Introduction
Directors’ responsibilities, defined in company law, require clear action from those managing a company. Keymed (Medical & Industrial Equipment) Ltd v Hillman [2019] EWHC 485 (Ch) offers a detailed examination of how directors must use their own judgment, especially when reviewing information and advice from others. This case explains the balance between using experts and the requirement for directors to decide independently in the company’s interests. The judgment confirms that while directors can seek external help, they remain accountable for results. This rule comes from the legal duty directors have to the company, which requires honesty and independent decision-making.
Directors’ Responsibilities and the Need for Independent Judgment
Company law requires directors to act in the company’s interests. This core rule means directors must base choices on their own evaluation. While seeking professional input is allowed and often necessary, directors cannot avoid their duty to review advice carefully and make their own decisions. Keymed v Hillman supports this principle, showing the court’s view that directors must actively assess information rather than accept recommendations without question.
Keymed v Hillman: Background and the Court’s Decision
Keymed v Hillman focused on a claim against directors for failing in their duties during a share repurchase. The directors heavily depended on financial advisors’ advice when approving the repurchase. The court ruled that while getting expert input was reasonable, the directors did not sufficiently review the details or form their own view on the transaction’s impact. The judgment stressed that directors cannot delegate their decision-making role to advisors.
The Duty to Review Advice Carefully
The High Court’s decision in Keymed v Hillman confirms directors must rigorously review specialist advice. This includes checking data, questioning conclusions, and asking for clarifications. Directors should not approve advice without weighing its effects on the company. This independent review is necessary to ensure decisions match the company’s interests, even when using expert opinions.
Using Advisors vs. Over-Dependence: Key Differences
The judgment in Keymed v Hillman distinguishes proper use of advisors from improper delegation of directorial duties. Directors may use others’ knowledge, especially in areas outside their experience. However, this use must be justified. Directors must understand the basis of the advice and form their own judgments. Following advice without personal evaluation violates their duties.
Steps Directors Should Follow
Keymed v Hillman provides practical measures for directors. It stresses keeping clear records of decision-making steps, including data examined, advice received, and reasons for decisions. These records can demonstrate directors’ active role. The case also states directors must understand the company’s operations and legal framework to assess advice properly and make informed choices. Seeking separate legal advice may be necessary.
Conclusion
Keymed (Medical & Industrial Equipment) Ltd v Hillman [2019] EWHC 485 (Ch) advances understanding of directors’ duties, particularly the need for independent judgment. The case confirms that while using experts is acceptable, directors must still review advice thoroughly and decide independently. This responsibility arises from the duty to act in the company’s interests. The judgment clarifies the line between proper use of advisors and improper delegation, offering clear guidance for directors meeting legal standards. By actively reviewing advice and maintaining detailed records, directors can show their commitment to independent judgment and reduce risks. This case strengthens the principle that directors must use their own evaluation, even when collaborating with experts and governance systems.
