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Kinisu's woes and role of 'shadow' director

COMMENTARY
By Jackline Nyaga | August 17th 2016
Ethics and Anti-Corruption Commission chairman Philip Kinisu PHOTO:COURTESY

Calls have been made for Philip Kinisu to resign as Chairperson of the Ethics and Anti-Corruption Commission (EACC). The calls are based on the claim that Mr Kinisu is allegedly conflicted.

His conflict of interest allegedly stems from the fact that Esaki Ltd, a company associated with Mr Kinisu's family, has had business dealings with the National Youth Service (NYS), yet, NYS is one of the entities under active investigation by EACC.

Mr Kinusu has sought to absolve himself from any real or perceived allegations of conflict of interest, arguing that he had resigned as a director of Esaki Ltd long before he assumed his responsibilities at EACC.

Being fully aware that certain aspects of this matter are currently making their way through the courts and thus the need to avoid running afoul of the sub judice rule, this piece will stay clear of the specifics of Mr Kinisu's case.

Instead, the piece will seek to highlight, very generally, the concept of shadow director and its relevance in any inquiry which seeks to establish whether or not a person was, at any given time, a director of a company.

The recently enacted (in 2015) Companies Act defines a director to include "any person in accordance with whose directions or instructions (not being advice given in a professional capacity) the directors of a body [corporate] are accustomed to act".

This is the statutory expression of the concept of shadow director. In general legal terms therefore, a shadow director would be anyone who, though not one of the company's "legal" directors, nonetheless, indirectly "calls the shots" in a company.

In the UK case of Re Hydrodan (Corby) Ltd [1994] BCC 162 it was clarified that a shadow director "lurks in the shadows, sheltering behind others who, he [or she] claims are the only directors of the company to the exclusion of himself or herself".

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However, one will not be regarded as a shadow director merely because he or she offers professional advice to the directors.

Other than shadow directors, the law also recognises two other broad categories of directors: de jure; and de facto directors. A de jure director is one who is validly appointed or elected as a director.

This is, so to speak, the company's "legal" director (or director at law) and his or her status as director is usually acknowledged by the company.

A de facto director on the other hand purports to be a director without having been validly appointed or elected as such.

The existence of a de facto director is, thus, unlikely to be acknowledged in any formal documents of the company. However, as a matter of fact and practice, the person will, nevertheless, be performing the duties of a director.

Most importantly, after a person has resigned as a de jure director, he or she may continue performing their director duties, albeit as de facto or shadow director.

It is however highly unlikely that a person appointed to the office of EACC's Chairperson would continue as a de facto director of a company under EACC's active investigation. Such a person is more likely to continue as a shadow director.

 

The beauty (viewed from a public interest perspective) of the concept of shadow director is that it would enable a person who effectively controls the activities of a company, whether as the company's de jure director or not, to be subject to the same legal liabilities and disabilities as a de jure director.

A shadow director would thus be treated, in many ways, as a real director of the company concerned and consequently would be bound by the same duties and obligations.

Upon resignation, one merely ceases to be a de jure director. Resignation may therefore be too simplistic a criterion to determine whether or not a person "calls the shots" in a particular company.

Those carrying out the relevant investigations may need to go beyond the formal act of resignation in a bid to establish whether, resignation notwithstanding, one could be said to have continued to play the role of a director, albeit in the "shadows".

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