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This case arose from proceedings under the Company Directors Disqualification Act 1986 against the former directors of the Barings group of companies, which became insolvent due to unauthorized trading by Nick Leeson, an employee of the company entrusted by the company’s directors with the management of the company’s Singapore office.
Leeson abused the trust placed in him and invested the company’s funds in unsuccessful ventures on the Singapore stock exchange. When the extent of these losses (held to be approximately £827m) was discovered, Leeson was arrested, and the company entered into insolvent liquidation. The Secretary of State for Trade and Industry subsequently sought a declaration that the directors be disqualified from being company directors on the basis that they were “unfit to be concerned in the management of a company”.
A key issue was whether the directors had fallen below the standards expected of them in placing such trust in Leeson. In a lengthy judgment (subsequently upheld by the Court of Appeal), Jonathan Parker J considered the position established in Re City Equitable and other cases that company directors are entitled to delegate responsibilities to other company officials. The judge held that directors are also entitled to trust that those officials will be able to perform those functions “to a reasonable extent”, that latter expression emphasising the objective standard applied to company directors by Lord Hoffman (as he had then become) in Norman v Theodore Goddard and Re D’Jan of London.
However, the judge held that directors could not, by delegating functions to other officials, “absolve” themselves from “the duty to supervise the discharge of the delegated functions”. Accordingly, the disqualification order was granted, as the directors were held to have failed to supervise Leeson in the way that a reasonable director should have.