Corporate groups present a structural paradox that sits at the heart of English company law. The economic reality is one of unified enterprise — shared management, common branding, consolidated accounts. The legal reality is something entirely different. Each company within a group is, in law, a separate entity with its own directors, its own duties, and its own creditors. When that distinction is ignored, the consequences for individual directors can be severe. The case law of recent years has made that point with increasing clarity.
The Foundation: Separate Legal Personality
The starting point remains Salomon v A Salomon & Co Ltd [1897] AC 22. The House of Lords confirmed that a company is an entity distinct from its members and officers — a principle that continues to govern how directors' duties are allocated across corporate groups. However familiar the doctrine, its implications are frequently underestimated by those operating at holding company level.
The consequence for group governance is straightforward but regularly misapplied: a director of a subsidiary owes their duties to that subsidiary, not to the parent company, not to the group as a whole, and not to the ultimate beneficial owner. This is not a technicality. It is the organising principle around which every question of director liability in group structures must be resolved. A subsidiary director who allows the parent's interests to override the interests of the subsidiary — including its creditors — is in breach of duty, regardless of what the shareholders' agreement or group policy mandates from above.
The Statutory Framework: Companies Act 2006, Sections 170–177
The seven general duties codified in Part 10 of the Companies Act 2006 apply to every director of every company, whether in a group context or otherwise. They are owed to the company — not to shareholders, not to the parent, and not to the group. The duties most relevant to group directors are as follows:
Section 172 and the Creditor Duty: BTI 2014 LLC v Sequana SA [2022] UKSC 25
The most significant development in directors' duties in recent years is the Supreme Court's judgment in BTI 2014 LLC v Sequana SA [2022] UKSC 25. For the first time, the Supreme Court directly considered the existence, scope and trigger of what has come to be known as the "creditor duty" — the obligation, arising at common law and preserved by section 172(3) of the Companies Act 2006, to take account of the interests of creditors when the company is in financial difficulty.
The Court confirmed that the creditor duty is not a separate duty owed to creditors, but a modification of the section 172 duty to promote the success of the company. The duty operates on a sliding scale: as the likelihood of insolvency increases, the weight to be given to creditor interests increases correspondingly, until the point at which insolvent liquidation is inevitable, at which stage creditor interests become paramount and shareholder interests cease to bear any weight at all.
Critically, the Court rejected the argument that the duty could be triggered by a real but non-imminent risk of insolvency. The trigger is not a precautionary standard. It arises when the company is insolvent or bordering on insolvency, when an insolvent liquidation or administration is probable, or when the transaction in question would place the company in one of those conditions. This calibration matters enormously in group structures: a subsidiary with a deteriorating balance sheet — perhaps carrying intra-group debt or dependent on parent cash flow — may find itself in this zone without the parent's directors on its board having adequately turned their minds to creditor interests.
The practical lesson is this: when a subsidiary is in or approaching financial distress, the board of that subsidiary must conduct an active, documented assessment of creditor interests. Instructions from the parent to continue trading, to upstream funds, or to enter into intercompany transactions must be independently scrutinised against the subsidiary's own financial position, not simply implemented as group policy.
De Facto Directors: When Oversight Becomes Directorial Control
The concept of the de facto director — a person who has not been formally appointed but who performs the functions of a director — creates one of the most acute risks for executives operating at holding company level. A de facto director owes the same duties and incurs the same liabilities as a formally appointed director. The question is where the line lies between the legitimate exercise of shareholder oversight and the assumption of directorial authority.
Two 2023 High Court decisions have sharpened this analysis considerably. In Aston Risk Management Ltd v Jones (2023), the court found that a director of the parent company had crossed that line. The shareholders' agreement gave the parent board overall management authority and restricted the subsidiary's board to day-to-day operations within an approved business plan. Despite arguing that his conduct represented the parent acting through its shareholder rights, Mr Jones was found to be part of the corporate governance structure of the subsidiary itself. His actions were inconsistent with the position of a shareholder exercising control; they were consistent only with the exercise of directorial functions. The court emphasised that his dominant personality and direct interventions in subsidiary decision-making took him beyond the shareholder role.
Boston Trust v Szerelmey (2023) reinforced the same principle. The court examined the extent to which an individual's involvement in a subsidiary's affairs — attending meetings, directing resources, making operational decisions — was sufficient to constitute assumption of the role of director. The judgment illustrates that the risk is not confined to reckless or deliberate conduct; it can arise from the ordinary pattern of how group executives engage with subsidiary companies without any intention to assume formal responsibility.
The de facto director cases carry a clear message for group governance: the board of the parent must exercise its authority as a shareholder, not as a manager of the subsidiary. Attendance at subsidiary board meetings, the giving of directions, the making of operational decisions — each of these activities, if sufficiently systematic, can constitute the assumption of directorial status.
Shadow Directors: The Risk of Institutionalised Influence
Distinct from the de facto director, but equally consequential, is the shadow director. Section 251 of the Companies Act 2006 defines a shadow director as "a person in accordance with whose directions or instructions the directors of the company are accustomed to act." The provision does not require a single transaction or isolated intervention; it requires a pattern of conduct in which the board acts as a matter of course on the directions of the shadow.
The test was articulated by Millett J in Re Hydrodan (Corby) Ltd [1994] BCC 161, which identified the essential elements: a formally constituted board; a pattern of the board acting on the alleged shadow's instructions; and those instructions relating to the kind of decisions reserved for the board. In Secretary of State for Trade and Industry v Deverell [2001] Ch 340, Morritt LJ clarified that it is not necessary for the shadow to have given instructions on every matter, or for compliance to have been total — what matters is the overall character of the relationship.
