30/11/01.
Pacifico Software Consultancy Limited (JALJJ1 pages 15-18)..	Failed to deliver to the Registrar of Companies House a copy of an annual return for the year 2001.
Pacifico Software Consultancy Limited	Failed to deliver to the Registrar of Companies House a copy of an annual return for the year 2002.

On 29 Apri1.2003, after hearing evidence from Clare Purkiss, Cardiff Magistrates Court convicted Legal Directors of the offences alleged against it in respect of .the above companies (JALJJ1 pages 37-41).

10. Legal Directors, being a director of Sunquest Holidays Mallorca Limited, was summonsed to appear at Cardiff Magistrates Court on 22 May 2003 in respect of allegations made against it by the Secretary of State for Trade and Industry and summarised in the table below.

Company Name	Summary of Allegation
Sunquest Holidays. Mallorca Limited (JALJJ1 pages 21-24)	Failed to deliver to the Registrar of Companies House a copy of the accounts of the company in respect of its financial year ended 31/07/00.
Sunquest Holidays Mallorca Limited	Failed to deliver to the Registrar of Companies House a copy of the accounts: of the company in respect of its financial year ended 31/07/01.

On 22 May 2003, after hearing evidence from John Sibbons, Cardiff Magistrates Court convicted Legal Directors of the offences alleged against it in respect of Sunquest Holidays Mallorca Limited (JALJJ1 pages 41-42).

11. Legal Directors was sentenced on 22 May 2003 in respect of the offences for which it was convicted on that day and on 29 April 2003. 4 prior convictions of Legal Directors, as summarised in the table below, were brought to the notice of the Court.

Company Name	Date of Conviction	Offence
Walkers of Banbury 2000 Limited (JALJJ1 pages 27-31)	10/12/01.	Permitting, default to be made in forwarding to the Registrar of Companies House an Annual Return for the year 2001.
Walkers of Banbury 2000 Limited	10/12/01	Failing to deliver to the. Registrar of Companies House a copy-of the accounts for the financial year 28/02/00
Walkers of Banbury 2000 Limited (JALJJ1 pages 32-36)	25/02/03	Continuing to fail to deliver to the Registrar of Companies House a copy of the accounts for the financial year 28/02/00
Walkers of Banbury 2000 Limited	25/02/03	Failing to deliver to the Registrar of Companies House a copy of the accounts for the financial year 28/0.2/0

12. Legal Directors was disqualified from being a director for a period of 3 years from 22 May 2003 pursuant to Sections 1 and 5 of the Company Directors' Disqualification Act 1986 in addition to being fined and ordered topay costs (JALJJ1 pages 37-45)."

9. LDL ceased to be a director of Mercury on the 9^th June 2003 and Mr Nuttall ceased to be a director of LDL on the 17^th July 2003. It was struck off the register on the 5^th October 2004 and dissolved on the 12^th October.
10. Mr Nuttall swore an affidavit in the proceedings on the 19^th December 2005. The material passages in that affidavit, which are not challenged by the Secretary of State, are paragraphs 6 to 10 as follows:-

"6. During its life as a company LDL was itself a director of numerous of different companies. In each case it played no active role in the management of the company of which it was a director but instead acted as a nominee. This service was provided through Anglo-Legal Limited (Anglo-Legal) and its associated companies, who provide company start up, accountancy, tax planning and other corporate services from offices in London and Liverpool. In return for LDL acting as a nominee corporate director of a given company, the beneficial owners of that company paid an annual fee to Anglo-Legal Limited and or its associated companies. The annual fee paid during the last year of LDL's life was £195. Since the dissolution of LDL, Anglo-Legal has continued to provide nominee director services through another associated company.

