Behind the Veil and Beyond the Age: Analysing the Legal Capacity of Infants and Corporate Entities as Shadow Directors under CAMA 2020

Contributor: Tobenna Mogbo

Introduction

The evolution of corporate governance has witnessed a shift from a purely formalistic approach—under which only persons recorded in a company’s register are recognised as directors—to a functional approach that identifies those who exercise actual control behind the corporate veil. This approach finds expression in the concept of the shadow director. Under Nigerian law, the Companies and Allied Matters Act (CAMA) 2020 expands the scope of corporate accountability by recognising that corporate power does not always reside within the boardroom. Consequently, individuals or entities that exert decisive influence over a company’s affairs may attract liability even without formal appointment as directors. This article examines whether two distinct categories of persons—infants (minors) and corporate entities—can be classified as shadow directors under the Nigerian legal framework.

The Legal Concept of Shadow Directorship

The concept of a shadow director is founded on the principle that a person or entity who exercises real influence over a company should not evade the fiduciary and statutory obligations imposed on de jure directors merely because they have not been formally appointed.^[1]

Section 270(1) of CAMA 2020 defines a shadow director as:

“Any person in accordance with whose directions or instructions the directors of the company are accustomed to act…”^[2]

To establish shadow directorship, Nigerian courts, drawing persuasive guidance from In re Hydrodan (Corby) Ltd,^[3] typically require proof of four elements:

• the identity of the formal (de jure) and de facto directors;
• that the alleged shadow director gave directions or instructions to those directors;
• that the directors acted in accordance with those directions or instructions; and
• that the directors were accustomed to acting in that manner, demonstrating a pattern of conduct rather than an isolated instance.

Can an Infant be a Shadow Director?

Whether an infant can be a shadow director under CAMA 2020^[4] requires a careful reconciliation of the statutory restrictions on minors with the factual nature of shadow directorship.

• 1. Statutory Prohibition vs Factual Reality

Section 283(a)^[5] of CAMA 2020 disqualifies an infant from being appointed as a director of a company. However, this prohibition applies only to de jure directorship. A shadow director is not formally appointed; rather, the law imposes that status on a person whose conduct demonstrates sufficient influence over a company’s board. Consequently, the statutory prohibition against appointing minors as directors does not conclusively determine whether an infant can be regarded as a shadow director.

• 1. Capacity and Influence

The defining characteristic of a shadow director is the ability to give directions or instructions in accordance with which the directors of a company are accustomed to act.^[6] Although CAMA 2020 does not expressly require a shadow director to be an adult, the concept presupposes a degree of authority, judgment, and influence over corporate decision-making.

Under Nigerian law, an infant generally lacks full contractual capacity,^[7] subject to recognised exceptions such as contracts for necessaries.^[8] More importantly, the law ordinarily regards minors as lacking the maturity and legal capacity required to assume significant commercial responsibilities. Shadow directors are subject to fiduciary and statutory duties similar to those imposed on formally appointed directors. These duties demand a level of judgment, accountability, and legal responsibility that the law does not ordinarily attribute to infants.

Furthermore, the requirement that directors be “accustomed to act” on the instructions of the alleged shadow director suggests an established pattern of influence over the board’s affairs.^[9] As a practical and legal matter, it is difficult to envisage a board of directors habitually acting on the directions of a person whom the law itself considers incapable of serving as a director.

• 1. Practical Implications

Although CAMA 2020 does not expressly state that a shadow director must be an adult, the concept of shadow directorship is fundamentally inconsistent with the legal disabilities associated with infancy. Accordingly, an infant is unlikely to qualify as a shadow director under Nigerian law.

Where a minor is used as a nominal figure through whom another person exerts influence over a company, the courts are likely to apply the principle of substance over form and identify the individual exercising actual control as the true shadow director. In such circumstances, liability would attach to the person directing the company’s affairs rather than to the infant.

Can a Company Be a Shadow Director?

The position is considerably different in relation to corporate entities. The principal question is whether the term “person” in section 270(1)^[10] of CAMA 2020 extends to artificial persons such as companies.

• 1. Corporate Personhood and Statutory Interpretation

The Interpretation Act provides that the term “person” includes a body corporate unless a contrary intention appears from the context. Nothing in section 270(1) of CAMA 2020 suggests that the provision is limited to natural persons. Consequently, a company can, in principle, qualify as a shadow director.^[11]

Where a holding company issues directions to the board of a subsidiary and the directors of the subsidiary habitually act in accordance with those directions without exercising independent judgment, the holding company may satisfy the definition of a shadow director under section 270(1) of CAMA 2020. In such circumstances, the law may look beyond the formal corporate structure and recognise the parent company as exercising effective control over the subsidiary’s affairs.

