UK: BLG´s Directors´ And Officers´ Liability Review News Digest, Summer 2007

Last Updated: 18 June 2007

Originally published in BLG's Directors' and Officers' Liability Review, Summer 2007

Companies Act 2006 - best practice guidelines published by the GC100

The GC100 have published best practice guidelines to assist companies in complying with s.172 of the new Companies Act. The guidelines arose out of the GC100's concern that s.172 of the Act (the requirement that a director exercises his duties in a way he considers would be most likely to promote the success of the company) may have the effect of increasing the administrative burden on directors and may expose directors to a greater risk of litigation.

The GC100 believe that directors should not be required to document their decision making processes in excessive detail when applying s.172 in the performance of their duties. In their guidelines, the GC100 suggest the following approach to decision making:

(i) Companies should ensure all directors are aware of their duties under the new Act by thoroughly briefing the current board, as well as new directors when they are appointed and ensuring that the terms of appointment and description of the role of any director refer to their duties.

(ii) Board minutes should not be used as the main medium for recording the extent to which each of the factors was discussed. Where a proposal is being formally put to the board, it should normally be supported by a background paper. It is recommended that the management responsible for preparing the paper ensure that each of the relevant factors, including those in s.172, are properly considered at the time the paper is being prepared and that the factors are included in the background paper if necessary. This way, each director will have had the chance to consider the issue in advance of the board meeting and there will be a clear written record of the factors addressed.

(iii) Where decisions are taken by the board in circumstances other than at a formal board meeting, or where decisions are taken informally by individual directors, as are the majority of day to day decisions, the GC100 state that it is for the company to decide the best approach to adopt. The GC100 stress that it will be inappropriate for a formal paper to be prepared in advance of making the majority of decisions and best practice should recognise that it should not be inferred from a lack of formal process or paper that factors have not been properly considered.

Romania makes D&O compulsory

Romania has become the first European country to make directors' and officers' insurance compulsory for companies, increasing the demand for D&O cover. However, there is no requirement as to the nature or breadth of cover required nor as to the identity or security of the carrier. The new legislation makes the purchase of D&O insurance compulsory for all directors of joint stock companies. This includes public and private companies with Romanian registered shareholders, or subsidiaries incorporated in Romania whose shares are either completely or partially owned by a non-Romanian parent company. EU-based insurers offering D&O insurance to Romanian companies must be registered with the Romanian Insurance Supervisory Commission.

Fiduciary duty: accepting a job offer during the notice period is not a breach of a director's fiduciary duty

The Court of Appeal recently held that there was no breach of a fiduciary duty in circumstances where a director accepted an offer of work with a client of his former company after resigning but before his resignation took effect. The Court, commenting that each case will be judged on its merits, added that so long as the director in question remained honest and neither exploited nor took any property from the company his duties extended no further and that there would be no liability to account (not relevant in this case) for profits connected with, or arising from a breach of the duty even if loss is not proved by the beneficiary. Foster Bryant Surveying Ltd v (1) Bryant (2) Savernake Property Consultants Ltd (2007).

Extradition update - new guidance for handling jurisdictional issues in cross border criminal cases between the UK and the US

On 25 January 2007, the Attorney General announced that new guidance for handling jurisdictional issues in cross-border criminal cases between the UK and the US had been agreed with the Attorney General of the US and the Lord Advocate of Scotland. The announcement was made on the same day that the High Court dismissed appeals against an order for the extradition of Mr Ian Norris.

Mr Norris had appealed to the High Court against an order for his extradition to the US to face charges of conspiracy to fix prices. Mr Norris argued that conspiracy to fix prices or enter into a cartel agreement was not an extradition offence under s.137 Extradition Act 2003 because it was not an offence pursuant to English law before the introduction of the cartel offence under the Enterprise Act 2002. The Court disagreed and found that dishonest price-fixing amounts to the English common law offence of conspiracy to defraud and therefore is an extradition offence under the 2003 Act. Mr Norris is currently petitioning the House of Lords for leave to appeal. The Lords' decision as to whether they will hear Mr Norris' case is expected in June.

Guidance had been called for following the controversy that arose over the use of the fast track extradition procedure by US prosecutors to extradite British nationals such as the NatWest Three and Mr Norris to face criminal charges.

The aim of the guidance is to enhance the exchange of information and improve communication in criminal cases that have the potential to be prosecuted both in the UK and the US and to assist in addressing issues that arise in serious or complex cases. Although not binding, UK prosecutors are expected to follow the guidelines. However, whether they will produce any significant changes in practice remains to be seen.

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.

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