The recent tide of public opinion has turned against the traditional argument that overwhelming directors with personal liabilities could be detrimental to the viability of the business sector. It is ...felt that directors may feel obliged to insist on a zero‐tolerance approach to risk taking which would stymie economic growth. This chapter considers whether policymakers have found the right balance between these two competing considerations. It argues that there is invariably a significant gap between the law on the books, and the extent to which shareholders, regulators, and courts are willing to enforce sanctions on individual directors. The chapter explores why directors' legal duties and obligations are necessary, and relates this need to the actual legal frameworks of corporations. It assesses if these duties translate into material personal liabilities (financial or criminal) for board members. The business judgment rule makes it extremely difficult to sue directors for bad decisions on the basis of company law.
Fraudulent phoenix occurs when the managers of a company, with the aim of avoiding some or all of its legal obligations, declare the company bankrupt and continue their business by creating a new ...company. One of the most important debts that remain unpaid during this operation is the company's tax debt. In section 198 of Iranian Direct Taxes Law, the legislator has held managers jointly and severally liable for paying the company's taxes. The subject of this research is to discuss the similarities and differences between the legal systems of Iran and Australia in relation to the liability of managers for tax debts arising from fraudulent phoenix activities. The result of the research shows that in Iran, unlike Australia, it is not possible to release managers from the responsibility of paying taxes of a bankrupt company under any excuse or defense. Also, while in Iran managers are responsible for paying all sources of taxes, in Australia directors are only responsible for paying taxes in which the company is the tax collector and not the actual payer. Nevertheless, there are similarities between the two systems in terms of responsibility of managers and stipulation of other restrictions for directors. Given the inflexibility of the regulations in Iran, it is suggested that the legislator changes the basis of manager’s liability to presumed fault liability and provide the opportunity of defense for managers who have taken all reasonable measures to fulfill their tax obligations but have not succeeded. It is also necessary to establish regulations regarding disqualification of directors who have been involved in the bankruptcy of numerous companies.
What is the role of 'assumption of responsibility' when determining directors' liability in negligence to third parties? A recent decision of the English High Court of Justice confirms that, so far ...as the English courts are concerned, 'assumption of responsibility' is a threshold test for establishing liability. This test requires conduct that would lead a third party to conclude that the director intended to assume personal responsibility. However recent academic writing argues that assumption of responsibility is not a threshold test, but rather a subset of proximity. This note suggests that a preferable approach, which is the approach taken by New Zealand courts, is to apply a two-stage proximity plus policy inquiry, which enables the court to address policy considerations relevant to imposing liability on directors.
Climate litigation against companies has increased significantly in the past couple of years. At the same time, regulation with respect to climate change is developing rapidly, such that it may be ...difficult for companies to identify which laws apply to them and how they should address the legal risks relating to climate change and climate litigation. This paper discusses court rulings which could be considered 'landmark cases' since they are the first to assess questions around the responsibility for climate-related damages and the curbing of CO
2
emissions, and highlights climate litigation proceedings that are still pending, illustrating the types of claims which may be expected going forward. It then outlines the risks for companies or their boards of directors to be sued for alleged damages relating to climate change or greenwashing, illustrated by an analysis under Swiss laws, and provides concrete measures for boards of directors and the management of companies to minimise these risks.
Business judgment rule Kovačević, Tijana
Strani pravni život,
2020, Letnik:
2020, Številka:
2
Journal Article
Recenzirano
Odprti dostop
In this paper the author shows the shortcomings of the business judgment rule in the Serbian Company Act. Business judgment rule is a judicially created American doctrine that has gained widespread ...popularity in other countries. The trend of legal transplanting has not bypassed our country, and for this reason it is very important to define this rule and to properly understand the reason for its existence. Because of that the first part of this paper is dedicated to analysing the onset and deployment of this specific rule. Although the core of this paper is aimed at defining the subset of people who are protected by this rule, it is as well aimed at determining the precedents needed to get this protection mechanism operational. These conditions actually construct duty of care and are used to define the business judgment rule, and are not unanimously accepted in all law systems. In the paper these conditions have been individually analysed: 1. business decision; 2. absence of conflict of interest; 3. good faith; 4. informed decisions making; 5. the care of a prudent business person and 6. honest belief that the decision was in the company's best interest. The final segment of this paper shows the reverse distribution of the burden of proof which undermines the efficiency of the protective role of the business judgment rule.
