D&O Risk & Liability 2016


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The corporate world is changing, and most directors and officers would agree that they face an increased risk of potential liability. In 2016 criminal, civil and regulatory actions can all pose threats to D&Os, their personal assets and their reputation. Since the financial crisis sent shockwaves around the global economy, D&Os have come under increased pressure, and there is seemingly no end in sight. Legislative and regulatory changes are afoot across a number of jurisdictions, placing them in the firing line. D&Os and their companies must steel themselves against the myriad risks they face in 2016.



Brady Head


 “Regulatory scrutiny has increased, particularly at the SEC, Department of Justice and in many attorneys’ offices. Recently the SEC has entered into many non-prosecution agreements (NPAs) and deferred prosecution agreements (DPAs) with companies in exchange for their cooperation in firing and helping to prosecute individual wrongdoers. In relation to FCPA investigations, the SEC has made it clear that self-reporting of violations is a necessary prerequisite to the possibility of a company being offered a NPA or DPA. The recent Yates Memo about significant changes to the US Attorneys’ Manual relating to “principles of federal prosecution of business organisations” emphasises “the primacy in any corporate case of holding individual wrongdoers accountable” and lists many steps which prosecutors are expected to take in order to “maximise the opportunity” of achieving this goal.”



Diane Parker

Allied World Insurance Company

 “Investigations by securities regulators, especially in Ontario and Alberta, are becoming longer, more complex and more expensive as those regulators are requiring production of a wide range of corporate documents. With the Ontario Securities Commission’s new whistleblower policy, expected to become effective later in 2016, we expect to see an increase in the number of these investigations.”



Flavio Sá

AIG Brazil

“The current scenario Brazil is facing, from waves of investigations to the economic downturn, has led to a substantial increase in exposure for D&Os, which in turn has impacted the market. In the current market, there is a greater expectation in the right to be protected from a loss in almost any situation, especially given the recent trend of individuals being held personally liable for management-related decisions, including through administrative proceedings. This scenario has resulted in increased losses for the market.”



Alejandro M. Guerrero

Marsh Argentina & Uruguay

“Frequently, different countries are passing state legislation and administrative regulations that impose personal responsibility on D&Os for their actions when conducting business. As a consequence of such pressure, other stakeholders, such as creditors, customers and suppliers, demand to have proof of proper coverage to assure compliance with local requirements before doing business.”



Paul Rayner

Tokio Marine HCC

“When appointed to the board of directors of a UK domiciled company, or acting as its secretary or senior manager, one accepts exposure to potential personal liabilities. Under the Insolvency Act 1986, liquidators can request a court order that a director contribute with personal assets should the director be found to have known the company would enter insolvency and not act to minimise loss to company creditors. Strengthened regulation for consumer facing businesses presents itself under the Consumer Rights Act 2015, and extends consumer rights. Under the Bribery Act 2010 or the Health & Safety Act 1974, when directors ought to have or are found to have knowledge or consented to an offence of which the company is convicted, these directors face possible disqualification over a period of time, an unlimited fine, or even imprisonment. When conduct breaches and legal or regulatory infringements are discovered, firms usually undertake internal investigations.”



Esther den Boer

AIG Netherlands

“Generally speaking, an uptick in D&O claims is noted, as various business parties, creditors and customers are seeking someone to blame for the losses being experienced. Due to new legislation, the maximum fines and penalties that Dutch regulator the Netherlands Authority for Consumers and Markets (ACM) can impose are being doubled. Investigations by the ACM are on the rise and any negative implications for directors could trigger a D&O policy. Creditors including the trustee remain focused on potential D&O liability in bankruptcy cases. Another development is that other types of claims, such as E&O or general liability (GL) claims, are naming directors and officers, to seek compensation not only under the appropriate E&O or GL insurance policies, but additionally under the D&O insurance. In these instances, the D&O insurance is being seen as a last resort to recover damages.”



Michael Unglaub

AIG Germany

“We see a clear trend that regulators are becoming more aggressive in pursuing both companies and their management. We are also seeing a ‘domino effect’, where other stakeholders, such as customers and suppliers, often become legally involved after a public proceeding or investigation of a company. In the past year, Germany has had some significant D&O cases that have fuelled the interest of the public and led to various public debates around D&O liability.”



Christoph K. Graber

Prager Dreifuss Ltd.

“There has been a striking increase in corporate disputes that are fought on the D&O battlefield. In my experience, there has been a rise of insured vs. insured claims, for example in the form of liability claims of the corporation against former management or former members of the board of directors. More and more, these claims are reciprocal in nature, taking the form of claims and counterclaims. This is the case, for example, if the current board of directors accuses the former board of directors of squandering company assets in costly proceedings involving substantial legal fees and business assessment costs, while the former board of directors then turns around and accuses the current board of directors of doing the same by initiating these proceedings in the first place. This type of dispute is fought at the expense of the D&O insurer.”



