Smithtn Ltd. Claim for Rights

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Smithton ltd (formerly Hobart) brought a claim for a loss suffered when the two companies Insureprofit ltd and Mariona ltd failed on their obligations to pay margin calls under contract with the claimant. The claim was brought against Mr Naggar who was a majority shareholder of Hobart and himself and his family owned and controlled the two companies who went insolvent. Hobart alleged that Mr Nagger was either a de facto or shadow director and had breached the duties he owed towards the company.

The judge in this case, recognised that there is a distinction in the tests between shadow and the facto directors, as described by David Richards J in the McKillen judgement, however the parties decided not to make a distinction between the concepts in the evidence given. Therefore the judge decided to take the same approach, which may have impaired the decision and the interpretation for de facto and shadow director.

Is important to establish the ‘identification of the hat’ that Mr Naggar was holding with and for the company so to establish whether he was a de facto or a shadow director. According to Ultraframe (UK) Ltd V Fielding where the alleged shadow director is also a creditor of the company, he is entitled to protect his own interest as creditor without becoming a shadow director. Therefore a position of strong influence is not necessarily a fiduciary position. Mr Nagger himself was the major shareholder of Hobart and had a strong influence over the company but this does not mean he was a shadow director.

De Facto Directors

In Secretary of State for Trade and Industry v Tjolle Jacob J refused to formulate a decisive test for de facto director as he saw the question as one of fact and degree. HMRC v Holland Lord Hope alleged tha...

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...o the principles laid down by this case, Mr Keane referred to Mr Nagger and Mr Townsley as the ‘driving forces behind the business’ but there was no indication that either of them ran the Hobart business and that Mr Nagger was part of the management of the company.
Furthermore, some of Hobart’s allegations referred to facts happened in 2006 before Hobart spun off to become a separate company from DDI. This refers to Mr Keane allegation on him seeking Mr Naggar’s consent for decisions. In addition other decisions made by Mr Naggar’s were totally explicable as they were entirely consistent with his role as chairman of DDI.
Further evidence was given that would imply that Mr Nagger could have been a shadow director. An example is the issue on whether to change the name of Dawnay Day Capital Markets ltd. However, there was no evidence that Mr Naggars consent was needed

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