7. As part of the provision of LDL as a nominee director there was a clear understanding between Anglo-Legal and the relevant client (the beneficial owners of the company) that LDL would not undertake any active management of the company and that the client would be responsible among other things for keeping proper accounts, filing those accounts and filing annual returns in a timely manner. As part of its terms of business Anglo-Legal takes a contractual indemnity from its clients in respect of any cause of action arising from the provision of services by it or other members of the group. I attach hereto at pages 1 to 6 of JAHN 1 a copy of Anglo-Legal's current Terms & Conditions including the said indemnity at clause 16. I also attach at page 7 of JAHN 1 copy of a standard form Deed of Indemnity of a type that would have been signed in relation to Mercury. I accept that LDL cannot succeed in avoiding its responsibilities in this manner. LDL never sought to contend that it could. Clearly in these circumstances LDL is exposed to disqualification in circumstances where the client does not fulfil its duties in a responsible manner. In the event LDL was disqualified with effect from 22nd May 2003 as a direct result of the convictions identified by John Jones.

8. For the avoidance of any doubt, the service by which nominee corporate directors are provided to companies in return for a modest annual fee is a legitimate business provided by scores companies and other organisations in the UK, usually (as in the case of Anglo-Legal) ancillary to corporate start-up and off-the-shelf company set up services. Many of these are owned by some of the biggest UK international law and accountancy firms.

Mercury

9. LDL was a director of Mercury from 12 February 2001 to 9 June 2003. On 10 January 2003 Mr Tom Ahlmann was also appointed a director of Mercury. But I accept and rely upon the evidence contained in the affidavit of Mr Burns dated 21 June 2005 at paragraphs 9 to 11 which clearly shows that Mr Ahlmann and Mr Hall acted as directors of Mercury throughout its life. I attach at pages 8 to 15 of JAHN 1 copies of two Powers of Attorney executed by LDL in favour of Mr Hall and Mr Ahlmann enabling them to conduct Mercury's affairs. It was they who actively managed and operated Mercury. In keeping with its nominee role, LDL left the active management of Mercury to them.

10. 1myself played no active part whatsoever in the management of the affairs of Mercury. This is, of course, entirely appropriate given that Mercury is a company of which I am not now and never have been a director. I had no contact with Mr Ahlmann or Mr Hall who themselves undertook to actively manage the company without any reference to me and without informing me of any of Mercury's day to day affairs. I issued no instructions to them, I did not seek to influence their actions and at no time was I held out as a director of Mercury. No evidence has been adduced in proceedings to suggest otherwise. Anglo-Legal has provided this service for many years and has done so, so far as I am aware, without any claim of the sort now made by the Secretary of State. I confess to being somewhat mystified as to why I am being singled out at this particular point in time by the Secretary of State. The evidence of Mr Burns and Mr Jones provides no answer to this question."

11. It will be seen, therefore, that Mr Nuttall accepts that LDL did nothing to prevent Mercury from committing the defaults which are the grounds for disqualification against him relating to Mercury. At paragraph 14 of his affidavit he draws attention to the fact that he obtained no remuneration from Mercury as a director nor was he a signatory on its bank account. In the course of its trading activities Mercury appears to have cashed cheques to the value of £180,000, the proceeds of which, because of the lack of accounting records, it is impossible to trace. Mr Nuttall states at paragraph 14 that none of these cheques or other unexplained transactions by the company were anything to do with him. The Secretary of State does not challenge paragraph 14 of Mr Nuttall's affidavit.
12. Between paragraphs 16 and 18 of his affidavit Mr Nuttall deals with the allegations in relation to the 6 companies. It is clear from what he says that the relationship of LDL with those companies was exactly the same as it was with Mercury. LDL played no part in their management and did nothing to prevent them committing the defaults as a result of which LDL was prosecuted in the Magistrates' court. Mr Nuttall does, however, say that, when notified of the defaults by Companies House, LDL through him took steps to ensure that the companies in question rectified the defaults. He points out that the 6 companies were 6 among a large number of companies of which LDL was a corporate director. None of the 6 companies have been put into liquidation though in some cases, because of the particular circumstances of the management of those companies, it has been impossible to rectify all of the defaults. Again this evidence of Mr Nuttall is not challenged by the Secretary of State.
13. In a nutshell, therefore, the case proceeds on the basis that Mr Nuttall is being held responsible by the Secretary of State for the inaction of LDL, which he owned and controlled and of which he was the sole director, in relation to the affairs of 7 companies. Of those 7 companies one has gone into insolvent liquidation with a deficiency of £42,000 as a result of trading activities in respect of which, it is accepted, the company kept no adequate books or records contrary to section 221 of the Companies Act 1985. The other 6 companies, from time to time and during the directorship of LDL, failed to make returns to Companies House though in most cases those defaults have been remedied.
14. Section 6 of the CDDA provides as follows:-

"Duty of court to disqualify unfit directors of insolvent companies.

