On the eve of trial due to start today and run until Christmas, the Secretary of State for Business and Trade has dropped director disqualification proceedings against five non-executive directors of Carillion plc, Herbert Smith Freehills clients.
This brings an end to almost six years of investigation and subsequent legal proceedings following the Carillion Group's insolvency in 2018, and comes two and three quarter years after the Insolvency Service launched the case.
The Herbert Smith Freehills disputes team was led by partners John Whiteoak and Natasha Johnson – and supported throughout by senior associates Richard Mendoza and Chris Cox and associate Pete Thompson.
Commenting on the case, Natasha Johnson said:
"We are pleased that the Insolvency Service has dropped in its entirety its case against the five non-executive directors of Carillion plc, seeking their disqualification as directors.
"This case is the most significant for non-executive directors in the UK in a generation. The IS asserted that the non-executive directors should be disqualified because they did not know the true financial position of Carillion at all times - in other words strict liability for the directors - and did not allege negligence or any lack of reasonable care by them. The IS described this as a test case, when it simply failed to reflect the statutory directors' duties. Instead they have tried to apply a duty which has never been the law. That test would, if successfully applied, have meant no one would ever want be a non-executive director in a UK company. But their test is not the law, which does not apply such an impossible standard, as they appear to have recognised, within hours of the start of the trial.
"It is regrettable that this was not recognised at an earlier stage."
For a full analysis of the story, please read our blog post.