''Re Barings plc (No 5)'' 0001 BCLC 523 is a leading

UK company law The United Kingdom company law regulates corporations formed under the Companies Act 2006. Also governed by the Insolvency Act 1986, the UK Corporate Governance Code, European Union Directives and court cases, the company is the primary lega ...

case, concerning directors' duties of care and skill. The case is formally identified and cited as "No 5", though some observers regard it as the sixth in the saga of litigation concerning

Barings Bank Barings Bank was a British merchant bank based in London, and one of England's oldest merchant banks after Berenberg Bank, Barings' close collaborator and German representative. It was founded in 1762 by Francis Baring, a British-born member ...

Facts

Nick Leeson Nicholas William Leeson (born 25 February 1967) is an English former derivatives trader whose fraudulent, unauthorized and speculative trades resulted in the 1995 collapse of Barings Bank, the United Kingdom's oldest merchant bank. Leeson w ...

was a dishonest futures trader in

Singapore Singapore (), officially the Republic of Singapore, is a sovereign island country and city-state in maritime Southeast Asia. It lies about one degree of latitude () north of the equator, off the southern tip of the Malay Peninsula, bor ...

for the

. He traded in the front office and also did work, in breach of an internal audit recommendation, in the back office, auditing his own team's trades. This allowed him to effectively act as his own supervisor. Leeson abused this situation to secretly make increasingly large unauthorized trades on his employer's behalf. He fraudulently doctored the bank's accounts, and reported large profits, while trading at losses. After the 1995 Kobe earthquake, the stock market went into a downward spiral, and the truth of his losses was uncovered, bankrupting Barings Bank. The Secretary of State sought director disqualification orders under the

Company Directors Disqualification Act 1986 The Company Directors Disqualification Act 19861986 c. 46 forms part of UK company law and sets out the procedures for company directors to be disqualified in certain cases of misconduct. History Lord Millett, in the opinion he gave in , summa ...

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. 9991 BCLC 433

Court of Appeal

Morritt LJ, Waller LJ and

Mummery LJ Sir John Frank Mummery, DL (born 5 September 1938) is a former Lord Justice of Appeal and is President of the Investigatory Powers Tribunal and a member of the Court of Ecclesiastical Causes Reserved in the UK. Education Mummery attended Dover ...

upheld Jonathan Parker J's decision in full. Morritt LJ delivered judgment for the whole court.

Notes

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 ''The Delaware Journal of Corporate Law'' is Widener University Delaware Law School's corporate law review. The ''Journal'' was established in 1975 and publishes three issues per annual volume. In addition to scholarly articles, the ''Journal'' pu ...