Nominee Director in Liability Architecture: A Comparative Analysis of Three Jurisdictions
10 April, 2026
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The concept of a nominee director seems quite simple: you appoint a person as a director, his/her name is ib the register and everything else remains in the shadows. Such instrument of confidentiality has been used in international practice for decades in order to conceal true owner and controller of the company. As soon as the company gets insolvent, it becomes obvious: the law perceives nominee director not as an instrument but as a full-scale director with all appropriate liabilities and risks. Just at this moment nominee director may become an entry point for creditors to the property and liability of the beneficiary.
Our experience, as well as numerous court precedents, shows that the status of nominee does not reduce the scope of duties and responsibilities but only increases the risk of errors in their understanding.
This review deals with analysis of expert articles on distribution of a nominee director’s liability. Such an issue may awake interest among lawyers, advocates and corporate legal advisors. The review is based on three jurisdictions: England (English case law and the Companies Act 2006), Cyprus (Companies Law Cap. 113 and the doctrine of fraudulent trading) and Switzerland (Code of Obligations with its strict over-indebtedness mechanics).
The Myth of Special Status and the Reality of Law
Conticorp SA v Central Bank of Ecuador (Privy Council) is the most convincing precedent that the law does not recognize special status for a nominee director.
A nominee director shall bear full legal responsibility regardless of reimbursement (£100 or £100,000 per annum). The judge in Boulting v Association of Cinematograph Technicians clearly stated: “To direct a director solely to follow the instructions of his patron is beyond the scope of law”.
In the framework of Conticorp case, IAMF transferred assets amounting to $190 million for securities valued at fractions of that amount. The nominee director Taylor could not hide behind the phrase “I followed the instructions”. The court found out that he had become fixed with knowledge of the controller (Conticorp); therefore, he bore the same responsibility as if he owned the company himself.
Three elements of dishonest assistance: why causation often fails
Dishonest assistance is the second level of liability against beneficiary. The Conticorp case showed that if a nominee director violated his/her liability and the beneficiary assisted in such violation, both shall be responsible. The court awarded to reimburse $192 million (restitution of assets) + $382 million (compound interest). But this requires three mandatory elements:
1. Breach of duty by the nominee director, which is usually easy to prove;
2. Knowledge/dishonesty on the beneficiary’s part, which is more difficult, because it is necessary to prove that his/her actions were conscious;
3. Causation: breach should be caused by assistance of the beneficiary. This is often an insurmountable barrier. The judge may state that the breach would have occurred anyway because the nominee director was fully under control. It is causation that makes dishonest assistance a rare tool.
For the beneficiary, the nominee director is not a defense. It is an entry point for the creditor but requires a properly constructed case.
Three jurisdictions: three liability architectures
Where and how creditor can attack depends on jurisdiction in which the company is based. Three main systems, Cyprus, England and Switzerland, offer radically different paths.
Cyprus: high barrier of dishonesty
In Cyprus, Section 311 of the Companies Act requires proof of fraudulent trading: the director acted with the direct intention to defraud creditors. This is quite a high barrier.
A.G. Erotocritou LLC clarifies: “Legal requirements for fraudulent trading require a strict standard of proof. Fraud is defined as genuine dishonesty that entails moral culpability”. It means not just negligence but deliberate deception.
Cyprus also recognizes shadow directors (i.e. persons who give instructions but are not officially registered). This is often a more fruitful way for creditors than attacking a nominee director, because proving that the person is a shadow director may be easier than proving fraudulent trading with the requisite level of dishonesty.
Erotocritou notes that Cyprus has historically followed English precedent but got stuck with a stricter standard of fraudulent trading and failed to implement a more lenient doctrine of wrongful trading. This was a conscious choice by the legislature but it created a barrier for creditors in Cyprus.
