Wednesday, 24 November 2010

UK: Holland v HMRC judgment given - Mr Holland not a de facto director

The Supreme Court handed down its judgment in Holland v HMRC Commissioners [2010] UKSC 51 shortly before 10 am today: see here (pdf) or here (html). A press summary is available here (pdf). By a majority (3:2) the Court held that Mr Holland was not a de facto director.  There are substantial reasoned opinions from four of the five justices and opinion is strongly divided. The judgment is the leading authority on de facto directorship.

Lord Hope did not accept that Mr Holland had acted as a de facto director of the composite companies (ie., those companies having another company as sole director, this other company being one for which Mr Holland was a director). Lord Collins agreed, observing that "For the court to hold that every significant decision of individual directors of a corporate director is to be regarded as being taken as if they were directors of the company of which it is the corporate director goes considerably beyond the law as it has been developed at first instance and by the Court of Appeal in the modern de facto director cases, and beyond what I would regard as the function of the court" (para. [96]).

Lord Saville, in a short opinion, agreed with Lords Hope and Collins, observing that "it does not follow from the fact that Mr Holland caused the corporate director to make decisions in relation to the composite companies that he was accordingly a de facto director of the composite companies. To suggest that he was is to ignore or bypass the separate legal personality of the corporate director ..." (para. [98]).

Lords Walker and Clarke were in the minority. Lord Walker began his opinion by expressing a fear: that the Court's decision would "make it easier for risk-averse individuals to use artificial corporate structures in order to insulate themselves against responsibility to an insolvent company's unsecured creditors" (para. [101]). Lord Walker added: "The repeated assertion that everything that Mr Holland did was done in his capacity as a director of [the corporate director], and was within his authority as a director of that company, is no doubt not 'pure sham' but it is, in my view, the most arid formalism. In my view Mr Holland was acting both as a de jure director of [the corporate director] and as a de facto director of the composite companies" (para. [115]). Lord Clarke agreed: in his view "Mr Holland was a de facto director of the composite companies on the ground that he in fact made directorial decisions with regard to them" (para. [145].

A summary of the Supreme Court's judgment has been published by the ICLR as part of its WLR Daily service: see here. The Court of Appeal decision ([2009] EWCA Civ 625) is available here and the High Court decision ([2008] EWHC 2200 (Ch)) here.

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