(1) The court shall make a disqualification order against a person in any case where, on an application under this section, it is satisfied—

(a) that he is or has been a director of a company which has at any time become insolvent (whether while he was a director or subsequently), and

(b) that his conduct as a director of that company (either taken alone or taken together with his conduct as a director of any other company or companies) makes him unfit to be concerned in the management of a company."

15. Mercury has been placed in insolvent liquidation. LDL was at all material times its director de jure. Sub-section 6(1)(b) enables the court to take into account the defaults in respect of the 6 companies of which LDL was also a director. Once it has been established that Mercury has become insolvent and that LDL was at any material time its director then LDL might have been disqualified under sec 6, if its conduct of the business of Mercury taken alone or together with its conduct of the business of the Six Companies, as their director, justified disqualification.
16. Mr Nuttall challenges the jurisdiction of the court to make a disqualification against him because he has never been duly appointed a director of Mercury or of any of the 6 companies. The question before the court is whether, in the context of proceedings under the CDDA it is open to the court to "pierce the corporate veil" and treat Mr Nuttall as a director of Mercury and the 6 companies because, at all material times he controlled LDL which was such a director. It is Mr Nuttall's further contention that, even if he can be treated as such director, he played no part in the management of the companies and cannot be held responsible for their defaults.
17. I will deal with the second submission first. In Re Barings Plc (No 5) [1999] 1 BCLC 433 Jonathan Parker J held that "directors have both collectively and individually, a continuing duty to acquire and maintain a sufficient knowledge and understanding of the company's business to enable them properly to discharge their duties as directors". It is well established by authority; see amongst others Re Firedart Ltd [1994] 2 BCLC p 340 that the obligation on a company to maintain proper books and records, contained in section 221 of the Companies Act, is one which falls on all directors and not simply on those to whom the job of maintaining the records has been delegated. It seems to me that the obligation to ensure that the company makes returns to Companies House is also one which falls on all directors. The obligation to ensure that the company keeps proper books and records and makes the appropriate returns places upon directors a requirement to act which they cannot avoid by a plea that the internal arrangements of the company meant that they had no management function, or, alternatively, they elected not to play any part in management.

Does the Court have jurisdiction to disqualify Mr Nuttall?

18. It is convenient to make two preliminary points: the first, and following on from the quotation from the judgment of Jonathan Parker J in the Barings case set out above, there is ample authority that the holding of the office of a director of a company, while deliberately following a policy of complete inactivity with relation to the conduct of that company's affairs, can be regarded as misconduct calling for disqualification; see per Robert Walker LJ in Re Kaytech International Plc [1999] BCC 390 at page 403 as follows:-

"The judge observed, correctly, that complete inactivity by a director can constitute unfitness. That point has since been emphasised by this court in Re Westmid Packing Services Ltd, Secretary of State for Trade and Industry v Griffiths(No 3) [1998] 2 BCC 836,. Lord Woolf MR, giving the judgment of the court, said at page 842A:-

"Each individual director owes duties to the company to inform himself about its affairs and to join with his co-directors in supervising and controlling them. A proper degree of delegation and division of responsibility is of course permissible, and often necessary, but total abrogation of responsibility is not".

He said at p 843D:

"It is of the greatest importance that any individual who undertakes the statutory and fiduciary obligations of being a company director should realise that these are inescapable personal responsibilities. The appellants may have been dazzled, manipulated and deceived by [the moving spirit behind the misfeasance, who was disqualified for nine years] but they were in breach of their own duties in allowing this to happen."

