Holland versus The Commissioners for her Majesty’s Revenue and Customs and Anr, (2010) UKSC 51 (Re Paycheck)

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The question in this case is whether simply by being a director of a sole corporate director also made the director of the other underlying companies by default. The Supreme Court clarified this situation by giving an elaborate judgement in this case.


The plaintiffs in this case, Mr. and Mrs. Holland had set up a complex structure of companies – 42 in total number. They alleged that they were the de facto directors of all the companies. The business that Mr. and Mrs. Holland indulged in was to govern and monitor the affairs of other companies related to their businesses and tax management. The contractors, the affairs of which the couple managed, worked in several varying sectors but majorly they tendered their services in the information and technology sector.

The couple took on board every contractor they had a business relation with, on board their net, as an employee of one of the 42 companies, and each one of those contractors was allotted a non-voting share, since it allowed them to receive monthly salary, as well as other benefits in the form of dividends from the shares they held. The intention was to allow each of the non-voting shareholders/employees to have the same tax advantage as they would have had if they each established a separate company and run it. However, the scheme failed since the lower courts held the companies as ‘associated’, which made them cross the total ceiling of profits over 300,000 pounds. This enabled each of the companies for being liable to pay the Higher Rate Corporation Tax, but since the dividends had been paid according to the low rate corporation tax, the liquidation of each of the companies was lower than the HRCT liability of each of the companies. However, the decision of the deputy judge in the lower court found Mr. Holland to be a de facto director of all the 42 companies, and thus, also found him to be the one to be liable to respond to the HMRC’s claims against Mr. Holland. Mr. Holland, aggrieved, appealed against this decision.

The Court of appeal allowed the appeal made by Mr. Holland and also dismissed the cross-appeal filed by HMRC, stating that the points which HMRC sought to put before the Court were no longer the content of the issue that they were discussing, but HMRC then further appealed to the decision of Court of Appeals before the UK Supreme Court.


The Supreme Court discussed the following points –

  1. Whether Mr. Holland was the de facto director of the 42 companies forming a complex corporate structure under him?
  2. Should Mr. Holland be given a period of grace from August 19 to August 22, 2004?
  3. What is the amount that Mr. Holland should be liable to contribute to the assets of the company?


In the Supreme Court, the judges held in a majority that Mr. Holland could indeed not be a de facto director of the 42 companies which he had established as a part of the complex corporate structure. Indeed, the complex structure had individual companies where the dividends were paid out separately, but the judges concluded that Mr. Holland had done no more than carry out his duties as the director of the corporate director of the 42 companies that were parts of the corporate structure. The court concluded that there was no way that Mr. Holland could be treated as the de facto director of the 42 companies.

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The court in its decision accepted the fact that there was no one certain test which could be used to ascertain whether a person was a de facto director or not. The court stated that the circumstances tend to differ from case to case and that the individual facts need to be taken into consideration to ascertain whether an individual indeed is acting as a de facto director of the company. The judges observed that there was no evidence that Mr. Holland was doing anything other than discharging his duties as the director of the corporate director of the composite companies. Just because he was taking all the decisions for the composite companies, does not imply that he assumed the fiduciary duties in regards to all the companies. If that alone made him the de facto director that he was the sole guiding mind behind their sole corporate director, then this would be true in case of all the companies that had a sole corporate director, which the Court observed was not the case.


The Court held that the accused defendant, Mr. Holland was not a de facto director in the case of the 42 companies that had been included within the complex corporate structure. It is indeed an interesting opinion presented by the court since it established that merely being the director of a sole corporate director does not become a sufficient reason to assume that the same person becomes the de facto director of the companies that fall within the sole corporate director. Being a director of a sole corporate director does not mean that the fiduciary duties of being the director of the other companies underlying are imposed on the person as well.