Leave to Act as a Company Director Following Disqualification: Re Barings plc

DOIhttps://doi.org/10.1108/eb025920
Publication Date01 March 1999
Pages63-66
AuthorAdrian Walters
SubjectAccounting & finance
Journal of Financial Crime Vol. 7 No. 1 Civil Procedure
BRIEFINGS
CIVIL PROCEDURE
Leave to Act as a Company Director Following
Disqualification: Re Barings plc
Adrian Walters
The decision of the Secretary of State for Trade and
Industry to seek disqualification orders in the High
Court against several former senior executives of
Barings under the Company Directors' Disqualifi-
cation Act 1986 (CDDA) has brought the bank's
collapse firmly into the province of company law.
The immediate cause of Barings' collapse in February
1995 was put down to the unauthorised trading
activities of a group subsidiary, Baring Futures
(Singapore) Pte Ltd, on the Singapore International
Monetary Exchange. These activities were attributa-
ble to Nick Leeson, the senior floor trader and general
manager of Baring Futures. The unauthorised trading
produced losses amounting to some £827m which
were concealed by Leeson in an unnamed client
account. The bank's collapse raised fundamental
questions about the system of financial regulation
and, in particular, the interaction of banking super-
vision and the regulation of financial services under
the Financial Services Act 1986. For present purposes,
it also exposed the failure of the bank's senior
management to maintain a proper system of internal
controls.1
REGULATORY ACTION AND
PROCEEDINGS UNDER THE CDDA
The Securities and Futures Authority (SFA) initiated
disciplinary proceedings against nine ex-Barings
executives on the ground that they had failed to act
with due skill, care and diligence in breach of SIB
Principle 2.2 The object of this regulatory action
was to seek the removal of the nine executives from
the SFA's register of directors with the aim of ensur-
ing that the 'financial services industry would not
again be exposed to the incompetence which
allowed ... Leeson's activities to remain
undetected'.3
In short, the purpose was to prevent them from
obtaining authorisation under the Financial Services
Act to carry on a business in the securities industry,
whether through a firm or as individuals. The SFA's
case focused entirely on the issue of management
competence. The honesty and integrity of the nine
individuals was not
doubted.4
Disqualification proceedings were also commenced
by the Secretary of State for Trade and Industry under
ss.
6-7 of the CDDA against ten former executives, all
but one of whom had already been the subject of
regulatory action. Section 6 requires the court to
make a disqualification order against a person for a
period of between two and 15 years if it is satisfied
(a) that he is or has been a director of a company
which has at any time become insolvent and (b) that
his conduct as a director of that company (either
taken alone or taken together with his conduct as a
director of any other company or companies) makes
him unfit to be concerned in the management of a
company. The court's jurisdiction over the Barings
executives arose because Barings plc was placed in
administration after the collapse and so had 'become
insolvent' for the purposes of
s.
6.5
NATURE, SCOPE AND PURPOSE OF
DIRECTORS' DISQUALIFICATION
Disqualification proceedings under the CDDA have a
much broader objective than disciplinary proceedings
brought by a financial services regulator like the SFA.
If the court decides to disqualify it must make an
order in the terms of CDDA, s. 1(1). This provides
that a disqualified person shall not, without the
leave of the court:
(a) be a director of a company; or
Page 63

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