It was Mr Solly's duty to inform himself about the affairs of the company (quite apart from the fact, which I disregard, that it was supposed to be an almost wholly-owned subsidiary of Holdings, of which Mr and Mrs Solly were undoubtedly directors). His honest but thoroughly unreasonable belief that he was not a director cannot in my judgment be a defence. The law should give no encouragement to the notion that if a man takes on so many directorships that he cannot remember them, he is thereby released from the heavy responsibility which he has undertaken."

In Official Receiver v Vass [1999] BCC 516 at page 524, Blackburne J said in a case on similar facts to the present but not involving corporate directors:-

"The fact that [the Respondent] has been willing, systematically and deliberately, to hold himself out as a director of so many companies, but on a nominee basis, abrogating his responsibility for those companies, is of itself, …an extremely serious matter deserving of a substantial period of disqualification."

19. The second preliminary point is that , it having been established that a company can be made the subject of a disqualification order under the CDDA, see Official Receiver v Brady [1999] BCC p 258, where a company is appointed as a director of another company and, in particular, where it is appointed as a director of a large number of other companies, it is open to the Secretary of State to apply under section 124A of the Insolvency Act 1986 to wind up the company on public interest grounds see Re London City Link Ltd [2005] EWHC 2875 (Ch). In those circumstances it would be open to the Secretary of State to apply for the disqualification of any directors involved under section 8 of the CDDA.
20. Section 22 of the CDDA under the heading "interpretation" provides at sub-section (4) and (5) as follows:-

"(4) "Director" includes any person occupying the position of director, by whatever name called

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

Almost identical provisions appear in sec 741 of the Companies Act 1985 and sec 251 of the Insolvency Act 1986.

21. It does not seem to me that Mr Nuttall can be categorised as a "shadow director" within sub-section (5). It is accepted that the trading of the company was conducted by Mr Ahlmann and Mr Hall and that the former was for a period a duly appointed director of Mercury. It is also accepted that Mr Nuttall played no part in the company's management at any stage. There is no evidence that either LDL or Mr Nuttall gave instructions on which Mr Ahlmann and Mr Hall were "accustomed to act".
22. Classically there are three types of directors of companies, duly appointed de jure directors, shadow directors and de facto directors. In Re Hydrodam [1994] 2 BCLC 180 Mr Justice Millett described the characteristics of de facto and shadow directors in a case of wrongful trading under section 214 of the Companies Act 1985 where the liquidator was alleging that certain individuals were constituted such directors as a result of their actions in connection with the affairs of a company. The facts in that case are set out in the headnote of the report as follows:-

"Eagle Trust plc had a wholly-owned subsidiary, Midland City Partnerships Ltd (MCP), which in turn had a wholly-owned subsidiary, Landsaver MCP Ltd (Landsaver 19). Hydrodam (Corby) Ltd (the company) was a wholly-owned subsidiary of Landsaver 19. The company had two corporate directors. The company went into liquidation and the liquidator commenced proceedings against two of the directors of Eagle Trust plc alleging that they were liable under s 214 of the Insolvency Act 1986 as de facto or shadow directors in connection with the affairs of the company. The directors applied to have the liquidator's applications against them struck out. The applications by the directors were dismissed and the directors appealed."

23. At page 182 of the report Millet J is reported as saying:-

"Directors may be of three kinds: de jure directors, that is to say, those who have been validly appointed to the office; de facto directors, that is to say, directors who assume to act as directors without having been appointed validly or at all; and shadow directors who are persons falling within the definition which I have read."

At page 183 he continues:-

"A de facto director is a person who assumes to act as a director. He is held out as a director by the company, and claims and purports to be a director, although never actually or validly appointed as such. To establish that a person was a de facto director of a company it is necessary to plead and prove that he undertook functions in relation to the company which could properly be discharged only by a director….

