Re Barings plc (No 5)

Re Barings plc (No 5)
Re Barings plc (No 5)
Court	Court of Appeal
Full case name	Secretary of State for Trade and Industry v Baker (No.5)
Citation	[2000] 1 BCLC 523
Case history
Prior action	[1999] 1 BCLC 433
Court membership
Judges sitting	Morritt LJ; Waller LJ; Mummery LJ
Case opinions
	Morritt LJ
Keywords
	Care and skill, Directors' duties

Re Barings plc (No 5) [2000] 1 BCLC 523 is a leading UK company law case, concerning company directors' duties of care and skill. The case is formally identified and cited as "No 5",^[1] though some observers regard it as the sixth in the saga of litigation concerning Barings Bank.^{[citation needed]}

Facts

Nick Leeson was a dishonest futures trader in Singapore for Barings Bank. He traded in the front office and also worked—in breach of internal audit recommendations—in the back office, auditing his own team's trades, effectively allowing him to act as his own supervisor. Leeson abused this situation secretly to make increasingly large unauthorized trades on his employer's behalf. He fraudulently doctored the bank's accounts, and reported large profits, while trading at a loss. After the 1995 Kobe earthquake, the stock market went into a downward spiral, and the truth of his losses was uncovered, bankrupting Barings. 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).

Judgement

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 out. 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.^[2]

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.

Notes

^ L Sealy and S Worthington, Company Law (OUP 2007)
^ [1999] 1 BCLC 433

References

WT Allen, JB Jacobs and LE Strine Jr, 'Function over Form: A Reassessment of Standards of Review in Delaware Corporation Law' (2001) 26 Delaware Journal of Corporate Law 859

[1] L Sealy and S Worthington, Company Law (OUP 2007)

[2] [1999] 1 BCLC 433

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