For corporate groups, the shadow director provisions present a specific structural hazard. A parent company is not automatically a shadow director of its subsidiary. However, a dominant individual within the parent — a controlling shareholder, a chief executive, a founder — can become one if the subsidiary's board is in practice accustomed to follow their lead. Where group governance has evolved informally, where subsidiary boards lack the independence or the will to push back on parent instructions, and where the records do not reflect genuine deliberation, the conditions for shadow directorship are present.
Shadow directors can be held liable for wrongful trading, misfeasance, and breach of the general duties where those duties have been extended to them by statute. The risk is not theoretical — it is the predictable consequence of allowing group culture to override formal governance structures.
Parent Company Liability: Chandler v Cape plc [2012] EWCA Civ 525
While the de facto and shadow director cases concern the liability of individuals, Chandler v Cape plc [2012] EWCA Civ 525 established that the parent company itself can owe a direct duty of care to a subsidiary's employees — a duty arising not from veil-piercing but from the ordinary law of negligence and assumption of responsibility.
Mr Chandler contracted asbestosis during his employment with a subsidiary of Cape plc. By the time proceedings were brought, the subsidiary had been dissolved. The Court of Appeal held that Cape plc owed him a direct duty of care, identifying four circumstances in which such a duty would arise:
The decision has implications that extend well beyond health and safety. The Chandler four-part test has been applied in subsequent cases as a framework for considering when parent company involvement in a subsidiary's affairs — through the provision of group-wide policies, the exercise of oversight functions, or the deployment of shared expertise — can give rise to direct tortious liability. The parent's conduct does not need to be unusual or extraordinary. Commonplace group management practices — group HR policies, centralised risk functions, shared compliance teams — can, in the right circumstances, satisfy the test.
Piercing the Corporate Veil: Prest v Petrodel [2013] UKSC 34
No analysis of director liability in group structures would be complete without addressing the limits of veil-piercing — precisely because those limits are now so firmly established. In Prest v Petrodel Resources Ltd [2013] UKSC 34, the Supreme Court brought considerable clarity to a doctrine that had accumulated, over decades, an unhelpful body of conflicting authority.
Lord Sumption confirmed that the court will pierce the corporate veil only in the narrow circumstance where a person is under an existing legal obligation or liability and deliberately interposes a company structure to evade it. Veil-piercing is a remedy of last resort. Mere ownership and control are not sufficient. The fact that a parent dominates a subsidiary in every commercial sense does not, without more, justify the court in treating them as a single entity for liability purposes.
This matters for group litigation. Claimants who have suffered loss at the hands of a subsidiary company — an insolvent one, typically — frequently argue that the parent should bear the liability. The Prest principles make clear that this argument can only succeed where the corporate structure was itself used as the instrument of evasion. Alternative routes to liability — shadow directorship, de facto directorship, the Chandler duty of care, accessory liability — must be explored in their own right, not as a prelude to veil-piercing arguments that are unlikely to succeed.
Accessory Liability: Lifestyle Equities CV v Ahmed [2024] UKSC
The Supreme Court's 2024 decision in Lifestyle Equities CV v Ahmed [2024] UKSC removed what some had sought to argue was a special category of protection for directors acting in their corporate capacity. The case concerned trade mark infringement committed by a company whose directors had directed and procured the infringing activities. The Court rejected the argument that directors who act within the proper performance of their duties are insulated from personal accessory liability for the company's torts.
The reasoning is analytically important. The fact that a company is a separate legal person does not mean that its directors are free from personal liability for acts which in law are attributed to the company. To hold otherwise — to treat company and director as one and the same — would itself deny the principle of separate corporate personality. The Court confirmed that for a director to be jointly liable as an accessory for a strict liability tort, they must have knowledge of the essential facts that make the act unlawful, even if the primary tort requires no particular mental state.
In the group context, the Lifestyle Equities decision means that directors who direct or procure a subsidiary's tortious conduct — whether in IP infringement, discrimination, or other strict liability contexts — face personal exposure that cannot be deflected by pointing to the subsidiary's corporate form. The question is whether the director knew the essential facts constituting the wrong. In many group management scenarios, where parent executives exercise day-to-day direction over subsidiary operations, that knowledge will not be difficult to establish.
Practical Implications for Group Boards
The trajectory of the case law is coherent and consistent. The courts have progressively closed the gap between the economic reality of group control and the legal accountability that attaches to those who exercise it. There is no longer a safe harbour for the parent executive who manages a subsidiary as if it were a department without the attendant duties of a director. The following governance principles represent the minimum standard of care that any board — whether at holding company or subsidiary level — should now apply:
Conclusion
The cases surveyed here do not represent a judicial campaign against group structures as such. Separate legal personality remains the foundation of English company law, and the courts continue to respect it. What the cases collectively demonstrate is that legal form must be matched by legal substance. A company that functions as a genuine, independently governed entity will attract the protections of that form. A company governed as a department of its parent — whose directors defer rather than decide, whose minutes record but do not reflect, and whose board exists in name only — will find those protections unavailable when the liability question arises.
The distinction is not a difficult one to draw in principle. It is, however, frequently and expensively overlooked in practice. Boards at every level of a corporate group should audit their governance arrangements against the standards set by the authorities discussed in this article — not when litigation is threatened, but as a matter of standing corporate hygiene.
Lexkara & Co advises boards on corporate governance, directors' duties, and the structuring of group arrangements. If you would like to discuss the governance framework of your group — or if a question of director liability has already arisen — we welcome your enquiry.