England: Negligence as a tool and an extended trigger
England implemented wrongful trading in Section 214 of the Insolvency Act 1986, as a more practical mechanism than the requirement to prove dishonesty. A nominee director shall be liable if (s)he knew (or should have known) that there was no reasonable prospect of avoiding liquidation and continued to trade without loss mitigation to creditors.
Negligence should be proven as an objective standard, not as intent. This makes the creditor’s position much easier.
But the critical point reveals the modality of knew or should have known. Hunt v Singh (Zacaroli J, 2023), analyzed by FromCounsel, extended the trigger far beyond the literal text of law.
Marylebone Warwick Balfour Management: a conditional bonus scheme. In 2005, HMRC announced a test case. A few years later he lost the case, while the company was recognized as insolvent by $36 million. The court post hoc found out that the duty to creditors arose in 2005, when there was a real prospect of the challenge failing, even though the directors relied on advice of tax advisers who argued that the scheme was sound.
It means the following: trigger does not require the fact of insolvency, only awareness of the risk. FromCounsel criticizes this logic: “It would seem very undesirable that narrow distinctions of this sort should result in significantly different trigger tests” – the decision creates uncertainty, since facts that became known in retrospect are often unknown at the moment of making decision.
Nota bene: trigger launches the duty but does not dictate its content. Trigger under the case Hunt v Singh does not mean ceasing business immediately. It means consideration of creditors’ interests. The judges in Sequana described this as a sliding scale: “the priority to be given to creditors’ interests will depend on the company’s particular financial situation and increases as a company’s financial position worsens”. As finances deteriorate, creditors’ interests crowd out shareholders’ interests until, when liquidation is inevitable, they become the sole focus.
Like Cyprus, England recognizes shadow directors. This is often more practical than wrongful trading.
Switzerland: Mechanical timer without discretion
Switzerland has taken a different approach. Instead of interpretation (like in England) or high standard of proof (like in Cyprus), it has built in mechanical control.
Section 725 of the Code of Obligations (valid since 2023) requires the nominee director to constantly monitor solvency. Two triggers are the following:
1. Over-indebtedness (Überschuldung): assets < liabilities → immediate (sofort) notification to the court. No deferrals.
2. Capital loss (Kapitalverlust): capital falls >50% → separate obligation.
Note: Section 725 provides a composition procedure (usually up to 90 days) for restructuring but it is the company’s right to defer the court, not an additional period for notification. Notification remains an immediate requirement.
Commenda points out that a breach causes joint and several liability: the creditor can attack the nominee director directly for the full loss. There is no question of should have known but there is an objective fact.
Section 754 adds a second level: personal liability for negligence or intentional violation. Even compliance with Section 725 does not guarantee defense if actions were negligent.
The Architecture of Escalating Duties: From Shareholders to CreditorsNo5 Barristers’ Chambers highlights a key point that is often overlooked: the duties of a nominee director are not static. They change in nature and intensity depending on the company’s financial status.
Given solvency, a nominee director acts in the interests of both the company itself and its shareholders. That is clearly defined. The company is what the director works for.
But the fact of approaching distress complicates the situation: risks arise that require vigilance, followed by legal liabilities to creditors and finally, with liquidation imminent, interests of shareholders disappear.
No5 also highlights the duty to consult with advisers promptly. This is not just good advice, this is a part of legal liability. If a nominee director is still acting in ignorance, it may be treated as a breach of duty.
No. 5 also deals with disqualification, i.e. a process initiated by the Official Receiver, the liquidator or the court. It can be automatic or judicial (maximum 15 years in England). For the nominee director this is particularly dangerous because (s)he often has no direct control over decisions but bears full responsibility.
For the nominee director such architecture creates a vital dilemma: either to meet instructions (and to violate the law) or to rebel against the beneficiary (and to get sacked).
Structural challenges for providers and nominee directors
A nominee director faces a situation where both his/her own and beneficiary’s interests may diverge radically, especially when the company is in financial distress.
When a company enters into distress, the following structural contradictions arise:
1. His/her knowledge (fixed knowledge) is attributed to the beneficiary but personal liability remains at the nominee director’s.
