Gudula Deipenbrock, Iris H-Y Chiu, Editorial Introduction: Directors Civil Liability and Directors Duties Current Issues from the National and Comparative Company Law View
Gudula Deipenbrock, The Business Judgment Rule and the Problem of Hindsight Bias Observations from a German Company Law Perspective
This paper introduces selected aspects of the German Business Judgment Rule (German BJR). The German BJR is explored in context with the internal liability of a member of the management board of a German stock corporation,Aktiengesellschaft (German AG). Recent rather spectacular litigations involving the liability of company organs have provoked a debate in Germany on whether or not the internal liability of the organ vis-à-vis the company under German law should be reformed. Against this backdrop controversies surrounding the effectiveness of the German BJR have also gained momentum. The German BJR is viewed mainly as a tool to limit the internal liability of company organs, in particular that of a member of the management board of a German AG. Is the German BJR in this context an effective legal instrument? Or does it rather require a reform to achieve its ambitious legislative goals? These questions stimulated the interest in analysing this topic in this paper which aims to prepare the way for responses. The tour d’horizon regarding the German BJR might not only allow a better understanding of the internal liability regime of a German AG which has become an issue of considerable practical importance. It also aims to provide some more general insights into German legal reasoning and the ‘operation’ of the German law of stock corporations (Aktienrecht). Its findings might not only be instructive to the practice of courts and practitioners of other legal systems in the realm of directors’ civil liability. As a concise ‘country report’ on the German BJR it could also be used as a basis for further comparative law explorations.
This article examines the issue of directors’ duties and civil liability from a Japanese perspective, particularly in the group context. Regulation of group companies has been widely discussed in the company law debates of Japan, but the article focuses on the reform initiative that resulted in the amendment of the Japanese Companies Act in 2014. Directors’ duties and civil liability have always been central in company law. However, when we place it in the group context, multiple difficulties arise and the facts that may require special protection could vary. The article analyses how the past and present Japanese company law, including the 2014 amendments, has attempted to cope with the multiple difficulties surrounding regulation of parentsubsidiary companies and protection of stakeholders of either company, in some typical patterns of the facts, and consider the remaining issues towards future.
The author reviews three recent Scottish cases in company law – Eastford v. Gillespie, Naxos and William Campbell. These cases add to the discussion of a number of issues in company law such as the role of the common law in the sections on directors’ duties of the 2006 Companies Act, lifting the corporate veil and generally a director’s civil liability for breach of statutory duty and in particular failure to arrange employers’ liability insurance. The author critically evaluates these cases in the context of Scots law within the UK and explains how these can be seen to develop a distinct Scottish view on company law matters while contributing to the development of UK company law as a whole. The author also considers relevant legislative initiatives on the part of Scottish and UK governmental bodies and Parliaments.
Iris H-Y Chiu, Comparing Directors Duties in the Financial Services Sector with Regulatory Duties under the Senior Persons Regime- Some Critical Observations
Directors in the financial services sector are accountable to regulators in respect of the discharge of these obligations and the history of enforcement by financial services regulators in the UK has shown that tough sanctions are meted out. Directors’ duties in general corporate law are however owed to the company as a whole, and are enforced by the company, shareholders through derivative litigation or liquidators at winding up. Civil enforcement against directors in company law has been quiet in the UK in spite of the revelation of senior level failures in banks in the global financial crisis of 2007–9.
Questions may be asked as to why the directors’ duties regime in company law seems ineffective to address senior level weaknesses in the banks embroiled in crisis in 2007–9, and continue to appear unable to hold senior figures to account in the more recent episodes of bank malpractice and mis-selling. Further, with the advent of the regulatory regime governing senior persons’ conduct in the financial services sector, it is queried whether the regulatory regime will become the main means of discipline for senior persons, making the directors’ duties regime irrelevant.
This article examines the relationship between the two legal regimes, and seeks to eludicate the role of regulatory governance of directors in the financial services sector alongside the directors’ duties regime in company law. This article argues that directors’ duties in company law serve different purposes from the regulatory regime for senior persons’ conduct in the financial services sector, and hence the approach taken to separately regulate directors’ conduct in financial services is a correct one. The regulatory regime is intended to encourage greater senior level internalisation of important public policy objectives that cannot be introduced in company law. It will be argued that the regulatory regime should be seen as a distinct mode of prudential and conduct regulation in financial services, and not as a form of governance that eclipses the enforcement of directors’ duties under company law. The interface between the two regimes should not result in the marginalisation of the company law regime and can indeed lead to better mitigation of information asymmetry for the purposes of civil enforcement of directors’ duties under company law. The article however provides some cautionary notes regarding the impact of the regulatory regime on directors’ conduct which will inevitably overlap with their accountability under the company law regime.
