UK: Directors’ and Officers’ Liability Review, Winter 2006 - News Digest

Last Updated: 4 January 2007

US retreat on Sarbanes-Oxley

The Sarbanes-Oxley regulations are to be lightened following recognition by the US Government that the legislation has been overly onerous, and acceptance by US regulator, the Public Company Accounting Oversight Board (‘PCAOB’), that section 404 (concerned with financial reporting requirements) has been costlier than anticipated, with costs exceeding the benefit derived.

The PCAOB and the SEC are consulting and a review is aimed at reducing the burden on small- and medium-sized companies, and may also result in new provisions limiting the liability of accountancy firms.

Extradition Treaty ratified by the US

On 30 September 2006, the US Senate finally ratified the Extradition Treaty with the UK. The Treaty was negotiated in 2003 (following the 2001 terror attacks) and brought into force in the UK in the same year, but has only now been ratified in the US.

Although the ratification has been welcomed, most commentators remain sceptical about whether the Treaty even now achieves an equal balance between the rights of the US and the UK authorities. Even after ratification, the UK has to provide prima facie evidence to a US court before it can extradite American citizens. As recent high profile examples have shown, the US, however, does not need to provide such evidence in order to extradite UK nationals or others located in the UK.

Directors of Russian companies beware

In a recent landmark decision, the Moscow District Commercial Court found former managers and directors of Agro Industrial Construction Bank ("the Bank"), liable to the Bank for approving loans to insolvent borrowers that were responsible for the Bank’s insolvency.

This decision is seen as a further move by the Russian authorities to improve transparency and attract further international investment, and the expansion of liability will extend beyond banks to companies in general. It will be difficult to predict when directors will now be held liable. In many cases, however, evidential difficulties may be encountered in seeking to prove a causal link between the directors’ conduct and any subsequent insolvency or other loss. The developing Russian D&O market will need to evaluate the underwriting impact of this decision, which may only become clear from subsequent cases.

Revisions to the UK Combined Code

In June 2006, changes to the Combined Code, which applies to all UK listed companies, came into force for reporting years beginning on or after 1 November 2006.

The main changes include:

  • allowing an independently appointed chairman to sit on the remuneration committee;
  • the need for companies to include a ‘vote withheld’ box on all proxy voting forms and not just those relating to AGMs;
  • the requirement to record and publish on its website any votes by way of a show of hands vote; and
  • a provision confirming that by placing information on its website, a company is now deemed to have complied with the publicity requirements.

New UK Fraud Act

The Fraud Act 2006 comes into force on 15 January 2007 and follows the findings of the 2002 Law Commission, in covering three key areas:

  • fraud by misrepresentation;
  • fraud by failing to disclose; and
  • fraud by abuse of position.

The Act creates new offences of obtaining services dishonestly, and possessing, making or supplying articles for use in frauds. In addition, fraudulent trading is now extended to include non-corporate traders.

The Fraud Act also increases the penalty for participating in a fraud from seven years to 10 years and places members of body corporates charged with offences at risk of personal prosecution where they manage the business.

Protective UK legislation in case of US takeover of LSE

The Treasury has introduced a new Bill, "The Clearing House and Banking Bill", to protect UK companies listed on the LSE and other UK exchanges from onerous US regulatory obligations in situations where the LSE or other exchanges are taken over by a US exchange. The Bill will be pushed through and is expected to be in force within a year.

UK case law: illegal loans to Directors

In Neville (as administrator of Unigreg Ltd) and another v Krikoran (2006), the Court of Appeal held that directors will be jointly and severally liable under section 341(2)(b) of the Companies Act 1985 to repay all loans made by their company to a fellow director in breach of section 330, from the time at which they first became aware that illegal loans were being made even if they were not aware of the circumstances, or even the fact, of each subsequent loan.

Furthermore, where directors fail to take steps to prevent losses to the company, such as by not preventing further loans or by not calling in those already made, they will be personally liable to indemnify the company under section 212 Insolvency Act 1986 if their co-directors are unable to repay.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.