2. Dishonest assistance can be directed against the beneficiary but only if three-fold test (especially causation) is met.
3. In various jurisdictions there are mechanical reporting obligations (especially in Switzerland) that entail personal liability.
4. A director may be recognized as shadow director or de facto director if it is proven that (s)he actually controlled the company.
Corporate service providers face the increasing requirements for due diligence and constant monitoring of the companies’ financial status. It requires significant resources, constant updating procedures and adequate liability insurance.
Providers are also required to train nominee directors on their legal liabilities which shall remain are the same regardless of salary.
Legal context and practical significance CMS Law, Barristers’ Chambers, Erotocritou, Commenda and FromCounsel – all of them point out one aspect: a nominee director is not a legal fiction but a full-fledged director with corresponding liability.
As long as the company is solvent, this role may seem formal. But the architecture of duties enshrined in all three jurisdictions is always relevant.
When a company faces financial distress, the liability architecture is fully activated. The nominee director becomes a key participant in the process, since his/her actions, knowledge and decisions shall be considered in the context of growing liabilities to creditors.
But such liability can protect the nominee director if (s)he acts in good faith: immediately seeking advice, documenting actions, notifying the court (Switzerland) or initiating insolvency proceedings (England). Therefore, (s)he significantly reduces personal risk.
Synthesis: three paths for creditors
In Cyprus (Section 311 of the Companies Act) the creditor shall prove fraudulent trading or find a shadow director. There is high barrier of dishonesty but shadow director is often easier.
In England (Section 214 of the Insolvency Act 1986) the creditor can use wrongful trading (softer standard), dishonest assistance or find a shadow director. Trigger creditor interest duty is expanded by Hunt v Singh: now it includes awareness of the risk of insolvency, not just the fact of insolvency.
In Switzerland (Section 725, 754 of the Code of Obligations) there is a mechanical timer: over-indebtedness triggers an immediate duty of notification. If the nominee director does not act (s)he shall be jointly and severally liable. There is no discretion, no should have known, there are objective facts.
In the framework of all three jurisdictions the nominee director is not a confidentiality instrument. This is a potential entry point for a creditor into the beneficiary’s assets and liabilities, although mechanisms of entry are radically different.
Source:
- CMS Law (2015) “Lessons for Nominee Directors and Their Appointing Shareholders” https://cms.law/en/gbr/legal-updates/lessons-for-nominee-directors-and-their-appointing-shareholders2
- No5 Barristers’ Chambers (2023) “The Impact of a Company’s Insolvency on Directors” https://www.no5.com/2023/02/the-impact-of-a-companys-insolvency-on-directors/
- A.G. Erotocritou LLC (2018) “Fraudulent Trading: Characteristics and Deficiencies” https://www.erotocritou.com/en/publications/fraudulent-trading-characteristics-and-deficiencies/ppp-301/41/
- Commenda (2024) “Director Liability and Compliance Risks in Switzerland” https://www.commenda.io/switzerland/director-liability-risks
- FromCounsel (2024) “FC Case Feature: Directors’ Duties / Insolvency (Hunt v Singh, Sequana)” https://blog.fromcounsel.com/director-duties-sequana-2024
- INSOL India (2015) “Directors in the Twilight Zone V: Wrongful / Insolvent Trading” https://www.insolindia.com/uploads_insol/resources/files/directors-in-the-twilight-zone-v-1034.pdf
- Lancaster University (2018) “A Comparative Evaluation of Cypriot Corporate Insolvency Regimes with Reference to Wrongful Trading Doctrine” (LLM Thesis) https://eprints.lancs.ac.uk/id/eprint/134970/1/2018zantirallm.pdf
- Baer & Karrer AG (2024) “Risks for Transactions and Directors in Financially Distressed Situations” https://www.baerkarrer.ch/userdata/files/publications/2024/w61uiatkhwevrsdy38ql.PDF
