''Re Barings plc (No 5)''

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1 BCLC 523 is a leading

UK company law British company law regulates corporations formed under the Companies Act 2006. Also governed by the Insolvency Act 1986, the UK Corporate Governance Code, European Union Directive (European Union), Directives and court cases, the company is th ...

case, concerning company 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. It was 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, unauthorised and speculative trades resulted in the 1995 collapse of Barings Bank, the United Kingdom's oldest existing merchant bank ...

was a dishonest futures trader in

Singapore Singapore, officially the Republic of Singapore, is an island country and city-state in Southeast Asia. The country's territory comprises one main island, 63 satellite islands and islets, and one outlying islet. It is about one degree ...

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. 9991 BCLC 433

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.

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