A de facto director, I repeat, is one who claims to act and purports to act as a director, although not validly appointed as such. A shadow director, by contrast, does not claim or purport to act as a director. On the contrary, he claims not to be a director. He lurks in the shadows, sheltering behind others who, he claims, are the only directors of the company to the exclusion of himself. He is not held out as a director by the company. To establish that a defendant is a shadow director of a company it is necessary to allege and prove: (1) who are the directors of the company, whether de facto or de jure; (2), that the defendant directed those directors how to act in relation to the company or that he was one of the persons who did so; (3) that those directors acted in accordance with such directions; and (4) that they were accustomed so to act. What is needed is first, a board of directors claiming and purporting to act as such; and secondly, a pattern of behaviour in which the board did not exercise any discretion or judgment of its own, but acted in accordance with the directions of others.

In the present case, there were titular directors of the company. They were Channel Island companies. That fact alone may be sufficient to justify an inference that they were accustomed to act in accordance with the directions of others; in which case there were shadow directors of the company. But there is nothing pleaded in the points of claim to suggest that there were, in addition to the titular directors, any other persons who claimed to be directors of the company at all.

Counsel have argued the case before me on the footing that sufficient facts are pleaded to justify the inference that Eagle Trust and possibly MCP as well, acted as a shadow director of the company. I shall assume that that is so. Against Dr Hardwick – I take him first as the simpler of the two – what is alleged is pleaded under the heading of 'The Respondents' Respective Involvement' and is contained in para 23 of the points of claim, as follows:

"

Dr Hardwick, as a director of Eagle Trust, is, with the other directors thereof, collectively responsible for the conduct of that company [i.e. Eagle Trust] ... in relation to the company."

It is therefore the liquidator's case that Eagle Trust was a director of the company (presumably a shadow director); and Dr Hardwick's liability is based exclusively upon the fact, being the only fact alleged against him, that he was one of the directors of Eagle Trust. As one of the directors of a shadow director, it is alleged, he was one of those collectively responsible for Eagle Trust's conduct; and was accordingly a shadow director of the company. In my judgment the conclusion does not follow from the premise.

The liquidator submitted that where a body corporate is a director of a company, whether it be a de jure, de facto or shadow director, its own directors must ipso facto be shadow directors of the company. In my judgment that simply does not follow. Attendance of board meetings and voting, with others, may in certain limited circumstances expose a director to personal liability to the company of which he is a director or its creditors. But it does not, without more, constitute him a director of any company of which his company is a director.

It is not alleged against Dr Hardwick that he did anything at all in relation to the affairs of the company, not even that he voted as a director of Eagle Trust in respect of any matter in relation to the affairs of the company.

In my judgment the mere fact that Dr Hardwick was a director of Eagle Trust does not establish that he was either a shadow director or a de facto director of the company. The expression 'collectively responsible' obscures the relevant legal relationship. By reason of his appointment as a director of Eagle Trust, Dr Hardwick owed fiduciary duties and a duty of care to Eagle Trust, but it does not follow that he ever gave instructions to the directors of the company or that the directors of the company were accustomed to act on his instructions. Nor does it follow that he ever acted as a director of the company.

It is possible (although it is not so alleged) that the directors of Eagle Trust as a collective body gave directions to the directors of the company and that the directors of the company were accustomed to act in accordance with such directions. But if they did give such directions as directors of Eagle Trust, acting as the board of Eagle Trust, they did so as agents for Eagle Trust (or more accurately as the appropriate organ of Eagle Trust) and the result is to constitute Eagle Trust, but not themselves, shadow directors of the company.

In practice, in a case of the present kind, it is much more likely that it will be found that the executive directors of the ultimate parent company (or some of them) have from time to time individually and personally given directions to the directors of the subsidiary and thereby rendered themselves personally liable as shadow directors of the subsidiary. But if all they have done is to act in their capacity as directors of the ultimate holding company, in passing resolutions at board meetings, then in my judgment the holding company is the shadow director of the subsidiary, and they are not."

