Guernsey Royal Court has cleared the directors of asset management firm Carlyle Group of wrongful trading at the time of the credit crunch, in a keenly anticipated ruling. The court held the directors took reasonable commercial decisions, in Carlyle v Conway.
The claimants had argued they should have pulled out of mortgage-backed securities, including securities issued by Freddie Mac and Fannie Mae, earlier to prevent the fund collapsing in 2008 with losses in excess of $1bn.
Timothy Collingwood, barrister at Serle Court Chambers, said the judgment made compelling reading: `Carlyle Capital Corporation’s (CCC) business model was stress tested to withstand shocks beyond the worst of those in modern memory at the time of its launch in late 2006. In addition, the vast majority of its assets were residential mortgage backed securities issued by Fannie Mae and Freddie Mac carrying the implicit guarantee of the US government. Neither these safeguards, nor the fact that CCC was managed by some of the sharpest financial minds around, prevented it from failing with losses in excess of $1bn as a result of the cataclysmic financial events of 2007-2008.
`The judgment vindicates the reasonableness of the attempts that CCC’s directors and management took to try and save it, and exonerates them from allegations that they breached their duties to the company and wrongfully sought to continue trading rather than immediately winding down operations'.