Keymed (Medical & Industrial Equipment) Ltd v Hillman [2019] EWHC 485 (Ch)

Facts

  • The case concerned Keymed (Medical & Industrial Equipment) Ltd bringing a claim against its directors regarding their conduct during a company share repurchase.
  • The directors relied heavily on financial advisors when approving the share repurchase.
  • The directors failed to adequately review the details or form their own judgment on the transaction’s impact, depending primarily on external advice.
  • The High Court examined whether the directors met their legal duties when depending on expert input and the extent of their independent review obligations.

Issues

  1. Whether directors satisfy their legal duties by relying on advice from financial advisors without conducting their own critical evaluation.
  2. Whether directors can delegate decision-making responsibility to external specialists or must retain final judgment themselves.
  3. What practical steps directors must take to demonstrate compliance with the duty to act independently in the company’s interests.

Decision

  • The court held that directors are permitted to seek and use expert advice, especially where matters exceed their immediate knowledge.
  • However, directors must rigorously review all advice received, critically analyze its basis, question its conclusions, and ensure it aligns with the company’s interests.
  • The directors in this case failed in their duty by not sufficiently reviewing the financial advice or independently assessing the transaction’s consequences.
  • Decision-making cannot be delegated to advisors; directors retain ultimate responsibility.
  • Maintaining clear records of the data, advice, and reasoning supporting decisions is required.

Legal Principles

  • Directors’ core duty is to act in the company’s interests, making decisions based on personal evaluation, not blindly on others’ advice.
  • While professional input may be necessary, directors must independently review all advice and cannot abdicate responsibility to specialists.
  • Proper use of advisors differs from improper delegation; only the former is consistent with legal obligations.
  • Directors are required to understand both the company’s operations and legal framework to assess advice appropriately.
  • Keeping detailed records of decisions and their rationales strengthens evidence of compliance with the duty of independent judgment.

Conclusion

Keymed (Medical & Industrial Equipment) Ltd v Hillman [2019] EWHC 485 (Ch) confirms that directors must exercise independent judgment and carefully evaluate all professional advice, clarifying the distinction between permissible reliance on advisors and impermissible abdication of decision-making responsibility.

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