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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.
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.
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Shadow Directors In the BVI: Who Are They, What Duties Do They Owe and What Are Their Risks?
1 Although only the first two types of director appear to be included within the definition of a “director” in s.2 of the BVI Business Companies Act, 2004.
2 No doubt as a result of the number of nominee directors.
3 Although a person is not regarded as a shadow director by reason only that the director or the board act on advice given by him in a professional capacity, or he is acting as an insolvency practitioner in relation to the company: see s.6(1)(b) and s.6(2)