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Re Barings plc (No.5)
Encyclopedia
Re Barings plc [1999] 1 BCLC 433 is a leading UK company law case, concerning directors' duties of care and skill. Some reporters and commentators call this case "No 5" while others refer to it as "No 6" in the saga of litigation concerning Barings Bank
.
was a dishonest futures trader in Singapore
for the former Barings Bank
. He traded in the front office and also did work, in breach of an internal audit recommendation, in the back office. He fraudulently doctored the bank's accounts, and reported large profits, while trading at losses. After an earthquake in Kobe
, Japan, the stock market went into a downward spiral, and the truth of his losses were uncovered. The Secretary of State
sought director disqualification orders under the Company Directors Disqualification Act 1986
against three directors of Barings for their failure to supervise his activities. They were alleged to be incompetent, and therefore "unfit to be concerned in the management of a company" (sections 6-8).
Barings Bank
Barings Bank was the oldest merchant bank in London until its collapse in 1995 after one of the bank's employees, Nick Leeson, lost £827 million due to speculative investing, primarily in futures contracts, at the bank's Singapore office.-History:-1762–1890:Barings Bank was founded in 1762 as the...
.
Facts
Nick LeesonNick Leeson
Nicholas "Nick" Leeson is a former derivatives broker whose fraudulent, unauthorized speculative trading caused the collapse of Barings Bank, the United Kingdom's oldest investment bank, for which he was sent to prison...
was a dishonest futures trader in Singapore
Singapore
Singapore , officially the Republic of Singapore, is a Southeast Asian city-state off the southern tip of the Malay Peninsula, north of the equator. An island country made up of 63 islands, it is separated from Malaysia by the Straits of Johor to its north and from Indonesia's Riau Islands by the...
for the former Barings Bank
Barings Bank
Barings Bank was the oldest merchant bank in London until its collapse in 1995 after one of the bank's employees, Nick Leeson, lost £827 million due to speculative investing, primarily in futures contracts, at the bank's Singapore office.-History:-1762–1890:Barings Bank was founded in 1762 as the...
. He traded in the front office and also did work, in breach of an internal audit recommendation, in the back office. He fraudulently doctored the bank's accounts, and reported large profits, while trading at losses. After an earthquake in Kobe
Kobe
, pronounced , is the fifth-largest city in Japan and is the capital city of Hyōgo Prefecture on the southern side of the main island of Honshū, approximately west of Osaka...
, Japan, the stock market went into a downward spiral, and the truth of his losses were uncovered. The Secretary of State
Secretary of State
Secretary of State or State Secretary is a commonly used title for a senior or mid-level post in governments around the world. The role varies between countries, and in some cases there are multiple Secretaries of State in the Government....
sought director disqualification orders under the Company Directors Disqualification Act 1986
Company Directors Disqualification Act 1986
Company Directors Disqualification Act 1986 is a piece of UK company law, which sets out the procedures for company directors to be disqualified in certain cases of misconduct.-History:...
against three directors of Barings for their failure to supervise his activities. They were alleged to be incompetent, and therefore "unfit to be concerned in the management of a company" (sections 6-8).
High Court
Jonathan Parker J held that the three directors should be disqualified. Unfitness was determined by the objective standard that should ordinarily be expected of people fit to be directors of companies. Directors must inform themselves of company affairs and join in with other directors to supervise those affairs. Having no adequate system of monitoring was therefore a breach of this standard. Directors may delegate functions, but they nevertheless remain responsible for those functions being carried. Furthermore, the degree of a director's remuneration will be a relevant factor in determining the degree of responsibility with which a director must reckon.Court of Appeal
Morritt LJ, Waller LJ and Mummery LJ upheld Jonathan Parker J's decision in full. Morritt LJ delivered judgment for the whole court.See also
- UK company law
- US corporate law
- Gross negligenceGross negligenceGross negligence is a legal concept which means serious carelessness. Negligence is the opposite of diligence, or being careful. The standard of ordinary negligence is what conduct one expects from the proverbial "reasonable person"...
- Business judgment ruleBusiness judgment ruleThe business judgment rule is a US case law-derived concept in corporations law whereby the "directors of a corporation . . . are clothed with [the] presumption, which the law accords to them, of being [motivated] in their conduct by a bona fide regard for the interests of the corporation whose...
- Barnes v. Andrews, 298 F. 614 (S.D.N.Y. 1924) a US corporate law case, where a director of the Liberty Starter Co, now insolvent, was accused of having contributed to the failure by being inattentive on the board. Learned Hand J held, "It is easy to say he should have done something, but that will not serve to harness upon him the whole loss, nor is it the equivalent of saying that, had he acted, the company would now flourish. An inattentive director or directors cannot be held liable for a corporate loss if it is shown that proper attentiveness to corporate affairs by all the directors would still not have prevented the loss complained of. In order words, it must be demonstrated that the accused director's slothfulness was a cause of the company's loss. This notion of causation is thus a critical element in any action brought against a poorly performing board of directors and has had a tremendous impact on the course of modern corporate governance."