Re Barings plc (No.5)

"Re Barings plc (No.5)" [1999] 1 BCLC 433 is a leading English company law case, concerning directors' duties of care and skill.

Facts

Nick Leeson was a crooked commodities 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" (ss. 6-8).

Judgment

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 which which a director must reckon.

ee also

*Companies law

Notes