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
- Whether directors satisfy their legal duties by relying on advice from financial advisors without conducting their own critical evaluation.
- Whether directors can delegate decision-making responsibility to external specialists or must retain final judgment themselves.
- 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.