!Корпоративное право 2023-2024 / 2013-study-analysis_en
.pdfthat the standard of care expected of directors depends on the position held and level of reward received by the director. A clear enunciation of this view can be found in the famous Barings decision of the UK High Court,119 which was also followed (with modifications depending on the context) by Irish courts.120 In Luxembourg, the courts define the standard of care differently for a director who is paid and one who does not receive compensation.121 Similarly, Belgian law applies the general agency law principle that unpaid agents are judged more leniently than paid agents to directors.122 In
Greece, the law requires that the care of a ‘prudent businessman’ shall be determined in light of the duties assigned to the director.123 This effectively establishes different standards for executive and non-executive directors. Most countries focus on factors such as the role of the director and the allocation of functional responsibilities between board members.124 Thus, while the analysis conducted by the courts follows similar parameters, the assessment is highly fact-specific and the observed nuanced differences, combined with the more significant differences in the general formulation of the standard of care discussed above, may or may not lead to different outcomes in individual cases.
A question that is largely unresolved in most jurisdictions is the process by which courts may rationally evaluate and balance the different factors that play a role in the determination and interpretation of the applicable standard of care. A topical example is the responsibility of a non-executive director who holds a key position in the company, for example chairman of the board or of the audit committee. The relevant considerations that commonly inform the court’s assessment are not necessarily congruent. For example, non-executive directors are generally judged more leniently than executive directors (if not in law, then at least in practice). On the other hand, a director who has particular qualifications and acts within his or her area of expertise, as will often be the case with the chair of the audit committee, is held to a higher standard.125 Some non-European courts have found non-executive directors in comparable positions to be liable,126 but in the EU little guidance exists on the issue. In the wake of the financial crisis courts seem to adopt a less deferential approach, both to managerial decisionmaking and the monitoring activities expected by non-executive directors, but legal uncertainty is relatively high.
As far as monitoring duties of the directors and the consequences of a delegation of functions for the standard of care are concerned, we observe again a fairly coherent general approach throughout the EU. Virtually all jurisdictions hold, either in the statutory law, in case law, or in the literature, that the delegation of tasks does not lead to an exculpation of the delegating director(s). The Member States differ, however, in the specificity and comprehensiveness with which they regulate the problem. Some legal systems have specified clearly how delegation affects the standard of care, whereas others simply state that the failure to monitor the discharge of the delegated tasks may be qualified as negligence. We may, therefore, distinguish between high-intensity and low-intensity regulation of this issue. High-intensity jurisdictions distinguish between two or three elements of the duty of care in the
119Re Barings plc (No. 5) [1999] 1 BCLC 433, confirmed [2000] 1 BCLC 523, CA.
120Re Vehicle Imports Ltd, unreported, High Court, Murphy J, November 23, 2000. For more details see the Irish country report,
121See already the discussion above ‘Standard of care’.
122Art. 1992 Belgian Civil Code.
123Art. 22a(2) Law on Companies.
124Austria: the type of company and specific responsibilities of the director within the company are considered (RIS-Justiz RS0116167); Denmark: directors are judged more strictly if they act in a field in which they hold a professional qualification (J.S. Christensen, Kapitalselskaer (1st ed., 3rd sup., Thomson Reuters Professional 2009)); Germany: the allocation of functional responsibilities among board members influences the behavioural expectations of directors (T. Raiser & R. Veil, Recht der Kapitalgesellschaften (5th ed., C.H. Beck 2010)); heightened expectations if the director acts within the area of his or her expertise (BGH, Judgement of 2 September 2011 - II ZR 234/09, Wertpapier-Mitteilungen (WM) 2011, 2092); Italy: reference in
2392(1) Civil Code to the ‘knowledge, skill and experience that may reasonably be expected of an average director carrying out a similar role’ (emphasis by us); Netherlands: the division of tasks within the board of directors is important (Staleman/Van de Ven, HR 10-01-1997, NJ 1997, 360); Portugal: the standard of care varies according to the functions performed by the directors in the different corporate governance models; Spain: the degree of diligence varies depending on the position of the defendant director on the board. For more details see Table 2.4.2.a above.
125See the references above n 124.
