Should corporate directors be banned?

Having corporate directors has long been an issue open to debate as their use can help criminals disguise their control over companies.

In its 2013 in its consultation document (Transparency & Trust: Enhancing the Transparency of UK Company Ownership and Increasing Trust in UK Business) the UK Government proposed that they should be banned for most companies.  As a result of the feedback and further consideration the Small Business, Enterprise and Employment Act 2015 included provisions to restrict the use of corporate directors.

These have not yet been implemented.

There will then be a period of one year for companies with existing corporate directors to ensure that these corporate directors comply with the new requirements or their appointed is terminated.

There is currently no plan to apply the above restrictions to corporate secretaries, although these should always be corporate entities with legal personality.

The ban on corporate directors is already in force in certain other countries including the Czech Republic, Switzerland and certain American states.

Appointing corporate officers

It is, therefore, currently still possible for a company to appoint or retain a company or similar corporate body that has its own legal identity as a director without restriction.

The roles and responsibilities of a corporate director are exactly the same as for individual directors.

Even if you appoint a corporate director, you must also have at least one individual director as required by the Companies Act 2006. A company can have as many directors, individual or corporate, as wanted in addition to the mandatory individual director.  Directors can be changed at any time.

As partnerships and trusts do not have their own legal identity, then they cannot be appointed as directors.  The corporate body can currently be a UK company, any other UK corporate entity with legal personality or, indeed a company or other corporate entity with legal personality from anywhere else in the world.

If you are appointing a corporate director you currently need to let Companies House have the following information about the company/corporate entity:

• name;
• registered or principal office address;
• country of registration and registration number;
• if the corporate director is a UK registered company or not; and
• if not a UK registered company the legal form and governing law (to demonstrate that the entity has legal personality); and
• confirmation that the corporate entity has consented to act as a director.

The same is required for notifying Companies House of the appointment of corporate secretaries.

You should report all corporate officer appointments, changes to details and terminations to Companies House within 14 days of the changes being made.

Why appoint corporate directors and secretaries

There are a number of reasons why corporate directors and secretaries are appointed some of which are legitimate and others not so. The legitimate reasons include:

• To ring fence the liabilities of being a director to the company acting as corporate director rather than the individual. In the Holland v Revenue and Customs & Another (2010) UKSC 51 case the Supreme Court held that the directors of a corporate director were not liable to the underlying company for the actions of that corporate director provided the directors of the corporate director had acted correctly in relation to the corporate director’s actions.
• A holding company being a corporate director of its subsidiaries so that it can maintain control over those subsidiaries.  It also allows the holding company to appoint different officers of the holding company to attend, and act for it at, board and other meetings.
• Company formation agents when forming dormant companies which they then ‘sell’ to individuals wanting a company.  At that point the corporate director resigns.
• Accountants and solicitors carrying out company secretarial duties for clients will often use a corporate body as the secretary.  Holding companies also similarly use corporate company secretaries.

Unfortunately, in addition to the above corporate directors can be used to help criminals that are looking to misuse companies.  Where a corporate director of a UK company is a company incorporated offshore it can become difficult to identify who are the directors and shareholders of that offshore corporate director. Making the company’s ownership structure as opaque and complex as possible can serve to hide the true beneficial owners from law enforcement agencies.

Nominee directors, corporate or individual, can also be used to conceal corporate control.  Where individuals want to use a company to facilitate criminal activity they are unlikely to want to register themselves as a director and therefore may appoint a nominee director and/or an offshore corporate director.

The nominee and/or offshore corporate director is placed on the register of directors but follows the directions of the person who is really controlling the company (i.e. the criminal). In some cases, the nominee will even have no involvement in the management of the company with the criminal simply rubber stamping company documents with the nominee’s signature.