## Facts

- Madoff Securities International Ltd was a company connected to the Bernard Madoff fraud scheme.
- The actions of its directors were scrutinized to assess compliance with the duty of care, skill, and diligence as required by section 174 of the Companies Act 2006.
- The case arose in the context of evaluating the directors' role and conduct within the company amidst the backdrop of large-scale fraudulent activities.

## Issues

1. What is the proper interpretation and application of the objective and subjective standards for directors' duty of care, skill, and diligence under section 174 of the Companies Act 2006?
2. How should a director's general and individual knowledge, skill, and experience be weighed in assessing breaches of duty?
3. What are the practical implications for directors’ participation and decision-making in light of these standards?

## Decision

- The court affirmed that section 174 of the Companies Act 2006 incorporates both an objective test (general standard expected of a director) and a subjective test (standard based on the individual director's actual knowledge and experience).
- The directors’ conduct was evaluated against both the statutory general minimum (objective) and their particular specialized knowledge or qualifications (subjective).
- The judgment highlighted the necessity for directors to participate actively in company affairs and make independent judgments, particularly under challenging circumstances.
- It reinforced that directors who do not maintain the required care, skill, and diligence are at risk of breaching their duties.

## Legal Principles

- Section 174(2)(a) of the Companies Act 2006 sets an objective standard for directors’ care, skill, and diligence, requiring conduct in line with what is generally expected of any director in that role.
- Section 174(2)(b) introduces a subjective element, adjusting the expected standard to account for a director’s specific knowledge, skills, and experience.
- Earlier cases such as Re City Equitable Fire Insurance Co Ltd [1925] Ch 407 and Dorchester Finance Co Ltd v Stebbing [1989] BCLC 498 provided historical context for these standards.
- The court in this case clarified that objective and subjective tests must be applied together to assess whether a director has fulfilled their legal obligations.
- The judgment emphasized the ongoing obligation for directors to maintain competence, act independently, and ensure the effectiveness of internal controls.

## Conclusion

The court in Madoff Securities International Ltd v Raven provided essential clarification of the objective and subjective elements of directors’ duties under section 174 of the Companies Act 2006, confirming the dual assessment of director competence and reinforcing the need for directors to fully understand and continually uphold their responsibilities within corporate governance.


Madoff Securities International Ltd v Raven [2013] EWHC 3147 (Comm)