126Australian Securities & Investments Commission (ASIC) v Rich 174 FLR 128 (2003) (holding that the qualifications, experience and expertise of the defendant director, as well as his occupation of the positions of chairman of the board and chairman of the finance and audit committee give rise to particular responsibilities); Australian Securities & Investments Commission (ASIC) v Healey [2011] FCA 717 (finding executive as well as non-executive directors of an investment company to be in breach of duty because they did not identify inaccuracies in the accounts).
101 Directors’ Duties and Liability in the EU
context of delegation. First, the standard of care is applied to the act of delegation, i.e. the director is required to select the person to whom functions are delegated carefully, instruct this person adequately, and provide for training where necessary. Second, the director has to monitor the performance of the delegated tasks. This does not involve day-to-day supervision, but regular monitoring and additional inquiries where reasons for concern or suspicion exist. Where problems are identified, directors are required to take the necessary steps and intervene in the performance of the delegated tasks. Third, it is not sufficient to be reactive, i.e. to act only when a problem arises. Rather, directors are under a continuing duty to familiarise themselves with all relevant aspects of the company’s operations, ensure that they are apprised of new developments, and that systems are in place that facilitate the transmission of information within the business. Some legal systems provide more generally that directors are responsible for the establishment of effective risk management and control systems, which include sound accounting structures and, depending on the size of the business and the industry, additional operational and compliance controls. This latter aspect of the duty of care has become particularly relevant in financial institutions, where the financial crisis exposed significant risk management failures in some institutions.
Examples for high-intensity jurisdictions are the UK, Germany, or Slovenia. However, it should be noted that there is no clear divide between high-intensity and low-intensity jurisdictions. Rather, as the third column of Table 2.4.2.a shows, the countries differ in degrees. In addition, where a legal system has not developed the specific behavioural expectations outlined in the preceding paragraph, this may simply be a function of the lack of case law. These duties are usually not laid down in the statute, or only laid down in general and fragmentary terms.127 The emergence of coherent and comprehensive rules, therefore, requires that the courts have the opportunity to build on and amplify the existing regulatory framework.128
The answers received to Hypothetical III (duty of care) illustrate the degree of legal uncertainty that currently exists in the EU with regard to delegation and monitoring. We assume in the hypothetical that the CEO of a large banking institution repeatedly used ostensibly arms-length transactions with investment firms that were controlled by his nominees to transfer assets at an undervalue to a company owned by himself. We ask whether (1) the members of the audit committee and (2) the other non-executive directors are liable for oversight failure. Table 2.4.2.c shows the general tendency of legal systems to expect more of directors with specific knowledge and expertise, such as members of the audit committee, than of other non-executive directors. However, the table also implies differences in emphasis with regard to the amplification of the duty of directors to supervise internal operations. Some jurisdictions emphasise the heightened responsibilities of the members of the audit committee in financial matters, others the general responsibility of the whole board for the establishment of sound internal control systems. Yet other jurisdictions allow directors to rely on the information provided by colleagues and lower-level managers in most cases, unless specific facts give rise to suspicion. It is difficult to assess in how far these differences in emphasis would lead to different outcomes in litigation. A conclusive assessment of the non-executive directors’ liability would require a much more detailed set of facts, but the table may indicate the general approach of the legal systems to these issues.
127See for Germany s. 91 Stock Corporation Act; for Slovenia Arts. 31, 32 ZFPPIPP. In the UK, relatively detailed provisions on risk management and internal control are contained in the corporate governance code, see UK Corporate Governance Code 2012, C.2.
128A good example for the derivation of specific monitoring and oversight duties from general duty of care standards is the Barings case, cited above n 119.