24. Hydrodam was a case under section 214 of the Insolvency Act. However, as I have already pointed out the definition of director is the same for the purpose of section 214 as the definition in section 22 of the CDDA. See sec 251. Proceedings to disqualify, like proceedings under section 214, may both be said to be for the purpose of protecting the public against errant directors and require that it be established that the respondent was a director of the company in question.
25. In Secretary of State for Trade & Industry v Tjolle [1998] 1 BCLC 333 Mr Justice Jacob was dealing with an application under the CDDA to disqualify a lady who had joined the company as a part time administrative assistant but who later worked herself up through the company as a fulltime employee. She was made a director of the company's parent company which was owned and controlled by the man who was the moving force behind the group. There was an issue in the case as to whether the respondent was a director of the subsidiary which had gone into insolvent liquidation. Jacob J referred to two cases, Re Richborough Furniture Ltd [1996] 1 BCLC 507 a decision of Mr Lloyd QC, as he then was, and of judge Cooke in Secretary of State for Trade & Industry v Elms, unreported 16^th January 1997 in both of which cases the question of whether a respondent to CDDA proceedings was a de facto director of the company in question arose. Having reviewed the tests applied by the judges in those cases Jacob J says this at page 343 of the report:-

" It will be seen that Judge Cooke reads Mr Lloyd as referring to equality of ability to participate in the notional board room.

 For myself I think it may be difficult to postulate any one decisive test. I think what is involved is very much a question of degree. The court takes into account all the relevant factors. Those factors include at least whether or not there was a holding out by the company of the individual as a director, whether the individual used the title, whether the individual had proper information (e.g. management accounts) on which to base decisions, and whether the individual had to make major decisions and so on. Taking all these factors into account, one asks 'was this individual part of the corporate governing structure', answering it as a kind of jury question. In deciding this, one bears very much in mind why one is asking the question. That is why I think the passage I quoted from Millett J is important. There would be no justification for the law making a person liable to misfeasance or disqualification proceedings unless they were truly in a position to exercise the powers and discharge the functions of a director. Otherwise they would be made liable for events over which they had no real control, either in fact or law."

26. The Hydrodam case and the Tjolle case were reviewed by the Court of Appeal in the Kaytech case where, again, there was an issue as to whether one of the respondents, Mr Potier, was constituted a de facto director of the company.
27. Lord Justice Robert Walker having referred to a number of first instance cases on the issue of de facto directorship including Hydrodam, Richborough and Tjolle and having set out the passage from the Tjolle case which I have quoted above, said this on page 402 of the report:-

"I do not understand Jacob J, in the first part of that passage, to be enumerating tests which must all be satisfied if de facto directorship is to be established. He is simply drawing attention to some (but not all) of the relevant factors, recognising that the crucial issue is whether the individual in question has assumed the status and functions of a company director so as to make himself responsible under the 1986 Act as if he were a de jure director."

28. I was also referred to the Brady case which was a case where there were two corporate directors in respect of which two individuals who each controlled one of them, were sought to be disqualified in respect of the conduct of the business of a trading company. It is not clear from the report whether the individual respondents were also de jure directors of the company in question. The case may be an example of a director of a corporate director being disqualified in respect of the conduct of the business of a company, of which the corporate director was a director de jure, and the individual who was a director and controlled the corporate director was not. If this is such an example the report does not reveal an analysis of the route by which Jacob J reached such a conclusion.
29. It is accepted that Mr Nuttall does not fit the description of a de facto director which emerges from Millet J's judgment in the Hydrodam case. This is because that description requires positive action by the individual which demonstrates that he has been acting as if he was a director. It is however submitted for the Secretary of State, relying on such cases as the Vass case, that the office of director requires positive action and that, in consequence, deliberate inaction constitutes behaviour which may lead to disqualification. In particular the keeping of proper books of account requires such action. It is submitted that a person in a position to control the actions of a company can constitute himself a de facto director of that company notwithstanding that he may not have ever actually exercised the powers pertinent to his position. Thus Mr Nuttall, who was the sole director of the only de jure director of Mercury, was in a position to control its actions and thus to procure that it conformed to the requirements of the Companies Act. Mr Cunningham for the Secretary of State drew my particular attention to the last two sentences of the passage from the judgment of Jacob J in the Tjolle case which I have set out above. He said that, notwithstanding that the arrangements between Mr Nuttall and the owners of Mercury was that LDL would play no active part in the management of its business, nonetheless LDL, and through LDL Mr Nuttall, was "truly in a position to exercise the powers and discharge the functions of a director" of Mercury. In effect what Mr Cunningham is doing is to ask me to extend the definition of de facto director, to be found in the judgment of Millett J in the Hydrodam case, to include an individual who has never been duly appointed a director and who has taken none of the well recognised courses of action which would constitute him a de facto director of the subject company because, through a company which he controls, he would be in a position to take those courses of action: this notwithstanding that , historically, the latter company has not, and was never intended to take such action. Mr Cunningham urges this course upon me because otherwise a lacuna has opened up in the protection of the public from the depredations of errant directors. Mr Cunningham told me that, whereas the Secretary of State has been aware for some time of this lacuna, this case marks a change of policy at the DTI to make the directors of corporate directors subject, in appropriate cases, to disqualification under the CDDA.
30. I have come to the conclusion that I cannot accept Mr Cunningham's submissions. I have done so for the following reasons:-