This article compares reforms to directors' liability for insolvent trading in Singapore and in Australia. We analyse the law in these two countries because they are important Asia‐Pacific trading ...partners and their laws were originally largely the same—Singapore's law on insolvent trading reflected the law in Australia from the 1960s. However, the law in the two countries has now diverged substantially. The comparison of these two countries therefore represents an interesting case study in how countries differ in their approaches to balancing the competing interests evident in laws that impose personal liability on company directors for insolvent trading. Reform of the prohibition against insolvent trading was a focus of Australia's insolvency law reforms in 2017, which led to the introduction of a safe harbour for directors from liability. Singapore's omnibus insolvency law reforms of 2018–19 include amendments to update Singapore's fraudulent and insolvent trading provisions by introducing a concept of “wrongful trading.” The article finds that there are some areas of convergence between these two jurisdictions when it comes to debates about such provisions but concludes that the different contemporary legislative histories in Australia and Singapore have affected their approaches to reform. Reformers in both jurisdictions have attempted to find an appropriate balance between protecting creditors, discouraging director misconduct, and encouraging entrepreneurship and innovation; however, this comparison suggests that the weight that reformers place on creditor protection compared with the concern that excessive personal liability can make directors unduly risk‐averse is influenced by their existing legislative framework and experience of those laws. Although Australia has shifted away from a strict focus on creditor protection, to give directors more opportunities to engage in restructuring, Singapore's amendments may provide a more creditor‐friendly regime.
The paper at hand will analyze directors’ duty not to make decisions which determine corporate violations of positive legal norms and it will provide an interpretation of corporate governance ...practices that underpin this duty in pre-existing institutions. In the first part, we will pursue the doctrinal attempts of integrating the duty of compliance within the contents of the duty of care or duty of loyalty. We will follow the evolution of this duty, from a simple effect of the ultra vires doctrine, to an obstacle of the contractual underlying of companies, to an element of the duty of loyalty. The paper will review effects that corporate legal violations have on agents’ liability, such as tax law, competition law, labor law, human rights and environmental law breaches, and will illustrate other essential features of this duty, such as compliance with corporate governance codes, ethics and corporate social responsibility. Finally, we will demonstrate that regardless of the approach of good faith in corporate governance, as a distinct fiduciary duty or as element of the duty of loyalty, the duty of compliance is a prerequisite of good faith and can be accomplished simultaneously with the duty to maximize corporate profit and shareholders' wealth.
Taking the duty of loyalty as a starting point, which we consider to be the director’s core fiduciary duty, this paper aims at identifying the contours of good faith in corporate law and the ...interpretations of this institution in corporate governance. The objective of the paper is to demonstrate the autonomy of good faith, along with the duty of care and the duty of loyalty. The paper displays the traditional legal approaches of this institution, both in continental civil law and in common law literature and jurisprudence and exhaustively describes the obligations that compose or even define this concept. Due to its amplitude, the duty of good faith enabled courts to articulate subsidiary fiduciary duties that meet social changes and transformation within business law. By means of cited case law, the conclusion will show that due to the nature, content and effects of situations where specific obligations are met, these may not be incorporated as elements of the traditional duty of care or duty of loyalty.
We examine the association between directors’ liability insurance and investment-cash flow sensitivity with listed firms in Taiwan. We find that directors’ liability insurance increases the ...investment-cash flow sensitivity. Specifically, insured firms are more likely to have excessive investment than uninsured firms given the same level of cash flow. This is the result of managerial opportunistic behaviors fueled by moral hazard inherent in directors’ liability insurance. Although managerial opportunism could certainly increase the likelihood of corporate wrongdoing, our results show that it could be mitigated by having improved regulation or corporate governance.
The business judgment rule represents a central doctrine of corporate governance, due to its major implications on corporate directors' liability and to its infl uence on the relationship between ...shareholders and the board of directors. The interpretation of the Rule as a behavioral standard or as an „abstention doctrine” can determinatively influence the liability proceedings against directors who acted in consideration of their fiduciary duties. This paper aims at analyzing the national legal provisions of the Business Judgement Rule and the compatibility of the legal provisions with the established interpretations of the Rule that can be found in the foreign literature. Absent a case law that clarifies de approaches of the Business Judgement Rule by the national courts, the research analyzes the traditional Common Law approaches of the Rule and the obstacles which hinder a faithful transfer of the Rule in Romania. The objective of these identifications is to draw de lege ferenda proposals for an efficient application of the legal provisions in the future. Considering that this Rule is the natural consequence of trust and of the powers granted to corporate directors, the conclusions of the research suggest solutions for the stabilization of the continuous tension of the supreme values of the corporate world: authority and liability.
PDF