102 Directors’ Duties and Liability in the EU
Table 2.4.2.c: Duty to supervise
Country |
Audit committee |
Non-executive directors |
|
|
who are not committee |
|
|
members |
|
|
|
Austria |
Members of the audit |
Other members of the |
|
committee have to control |
supervisory board are also in |
|
the books and, in doing so, |
principle subject to a |
|
meet the regular standard of |
negligence standard, but |
|
negligence for supervisory |
they are generally justified in |
|
board members |
relying on the accuracy of |
|
|
the accounts |
|
|
|
Belgium |
A director’s competences or |
The threshold for liability is |
|
membership of a committee |
relatively high, as directors |
|
are not formally elements of |
are not required to monitor |
|
the judicial determination of |
their colleagues |
|
liability, although it cannot be |
|
|
ruled out that courts will take |
|
|
the membership of the audit |
|
|
committee into account |
|
|
when determining the |
|
|
standard of care |
|
|
|
|
Bulgaria |
The members of the audit |
The members of the board |
|
committee must have |
have equal rights and |
|
unlimited access to the |
obligations, regardless of the |
|
financial information of the |
internal distribution of |
|
bank and ensure that the |
functions among them, but |
|
bank’s assets are |
no explicit obligation to |
|
safeguarded against misuse. |
supervise each other. If the |
|
Hence, they are likely to |
transactions are carried out |
|
have breached their duties |
without the knowledge and |
|
by not identifying the true |
participation of the rest of |
|
nature of the ostensibly |
the directors, they will not be |
|
arms-length transactions. |
liable. |
|
|
|
Croatia |
Subject to the same rules as |
All board members are |
|
all board members, but if the |
generally subject to the |
|
audit committee members |
same rules; they are |
|
have special knowledge or |
required to be acquainted |
|
abilities they must use such |
with company transactions |
|
knowledge and abilities |
and must take all reasonable |
|
|
measures to be informed of |
|
|
the actions of the |
|
|
management |
|
|
|
Cyprus |
Uncertain, no case law on |
Uncertain, see right |
|
supervisory duties; some |
|
|
indication that Cypriot courts |
|
|
may follow the old English |
|
|
common law under City |
|
|
Equitable Fire Assurance,129 |
|
129 See In Re City Equitable Fire Assurance Co. [1925] Ch 407. According to this decision, non-executive directors are entitled to rely upon the judgment, information and advice of the executives. They are under no obligation to examine the company’s
103 Directors’ Duties and Liability in the EU
|
which is a light-touch |
|
|
approach |
|
|
|
|
Czech Republic |
The audit committee must |
Other directors may be liable |
|
assess the effectiveness of |
if they should have |
|
internal auditing and risk |
recognised that the |
|
management. If they |
transactions are damaging |
|
negligently failed to establish |
to the company |
|
and assess such systems, |
|
|
they are liable. |
|
|
|
|
Denmark |
Liable if information was |
Even if the audit committee |
|
available to the audit |
members are liable, liability |
|
committee members that |
may not extend to the other |
|
indicated that there was a |
members of the board, |
|
problem |
unless the alarming |
|
|
information was also |
|
|
available to them. A director |
|
|
cannot excuse himself by |
|
|
arguing that he relied on the |
|
|
audit committee to discover |
|
|
any wrongdoing. |
|
|
|
Finland |
The members of the audit |
Same standard as for audit |
|
committee are liable if the |
committee members: they |
|
real nature of the |
are liable if they had reason |
|
transactions taken by the |
to doubt the true nature of |
|
CEO was evident from the |
the transactions on the basis |
|
information received by the |
of the information available |
|
audit committee or there |
to them. They may have had |
|
were other reasons to doubt |
less possibility than the audit |
|
the true nature of those |
committee members to |
|
transactions |
notice the suspicious |
|
|
transactions and it is |
|
|
possible that only the latter |
|
|
are liable. |
|
|
|
France |
Members of the audit |
Directors are generally not |
|
committee are not subject to |
required to monitor their |
|
specific liability rules or a |
colleagues. If a director |
|
separate standard of care in |
provides incorrect |
|
light of their position and/or |
information to them or |
|
expertise. However, if the |
deceives them, they will |
|
board of directors is held |
probably not be held liable |
|
liable for having approved |
for not having identified the |
|
the transaction, members of |
incorrect statements, unless |
|
the audit committee will face |
they were obvious. |
|
a secondary action by other |
|
|
members of the board in |
|
|
order to share a larger |
|
|
portion of the damages by |
|
|
arguing that they are more |
|
|
|
|
books and records. The decision is no longer fully applicable in the UK, where the rules have become more stringent in the wake of the Barings decision (above n 119). See also the discussion above, text to n 108.
