UK: England and Wales: Madoff liquidators fail in claims against former directors for breach of duties

The judgment of Mr Justice Popplewell in Madoff Securities International Ltd v Raven & Ors [2013] EWHC 3147 (Comm) was given last Friday. The case concerned claims brought by the liquidators of Madoff Securities International Ltd., a London based company, against its former directors. Bernard Madoff was, at the relevant times, the company's chief executive and chairman. He also held the great majority of the voting shares in the company. The liquidators claimed, in respect of several payments made by the company, that the former directors had breached their duties, in particular those now found in section 172 ("Duty to promote the success of the company") and section 174 ("Duty to exercise reasonable care, skill and diligence") of the Companies Act 2006.

All of the claims against the directors failed. This should not, however, be taken to mean that none of the directors were found to have breached their duties: the judge found that several directors had breached section 174 by failing to address their minds to the question whether certain payments were in the interests of the company (see para. [264]). However, they had a defence: the transactions in question had been ratified by the unanimous approval of the voting shareholders.

The judgment contains much interesting dicta, in particular with regard to directors' duties and board decision making. To quote from the judgment (paras. [190] to [192]):

It is legitimate, and often necessary, for there to be division and delegation of responsibility for particular aspects of the management of a company. Nevertheless each individual director owes inescapable personal responsibilities. He owes duties to the company to inform himself of the company's affairs and join with his fellow directors in supervising them. It is therefore a breach of duty for a director to allow himself to be dominated, bamboozled or manipulated by a dominant fellow director where such involves a total abrogation of this responsibility ... In fulfilling this personal fiduciary responsibility, a director is entitled to rely upon the judgment, information and advice of a fellow director whose integrity skill and competence he has no reason to suspect ... Moreover, corporate management often requires the exercise of judgement on which opinions may legitimately differ, and requires some give and take. A board of directors may reach a decision as to the commercial wisdom of a particular transaction by a majority. A minority director is not thereby in breach of his duty, or obliged to resign and to refuse to be party to the implementation of the decision. Part of his duty as a director acting in the interests of the company is to listen to the views of his fellow directors and to take account of them. He may legitimately defer to those views where he is persuaded that his fellow directors' views are advanced in what they perceive to be the best interests of the company, even if he is not himself persuaded. A director is not in breach of his core duty to act in what he considers in good faith to be the interests of a company merely because if left to himself he would do things differently."