Re Barings plc (No 5)

Ratio Decidendi

Facts

Barings, one of the oldest merchant banks in London, collapsed in 1995 after Nick Leeson, a trader in its Singapore office, ran up losses of around £827 million through unauthorised and concealed derivatives trading. The Secretary of State brought proceedings under the Company Directors Disqualification Act 1986 to disqualify several of Leeson's senior managers and directors on the ground that their conduct made them unfit to be concerned in the management of a company.

Judgment Summary

The Court of Appeal upheld the disqualification of three senior directors, dismissing their appeals. The court, approving the approach of Jonathan Parker J at first instance, held that directors have a continuing duty to acquire and maintain a sufficient knowledge and understanding of the company's business to enable them properly to discharge their duties, and that although directors may delegate particular functions — and are entitled within reason to trust those to whom they delegate — they remain responsible for supervising the discharge of the delegated functions and cannot escape responsibility by leaving matters to subordinates without any oversight. The directors had failed to establish and monitor adequate internal controls and risk-management systems and had not sufficiently informed themselves about, or supervised, the trading that destroyed the bank; their ignorance was itself culpable. The case is a leading authority on the standard of competence and the duty to supervise expected of directors, now reflected in the duty to exercise reasonable care, skill, and diligence in s.174 of the Companies Act 2006.

Key Quotes

Subsequent Treatment