Ignacio Figuerol

Clyde & Co

“Not all regulators are equally active in Spain. The financial and competition regulators are probably the most active, and even if their investigations or disciplinary proceedings may not include the directors or officers of the investigated company, their resolutions are usually the basis for a future civil or criminal action. On a separate front, a factor of concern is that the Spanish government has decided not to extend for a further year the exemption for calculating losses due to impairment of real estate assets in cases of mandatory capital reduction, and mandatory dissolution in limited companies – the exemption was established in 2008 as a consequence of the collapse of the real estate market, and had been extended over the years. Hence, following the annual accounts of 2015, to be produced in the first quarter of 2016, a significant number of Spanish companies are likely to be in a situation which will require a capital increase or the dissolution of the company, and failure to do so will, under the Spanish Companies Act, trigger the liability of the directors for the debts of the company.”



Giovanna Aucone

PG Legal

“D&O policies were developed in Italy later than in other countries. This is the result of two elements: the amendments carried out to Italian Company Law and the liability that D&O policies seem to cover. The Italian Civil Code, the company’s articles of incorporation and its bylaws constitute the principal sources of the duties of directors. In managing a company, directors should carry out their duties according to the law, articles of incorporation and bylaws with due diligence. In Italy, legal disputes and court decisions that sentence managers for non-compliance with due diligence required by law are increasing. D&Os’ assets may be attached by the company, minority shareholders, company creditors, the receiver in bankruptcy, as well as other third parties.”



Ronnie Wallén

AIG Sweden

“In recent years we have seen an increased level of investigations from regulators, but with a focus upon anti-competitive and corruption investigations. However, we don’t see a high volume of regulatory activity compared to other countries and most cases are found in foreign subsidiaries of Swedish companies. International cross-border cooperation also results in an increased risk. It is worth noting that trends that are seen elsewhere – in the UK or US, for example – will eventually reach our region, but it is difficult to predict exactly when and to what extent.”



Gaurav Wahi

Tokio Marine HCC

“There have been a number of examples in India recently where tough posturing by stakeholders has led to the C-Suite backing off from controversial decisions. As an example, Sun Pharma shelved plans to invest in a wind energy project in the US through its subsidiary Taro Pharma after investors angrily dumped the stock, leading to a 6 percent drop in share price within five days of the announcement. The stock recovered 4 percent after the company rolled back its plans and decided not to invest in unrelated businesses. In another case, DCB Bank had to alter its expansion plans following a backlash on the bourses. Its stock crashed 20 percent after the bank announced an aggressive expansion plan to set up more than 150 branches over a 12-month period. It seems that shareholders will not tolerate boards that do not allocate capital efficiently or put money into unrelated businesses that produce lower returns.”



Harrison Jia

DeHeng Law Offices

“While the Chinese economy is growing and has become the second largest in the world, compliance pressure on Chinese companies from regulators, creditors, customers and suppliers against bad faith activities of corporate directors and offices is increasing. Scandals due to D&Os’ violating their fiduciary duties frequently arise. Chinese laws provide the general legal framework, including the Company Law, the Enterprise Bankruptcy Law and the Securities Law and related regulations and rules, which impose personal liabilities on corporate directors and officers who violate their duties. The regulators, such as the State Administration for Industry and Commerce and its local counterparts, will make frequent examinations of business activities and impose administrative fines if they uncover violations of D&Os’ fiduciary duties.”



Ewen McKay

XL Catlin

“There is little doubt that the pressure on Australian D&Os and their personal liability has been unrelenting from all quarters over the last 12 months. In particular, the Australian Securities & Investments Commission (ASIC) has signalled a number of material changes in its approach to enforcement that have ramifications for company executives. Whilst ASIC has long had the power to recover the cost of investigations, it has rarely used it. ASIC has recently reviewed this approach and announced that it will more frequently seek to recover the costs of an investigation from the person who has caused those costs to be incurred. ASIC has also announced an increased focus on corporate culture with cultural indicators influencing the nature and scope of corporate surveillance, and looking to hold D&Os personally accountable and responsible for poor corporate culture.”



Kenneth van Sweeden

Auto & General

“Boards of directors face an unprecedented degree of scrutiny. Attention from regulators and other stakeholders increases the pressure placed on boards to perform their duties to the highest standards. We have seen an increase in the number of enquiries into the affairs of some businesses by regulators. Allegations such as collusion and price fixing have all come under scrutiny of late. The National Credit Regulator (NCP) in particular has been harsh on certain practices used by some micro-lenders and has taken an active role to address what they deem to be “less than ethical” practices.”



Allied World Insurance Company

Clyde & Co

DeHeng Law Offices

Marsh Argentina & Uruguay

PG Legal

Prager Dreifuss Ltd.

Tokio Marine HCC

XL Catlin

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