Babbé LLP successfully defends Carlyle Capital directors in landmark case
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Babbé has successfully defended the executive directors of Carlyle Capital Corporation Ltd (“CCC”) against a claim for nearly $2 billion. The claim was brought by CCC’s liquidators against our clients and CCC’s independent directors, investment manager and promoters. Babbé took the lead role at trial on behalf of the Defendants generally.
It is the first time that the Guernsey courts have given comprehensive guidance on the duties of directors of a Guernsey company and the judgment has been awaited with interest by many participants in the Guernsey and wider offshore financial services community.
Carlyle Capital Corporation – the largest claim ever brought in Guernsey
The judge considered evidence from 16 expert witnesses, 13 factual witnesses and a vast body of documents. The trial in 2016 lasted nearly six months and was the culmination of an action which commenced in 2010. The judgment, which runs to over 500 pages, was handed down today and dismissed every claim advanced by the Plaintiffs during the trial.
The 187 claims against the Defendants included allegations of breaches of fiduciary duty, gross negligence, wrongful trading, misfeasance and breaches of contract which, the liquidators had argued, led to CCC’s liquidation following a withdrawal of funding by its lending banks.
Findings from Carlyle Capital Corporation judgement
Lieutenant Bailiff Hazel Marshall QC found that the directors had acted loyally, honestly, and with appropriate care and skill. They had made their business decisions without any taint of conflict of interest and had given proper regard, when the need arose, to the interests of the Company’s creditors. In any event, the liquidators failed to show that selling off CCC’s assets in the autumn of 2007 – as the liquidators had argued the directors ought to have done – would have produced any better outcome for CCC than it faced when engulfed by the crisis in the financial markets in March 2008.
What did the Carlyle Capital Corporation judgement examine?
The judgment examines important issues in a range of areas, including:
- directors’ duties and the roles of the Board, management and external advisers, including investment managers
- how directors’ duties may change when a company is at risk of insolvency
- the proper test for insolvency
- the scope of liability for wrongful trading
- the incorporation of a company’s Articles into the terms of a director’s appointment
- de facto and shadow directors
- systems of corporate governance and record-keeping
- accounting issues, including going concern analysis
- the proper role of expert evidence
The ramifications of the judgment go beyond the particular circumstances of this fund and will be of importance to those involved in the provision of financial services.
This note is for information purposes only and is not intended to be legal advice.