i) As I have already pointed out the purposes of section 6 of the CDDA and section 214 of the Insolvency Act must be similar, namely, the protection of the public from errant directors. The term "director" is similarly defined in both Acts; see section 22 CDDA and section 251 IA. There can therefore be no justification in giving that term a different construction for the purposes of section 6 than that which it was given in the Hydrodam case for the purposes of section 214.

ii) In the Hydrodam case, in the passage which I have set out above, Millett J finds that the director of a corporate director is not, without more, constituted a director, whether shadow or de facto of a subject company. However I do not read his judgment as saying that this can never happen. I can well accept that an individual through his control of a corporate director can constitute himself a de facto director of a subject company. It seems to me that whether or not he does so will depend on what that individual procures the corporate director to do. In theory I am not bound by the judgment of Millett J in the Hydrodam case. Even putting on one side the authority of that judge in this and other fields of the law, I would need convincing reasons for not following it. I can find none.

iii) It seems to me that in order to be constituted a de facto director of a subject company, a director of a corporate de jure director must cause the corporate director to take actions with relation to the subject company as would have constituted it a de facto director of that company were it not already a director de jure.

iv) In addition the degree of control which the director of the corporate director exercises over that company will be of relevance. In the present case Mr Nuttall's control was absolute but the situation may be substantially different where the corporate director is controlled by a board with a number of members with different responsibilities. Equally the shareholder control of the corporate director may be relevant.

v) In the present case Mr Nuttall has not, either individually, or through his control of LDL taken any step which indicated that either he or LDL had "assumed the status and functions" of a director of Mercury. They had positively declined to do so. It follows that Mr Nuttall, by contrast with LDL, was never subject to the duty to ensure that Mercury kept proper books of account, complying with section 221 of the Companies Act, or that the six companies made proper returns to the companies registry. As a de jure director LDL could be made subject to those duties.

vi) It seems to me that there is no true lacuna in the protection which the CDDA was intended by Parliament to give to the public. If the Secretary of State takes the view that corporate directorships are being abused by a single corporate director acquiring a mass of directorships of subject companies or by the parent company of a number of corporate directors achieving the same result, it is open to the Secretary of State to present a petition against a corporate director or its parent to wind it up under section 124A of the Insolvency Act 1986 on public interest grounds and thereafter, if appropriate, to apply to disqualify any directors of those corporate directors, or relevant parent companies, under section 8 of the CDDA.

For these reasons, in my judgment, the application to disqualify Mr Nuttall under section 6 of the CDDA fails for want of jurisdiction under that section.

31. I turn to consider the period of disqualification that should be applied to Mr Hall who has not appeared to answer the Secretary of State's allegations. Notwithstanding that Mr Ahlmann has given an undertaking to the Secretary of State not to act as a director for five years, it seems to me that the facts of the Mercury case are not particularly serious and that a period of disqualification of four years would meet the requirements of protection of the public in his case should he return to this country.