Accordingly, while an infant is unlikely to qualify as a shadow director, a company may be recognised as a shadow director where the factual circumstances establish the requisite pattern of influence and control contemplated by CAMA 2020.^[12]

• 1. The Professional Advice Exception

CAMA 2020 provides a crucial caveat in Section 270(3):^[13]

“A person shall not be deemed to be a shadow director by reason only that the directors act on advice given by him in a professional capacity.”

Accordingly, a company, such as a management consultancy firm, legal adviser, or parent company, will not be regarded as a shadow director merely because its advice influences the decisions of a company’s board. For liability to arise, the relationship must extend beyond the provision of professional advice to the giving of directions or instructions upon which the directors habitually act.

The distinction lies in whether the directors retain and exercise independent judgment. Where directors merely receive and consider advice before making their own decisions, the professional advice exception applies. However, where they routinely follow instructions without exercising independent discretion, the adviser may be regarded as a shadow director.

• 1. Judicial Precedent

In Longe v First Bank of Nigeria Plc, the Supreme Court underscored the significance and responsibilities of the office of a director. Although the case did not directly concern shadow directorship, it reflects the broader judicial approach of examining the substance of corporate control rather than merely its formal appearance. Consequently, where a person or corporate entity exercises effective control over a company’s affairs, the courts may look beyond formal designations to determine the true nature of the relationship.

Liability and Practical Implications

1. Infants

Recognising an infant as a shadow director would create significant practical and legal difficulties. Because minors generally lack full legal capacity and cannot readily be held to the same standard of care, skill, and fiduciary responsibility expected of directors, imposing the obligations associated with shadow directorship would present substantial enforcement challenges.^[14]

For this reason, where an infant appears to influence a company’s affairs, the courts are more likely to identify the adult individual exercising actual control behind the minor as the true shadow director. This approach accords with the principle of substance over form and ensures that accountability rests with the person genuinely directing the company’s affairs.

1. Companies

The consequences of being classified as a shadow director may be significant. Where a holding company or other corporate entity is found to be a shadow director of another company, several legal consequences may arise, including:

• Piercing the Corporate Veil: The company may incur liability in circumstances involving fraudulent or reckless trading where the facts justify lifting the corporate veil.^[15]
• Fiduciary Obligations: The shadow corporate director may owe fiduciary duties in relation to the affairs of the company it controls and must not exercise its influence solely for its own benefit to the detriment of the company or its creditors.
• Conflicts of Interest: Statutory obligations regarding conflicts of interest and disclosure requirements may apply when a shadow director participates in transactions affecting the company.

Conclusion

The concept of shadow directorship under CAMA 2020 serves as an important mechanism for promoting accountability in corporate governance by ensuring that those who exercise real influence over a company’s affairs cannot evade responsibility merely because they lack formal appointment.

Although CAMA 2020 does not expressly prohibit an infant from being classified as a shadow director, the legal disabilities associated with infancy, the nature of fiduciary obligations, and the statutory disqualification of minors from appointment as directors strongly suggest that an infant is unlikely to satisfy the requirements of shadow directorship. In practice, the courts are more likely to attribute responsibility to the adult individual exercising actual control behind the minor.^[16]

The position is different in relation to corporate entities. A company may qualify as a shadow director because the term “person” under Nigerian law extends to corporate bodies. Accordingly, where a company exercises such influence that the directors of another company are accustomed to act in accordance with its directions or instructions, it may be treated as a shadow director, particularly within parent-subsidiary structures. However, liability will arise only where the relationship goes beyond the provision of professional advice and amounts to the exercise of effective control.

Reference

1. Secretary of State for Trade and Industry v Deverell [2001] Ch 340. ↑
2. Section 270(1) of CAMA 2020 ↑
3. In re Hydrodam (Corby) Ltd [1994] 2 BCLC 180. ↑
4. Section 868 of CAMA 2020 ↑
5. Section 283(a) of CAMA 2020 ↑
6. Ibdi ↑
7. Labinjoh v. Abake (1924) 5 NLR 33. ↑
8. Section 2 Sales of Goods Act ↑
9. Section 314, CAMA 2020 ↑
10. CAMA 20202 ↑
11. Section 5 Interpretation Act, Cap 123, Laws of the Federation of Nigeria 2004. ↑
12. CAMA 2020 ↑
13. CAMA 2020 ↑
14. Section 308, CAMA 2020 ↑
15. Section 672, CAMA 2020 ↑
16. CAMA 2020 ↑