104 Directors’ Duties and Liability in the EU
|
liable. |
|
|
|
|
Germany |
Board members who have |
Other members of the |
|
specific knowledge or skill in |
supervisory board are also |
|
a particular area such as |
under an obligation to |
|
accounting are required to |
monitor the activities of the |
|
meet a higher standard of |
management. Therefore, |
|
care when acting in their |
they may also be found |
|
area of expertise. Depending |
liable in the present case, |
|
on the quality of the control |
but what is expected of them |
|
structures in place, the |
may in practice be less than |
|
frequency with which the |
what is expected of the |
|
related transactions |
members of the audit |
|
occurred, and the value of |
committee if they lack expert |
|
the transactions the directors |
knowledge in accounting |
|
should have recognised the |
and such knowledge was |
|
irregularities and |
necessary to identify the |
|
investigated further. |
irregularities. |
|
|
|
Greece |
The diligence of the prudent |
Failure to monitor is |
|
businessman is determined |
considered to be a breach of |
|
in light of the capacity of the |
the duty of care, but the |
|
directors and the duties |
hypothetical is difficult to |
|
assigned to them. Therefore, |
assess due to the lack of |
|
presumably more is |
guidance from case law |
|
expected of members of the |
|
|
audit committee, but difficult |
|
|
to assess due to the scarcity |
|
|
of case law. |
|
|
|
|
Hungary |
The directors may have |
The directors may have |
|
breached their duty to |
breached their duty to |
|
supervise, but there is no |
supervise, but there is no |
|
case law or legislation |
case law or legislation |
|
indicating how this case |
indicating how this case |
|
would be decided |
would be decided |
|
|
|
Ireland |
Case law in the area of |
A duty to monitor is |
|
disqualification in relation to |
expected in relation to other |
|
banks in Ireland indicates |
directors but it is difficult to |
|
that directors are under a |
identify the circumstances |
|
duty to inform themselves |
where the other directors will |
|
appropriately in relation to |
be in dereliction of their duty |
|
the company’s affairs. The |
in failing to spot a complex |
|
members of the audit |
transaction as being |
|
committee would be |
connected with one of the |
|
expected to use their |
directors. If they have |
|
expertise in accounting to |
relevant financial expertise, |
|
identify the irregularities. |
they would be expected to |
|
|
exercise it. And if they do not |
|
|
have it, they would be |
|
|
expected to take steps to |
|
|
educate themselves. |
|
|
|
Italy |
Liability is likely since |
Unclear |
|
|
|
105 Directors’ Duties and Liability in the EU
|
|
members of the company’s |
|
|
|
|
|
internal audit committee are |
|
|
|
|
|
supposed to be able to |
|
|
|
|
|
identify the true nature of the |
|
|
|
|
|
ostensibly arms-length |
|
|
|
|
|
transactions in carrying out |
|
|
|
|
|
their duties in accordance |
|
|
|
|
|
with the knowledge, skill and |
|
|
|
|
|
experience that may |
|
|
|
|
|
reasonably be expected of |
|
|
|
|
|
an average director carrying |
|
|
|
|
|
out a similar role. They must |
|
|
|
|
|
also use the specific care |
|
|
|
|
|
and competence that the |
|
|
|
|
|
individual member may |
|
|
|
|
|
have. |
|
|
|
|
|
|
|
|
|
|
The Netherlands |
The members of the audit |
The other board members |
|
|
|
|
committee may be held |
may also be held liable as all |
|
|
|
|
liable for not being cautious |
board members should take |
|
|
|
|
enough while monitoring the |
sufficient care when fulfilling |
|
|
|
|
CEO’s actions. In case law |
their specific supervisory |
|
|
|
|
the specific knowledge and |
tasks; they bear a collective |
|
|
|
|
expertise a member of the |
responsibility for the |
|
|
|
|
supervisory board is deemed |
performance of the |
|
|
|
|
to have could be a factor |
company. However, possibly |
|
|
|
|
determining the outcome in |
a lower standard applies |
|
|
|
|
court proceedings. This may |
than the one outlined to the |
|
|
|
|
apply to the members of the |
left (because possibly no |
|
|
|
|
audit committee. |
specific knowledge in |
|
|
|
|
|
|
accounting/finance) |
|
|
|
|
|
|
|
|
Poland |
Duty to monitor exists, but |
The members of the |
|
|
|
|
whether the members of the |
supervisory board have the |
|
|
|
|
audit committee have |
duty to monitor the |
|
|
|
|
violated their duties in the |
management, but whether |
|
|
|
|
present case is difficult to |
the directors have violated |
|
|
|
|
judge due to the lack of |
their duties in the present |
|
|
|
|
guidance in the case law |
case is difficult to judge due |
|
|
|
|
|
|
to the lack of guidance in the |
|
|
|
|
|
case law |
|
|
|
|
|
|
|
|
Portugal |
Liability is likely; the |
Liability is likely if the |
|
|
|
|
members are subject to a |
directors failed to identify the |
|
|
|
|
particularly high standard of |
wrongdoing of the CEO due |
|
|
|
|
professional care |
to the lack of appropriate |
|
|
|
|
|
|
monitoring |
|
|
|
|
|
|
|
|
Romania |
Presumably the members of |
Directors are not required to |
|
|
|
|
the audit committee would |
supervise their colleagues. |
|
|
|
|
be subject to a higher |
|
|
|
|
|
standard of care, but unclear |
|
|
|
|
|
how this case would be |
|
|
|
|
|
decided |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
106 |
Directors’ Duties and Liability in the EU |
Slovenia |
Members of the audit |
Directors are not explicitly |
|
committee would effectively |
required to monitor their |
|
be held to a higher standard |
colleagues on the board. |
|
of care because they would |
However, the supervisory |
|
be expected to take |
board is required to monitor |
|
advantage of their auditing |
the management board; |
|
expertise |
members of the supervisory |
|
|
board may be in breach of |
|
|
their duty if they could have |
|
|
identified wrongdoing by the |
|
|
CEO, but did not do so. |
|
|
|
Spain |
It does not seem to be the |
Outside directors are not |
|
case that members of the |
liable for the actions of the |
|
audit committee are subject |
executive management |
|
to a higher standard of care |
unless in cases of fault in |
|
than other directors; they |
eligendo, in vigilando or in |
|
also do not have to have |
instruendo. On the other |
|
specific expertise |
hand, they are liable to the |
|
|
company if they negligently |
|
|
perform the tasks that are |
|
|
assigned to them as non- |
|
|
executive directors. |
|
|
Monitoring is one of them. |
|
|
|
UK |
No liability if the directors |
The extent of the duty to |
|
took care that internal |
