Directors’ Liability in the Aftermath of the Financial Crisis

An AmCham Belgium Legal & Taxation Committee Luncheon

Further to the initiatives taken by Katrien Vorlat, co-chair of the Legal Subcommittee and Partner at Stibbe, the Legal and Taxation Committee organized, on May 4, a new interactive luncheon debate with experts in the field of corporate and financial law. The panel included: Anne Masson, Deputy Finpro Practice Leader Marsh – Belgium and Luxembourg and Marc Fyon, partner at Stibbe. Both focused their comments on the consequences of the financial crisis on directors’ liability.

Anne Masson gave an overview of the main features of a directors’ and officers’ insurance policy. She explained the distinction between the so-called side A (insurance for the individual directors and officers, or D&Os) and side B (insurance for the corporate entity to the extent it has indemnified D&Os) of the D&Os insurance policies. She also pointed out that initially, lawmakers and regulators focused on managers where dishonesty or a lack of integrity was the issue, but this has changed. Increasingly, regulators are looking at issues of competence at the management level – and this embraces not only executive directors, but also non-executive and independent directors.

Marc Fyon pointed out that as far as directors’ liability is concerned, the major consequences of the financial crisis directly or indirectly relate to questions of corporate governance. He mainly referred to the following questions:

• How to improve the process of keeping the board of directors informed by the company’s management? The board of directors of the main banks were allegedly involved too little and too late in the follow-up of the bank managers’ reaction to the crisis. This is likely to raise questions as to whether or not the boards have asked for and/or received adequate information about the crisis from management.

• How can bank directors reconcile the need to provide the necessary protection to bank clients (and avoid or reduce the risk of a so-called ‘bank run’) with the equally important need to provide the necessary correct and timely information to both bank shareholders and the general public? Directors can decide to postpone the immediate release of privileged information if this postponement does not mislead the market or the general public. How should directors assess this last condition when the relevant information relates to major financial difficulties of a leading credit institution?

• A third set of questions relates to the power sharing between the board of directors and shareholders’ meeting. Marc Fyon analyzed the successive decisions rendered in the Fortis case and raised questions and concerns about the judgment rendered by the Brussels’ Court of Appeals in this case.

Afterwards, Anne Masson presented some general trends regarding D&O insurance policies. She pointed out the companies’ request to increase insurance limits as well as the development of stand-alone policies covering the company’s liability and the liability of all participants in the prospectus and road shows. She also gave some detailed reasons to buy only a Side A coverage.

Marc Fyon closed the presentation by highlighting certain provisions of the brand new Act of April 6, 2010 on corporate governance. According to this Act, the listed companies’ boards will be required to include in their annual report a corporate governance statement (which up to now was merely recommended by codes of corporate governance) and to organize a specific vote of the shareholders’ meeting on compensation policy.