As opposed to other areas of company law, directors’ duties have not been the subject of any extensive harmonization at the European level. The system of directors’ duties in the EU continues to be characterized by a variety of approaches and legal strategies. However, the practical effect of the legal strategies deployed in the Member States, which have been in focus, is often quite similar. A very good example is the business judgment rule. The duty of loyalty shows greater variance than the duty of care. In UK law directors’ duties are regulated in quite detailed manner, especially the duty of loyalty. But in Germany, France and the Scandinavian countries the duties are not comprehensively regulated and the law relies on general principles based on fiduciary and agency laws
The objective of this study is to explore to what extent freedom of expression should protect food businesses against government intervention with corporate communications on food labels. A functional comparative method was used to analyse the objective. It was found that expression on food labels should be considered primarily commercial in nature. In the USA some food labelling regulations are considered inconsistent with the freedom of commercial expression. EU courts seem to uphold government restrictions to commercial expression in all cases, especially when restrictions are based on protection of human health. It can be concluded that food businesses should only be able to claim free speech rights on food labels when it is of importance to the public or consumers.
This article advances an argument that private enforcement of European Union (EU) rights has largely been stunted due to a series of blocking tactics by Member States, enabled through a form of tacitic subservience of the Court of Justice of the European Union. Currently, State Liability is neither an effective system of redress under tortious liability, nor a genuine enforcement mechanism in domestic law. By enabling collective redress in State Liability, we present an argument, missing explicitly in current literature, that both as a viable remedy through the (UK’s modified) tort of breach of statutory duty, and through granting effective redress through action by the EU Commission, State Liability will become the mechanism for corrective justice the Court of Justice envisaged in 1991. In 2011, the EU Commission issued a nonbinding Recommendation establishing collective redress for breach of competition law. Could this be seen as positive positioning by the EU to seize the initiative for greater access to individuals of justice and justiciable solutions?
Francesco De Pascalis, Investors and Market Particiants Over-Reliance on External Credit Ratings: To What Extent Does EU Law Carry This Risk?
The risk of over-reliance on external credit ratings by investors and market participants was highlighted in the context of the recent post-crisis credit rating agencies’ reforms. This problem stems from the inclusion of credit ratings into legislation. Accordingly, regulators agreed upon an approach based on a review of the credit rating references found in legislation and regulatory frameworks. At the EU level, this approach has been set out in the European regulation of CRAs. This paper aims to investigate the hardwiring of credit ratings into the EU’s financial legislation in order to assess the extent to which this poses a significant risk of over-reliance. The present analysis relies on the outcomes of the recent joint report that the European supervisory authorities has issued with regard to the risk of over-reliance on credit ratings in their own recommendations, guidelines and draft technical standards. These can form the platform for a wider discussion on the degree of importance that European regulators gave to credit ratings in legislation and regulatory frameworks.
This article points out a shift in the “human corporate self-apprehension” where profit maximization is not the sole reason for incorporation or investment. Public Benefit Corporation is a new type of a corporate vehicle. Its incorporation and functioning is regulated by the same legislation that applies to a traditional limited liability company. Its main distinctive attributes are corporate purpose, accountability of its management, and transparency requirements. Although, a Public Benefit Corporation does not impose any revolutionary amendments to the way the traditional corporations are, it offers a legal framework where public benefit is more important than profits. As a corporate entity, Public Benefit Corporation already exists in numerous jurisdictions and those jurisdictions that do not yet facilitate creation of this corporate form should most definitely consider it.
Karsten Engsig Sørensen, Groups of Companies in the Case Law of the Court of Justice of the European Union
Despite the fact that there has only been limited harmonisation of the rules on groups of companies in the EU, the Court of Justice of the European Union has often had to rule on cases involving groups of companies. The Court must make such rulings when considering how to treat groups of companies under Union law, including whether to treat a group as a single enterprise or as several companies. This article analyses the Court’s approach to groups in various areas of Union law with a view to establishing when a group will be treated as a single enterprise. The Court has also had to consider whether national rules on groups of companies comply with the fundamental Treaty rules on freedom of movement. The latter part of this article analyses how the Court can be expected to examine whether national rules on groups discriminate against or impose restrictions on cross-border groups of companies.
Lars Gorton is a professor emeritus presently connected to the Stockholm Centre of Commercial Law at the Stockholm University Law faculty. He has previously been engaged as professor of Banking Law at the university of Lund and as professor adiunct at the Stockholm School of Economics and the Copenhagen Business School. He is presently mainly engaged with matters related to General Commercial Law including Financial and Credit law. This article presents some overview of commercial law developments in the EU against a wider context.