supervise depends on the |
|
controls were in place to |
director’s role in the |
|
provide for the reporting of |
management of the |
|
the transactions. If on the |
company. It was held that |
|
other hand the directors |
the duty of directors to |
|
were aware of the red flags |
question accounts prepared |
|
but did not take any steps to |
by the company’s finance |
|
address the issues they may |
director was limited to |
|
be found liable. |
matters which would have |
|
|
been apparent to a man of |
|
|
the director’s business |
|
|
experience and knowledge. |
|
|
However, all directors have |
|
|
responsibility for the |
|
|
existence of internal control |
|
|
structures (see left). |
|
|
|
107 Directors’ Duties and Liability in the EU
2.4.3 Business judgement rule
Summary of the country reports
Table 2.4.3.a: Business judgment rule and similar mechanisms to address risk aversion
Country |
Adoption of an |
Threshold |
Burden of proof |
Possibilities for |
|
||
|
|
institution |
requirements for |
for the threshold |
liability when the |
|
|
|
|
comparable to |
the protections |
requirements |
protections |
|
|
|
|
the US business |
of the BJR to |
|
apply |
|
|
|
|
judgment rule |
apply |
|
|
|
|
|
|
(BJR) in statute |
|
|
|
|
|
|
|
or case law |
|
|
|
|
|
|
|
|
|
|
|
|
|
Austria |
No explicit BJR, |
- |
|
- |
- |
|
|
|
|
but long-standing |
|
|
|
|
|
|
|
acceptance by the |
|
|
|
|
|
|
|
courts that |
|
|
|
|
|
|
|
directors have a |
|
|
|
|
|
|
|
margin of |
|
|
|
|
|
|
|
discretion when |
|
|
|
|
|
|
|
taking business |
|
|
|
|
|
|
|
decisions. Some |
|
|
|
|
|
|
|
commentators |
|
|
|
|
|
|
|
argue that the |
|
|
|
|
|
|
|
margin of |
|
|
|
|
|
|
|
discretion afforded |
|
|
|
|
|
|
|
to directors under |
|
|
|
|
|
|
|
Austrian law is |
|
|
|
|
|
|
|
more effective in |
|
|
|
|
|
|
|
shielding directors |
|
|
|
|
|
|
|
from liability than |
|
|
|
|
|
|
|
some codified |
|
|
|
|
|
|
|
BJRs, such as the |
|
|
|
|
|
|
|
German BJR. |
|
|
|
|
|
|
|
|
|
|
|
||
Belgium |
Courts accord |
No threshold |
- |
- |
|
||
|
|
directors a ‘margin |
requirements, but |
|
|
|
|
|
|
of discretion’; they |
breach must |
|
|
|
|
|
|
will not interfere |
involve an |
|
|
|
|
|
|
with business |
obligation of |
|
|
|
|
|
|
decisions if the |
means. In case an |
|
|
|
|
|
|
director’s act falls |
obligation of result |
|
|
|
|
|
|
within that margin |
is breached, the |
|
|
|
|
|
|
|
director bears the |
|
|
|
|
|
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|
burden of proof. |
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Bulgaria |
Literature: the |
Literature: the |
Burden of proof |
- |
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duty of care is |
directors must |
for all elements of |
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procedural in |
make an objective |
liability is on the |
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character; it does |
assessment and |
claimant |
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not apply to the |
act on an |
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content of the |
informed basis |
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decision taken, |
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e.g. whether it is |
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in the interests of |
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the company |
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Croatia |
Yes, in s. 252(1) |
1) Entrepreneurial |
Director |
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decision (not |
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108 |
Directors’ Duties and Liability in the EU |
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applicable to |
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supervisory |
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board) |
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2) Director must |
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reasonably |
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believe that he |
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acts in the best |
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interest of the |
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company |
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3) Not excessively |
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risky (to be judged |
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objectively) |
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4) Based on |
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appropriate |
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information |
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5) No conflict of |
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interest |
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6) Good faith |
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Cyprus |
No BJR |
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Czech Republic |
No |
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Denmark |
Yes, developed by |
1) Business |
Claimant |
Claimant must |
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the courts: the |
decision |
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show that the |
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courts are |
2) Directors have |
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directors |
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reluctant to |
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exercised their |
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informed |
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intervene in |
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discretion |
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themselves of all |
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business |
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recklessly |
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material |
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decisions if the |
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information |
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threshold |
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reasonably |
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requirements are |
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available to them |
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satisfied |
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3) No disloyal |
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behaviour |
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Estonia |
Liability for any |
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type of |
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negligence, no |
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clear expression |
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of the BJR. |
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However, the |
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courts distinguish |
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between the |
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decision-making |
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process and the |
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outcome of the |
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director’s act and |
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have held that |
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directors are not |
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liable solely for |
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the reason that |
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their business |
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decisions were |
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detrimental to the |
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company |
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Finland |
Not expressed in |
If the directors |
Claimant, unless |
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the Companies |
have based their |
burden of proof |
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109 Directors’ Duties and Liability in the EU
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Act, but the |
decision on |
reversed (see |
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preparatory works |
information that is |
above Table |
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to the Act refer to |
sufficient and |
2.4.2.a for more |
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the BJR and |
appropriate, |
details) |
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acknowledge that |
considering the |
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risk-taking is |
circumstances, |
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characteristic for |
they will not be |
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business and that |
held liable. |
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decisions are |
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typically made |
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under conditions |
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of uncertainty. |
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France |
No BJR, but |
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French courts are |
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not likely to |
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second-guess |
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business |
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decisions as long |
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as the company |
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does not become |
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insolvent |
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Germany |
Yes, s. 93(1), |
1) Management |
Director |
No |
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sentence 2 |
decision |
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2) The director |
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reasonably |
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believes to act for |
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the good of the |
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company |
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(subjective, but |
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the director is not |
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protected if he |
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misjudged the |
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risks of a business |
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decision in an |
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irresponsible way) |
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3) No conflict of |
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interest |
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4) Based on |
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appropriate |
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information |
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Greece |
Yes, Art. 22a |
1) Business |
Director |
Rationality review |
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decision |
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exists, but |
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2) Reasonable |
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belongs to the |
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threshold criteria |
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3) In the |
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that have to be |
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company’s best |
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shown by the |
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interests |
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director (the |
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4) Good faith |
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decision must |
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5) Based on |
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have been |
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reasonable) |
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sufficient |
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information |
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6) No conflict of |
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interest |
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Hungary |
No explicit BJR, |
- |
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- |
- |
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but courts do not |
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110 |
Directors’ Duties and Liability in the EU |