Regional Trends: Hotspots Snapshot

Clyde & Co and AGCS examine the latest D&O developments around the globe


While directors grapple with the uncertainty and potential implications of the UK’s decision to leave the EU, there are a number of other developments to consider.

Importance of personal accountability continues to be a key theme underpinning the regulatory scrutiny of
directors, with prescribed responsibilities a key plank of the Senior Managers and Senior Insurance Managers Regimes (SMR and SIMR, respectively) applying to financial services and insurers. Notably, under the SMR, there will be a statutory duty on senior managers to take reasonable steps to prevent regulatory breaches.

Senior managers caught by the SMR could also face criminal liability in the event of the failure of a bank if they recklessly make a decision. In addition to new conduct rules and penalties, the new regimes could give rise to a heightened risk of internal investigations.

Directors must also brace themselves for the prospect of eye-watering fines for health and safety, corporate manslaughter and food safety and hygiene offenses, following the implementation of the Sentencing Council’s landmark “definitive guideline” on sentencing. Fines could trigger investor claims against directors where the entity’s share price has suffered or the entity has gone out of business.

Collective actions against entities and their directors and officers in the UK appear to be having a watershed moment, with group litigation orders increasingly being utilized by shareholders. With claims against Tesco and threatened against Quindell, collective action has firmly entered the commercial entity sphere, following on the heels of actions against financial institutions.

Meanwhile, senior corporate executives could face prosecution in future for offenses including fraud and money laundering carried out by staff. The UK government is to consult on plans to extend “failure to prevent” offenses, currently only covering bribery and tax evasion, to a wider range of economic crimes committed by employees, also including false accounting.



Directors should be aware of the general trend in Spain towards increased liability for directors for non-criminal offenses. A clear example is the National Competition and Markets Commission (CNMC) which is ramping up its sanctioning of both entities and directors for infringements of competition law, having recently announced its intention to revitalize its authority to seek personal financial liability from executives who have participated in illegal agreements and to toughen the sanctions imposed on individuals.

Although the Spanish Competition Act limits the fines that can be imposed in a competition offense to a maximum of €60,000, the CNMC recently for the first time imposed sanctions on the corporate officers of several companies involved in a cartel, imposing its second largest fine. It issued a resolution on 26 May 2016, imposing a fine of €128,854,152 on eight companies and four managers for the existence of a cartel from 1996 until 2014, consisting in fixing selling prices and distribution conditions.



France is ramping up its corporate governance regime, with new protections for whistleblowers included in a government bill against corruption and transparency (“Sapin II”) which has been adopted by the French assembly. At the same time, a preliminary draft of French liability laws is currently under a public consultation process. From the perspective of directors, the most significant change is the creation of civil punitive damages, the introduction of which has the potential to change the shape of damages claims against D&Os. These potential legislative changes come against a backdrop of an aggressive approach towards tax avoidance and evasion by the French tax authorities.



The risk of being targeted in a securities class action remains a core concern for directors and officers. If the pace of filings in the first half of the year continues, by year end, 2016’s filings would represent the highest number of securities class actions since 2004. Directors outside the US should also keep a careful eye on US developments. According to Cornerstone Research, on an annualized basis, filings against foreign issuers increased from 2015 levels. Meanwhile, at current pace, M&A-related filings in federal courts will double the annual numbers observed in the last four years.

The greatest percentage of class actions continue to be brought against companies in the biotechnology, pharmaceutical, and healthcare sectors.

More broadly, regulatory scrutiny remains another core concern for directors, which has been heightened by the Yates Memo, the September 2015, Department of Justice (DOJ) new directive aimed at targeting and holding accountable corporate executives.

Generally, there is a trend towards actions being dismissed or settled more slowly, with the likely consequences being lengthier litigation, increased defense costs and higher settlement expectations as plaintiffs invest more time and money in cases. With respect to derivative actions, defendants sometimes find themselves defending litigation in both state and federal courts, which inevitably leads to increased costs and challenges. The Plaintiffs’ bar views certain state courts as particularly friendly, which drives up the settlement value of these cases.

Directors of US companies, whether based in the US or overseas, should also be mindful of the broad reach of the Foreign and Corrupt Practices Act (FCPA) and ensure their corporates have adequate anti-bribery procedures in place. Particular exposures for directors include failing to properly supervise employees and recognize red flags surrounding a transaction that suggest potential bribery.



Regulatory aggression continues to feature heavily in the landscape for directors. The Ontario Securities Commission (OSC) is becoming more demanding in its investigations, as is the Alberta Securities Commission.

Whistleblower protections are being ramped up. The OSC Office of the Whistleblower will be open to receiving tips on potential non-compliance with securities legislation – the first program in Canada to provide financial incentives. A whistleblower may receive a cash pay-out of 5% to 15% of the total penalties imposed in a case.

Directors of private and public companies face exposure to claims by government agencies for environmental clean-up costs, especially after the insolvency of the entity. Especially troubling is that the liability can attach even if the directors were not involved in decisions that led to the contamination. Meanwhile, low commodity prices are causing difficulties for many resource companies, with an uptick in insolvencies and company restructuring. As a result, the personal liability of directors for statutory wage and benefit claims is an important risk.



Increased activity from the Australian Securities and Investments Commission (ASIC) seems likely after the government announced plans for additional resources during 2016.

Recently, ASIC has shown an increased inclination to seek criminal penalties against directors, pursuing at least two for allegedly misleading the market in announcements issued to the securities exchange. Directors should also be aware of the rise in pre-inquiry and inquiry costs; regulators are using their information gathering powers more broadly and becoming more proactive across industries. The costs of complying with regulatory demands can be substantial. ASIC is also looking to recover its investigation costs in future, increasing the potential exposure of directors and officers.

Culture and conduct is also a key regulatory focus. The ASIC corporate plan states it will focus its surveillance activities on the culture of companies it regulates, as it considers that poor corporate culture was a key driver of non-compliance in the financial services industry leading up to the global financial crisis. More broadly, the downturn in the Australian economy may give rise to an increase in investor discontent and claims against directors.


Hong Kong

Directors in Hong Kong are coming under increasing regulatory scrutiny. In recent years, the Securities and Futures Commission (SFC) has been active in its pursuit of actions against market misconduct. It has commenced proceedings for failing to disclose price sensitive information as soon as reasonably practicable against a manufacturer of camera products listed in Hong Kong Main Board (and its CEO and financial controller) and a manufacturer of metal products listed in Hong Kong Main Board (and its senior management) respectively.

The SFC is active in imposing heavy fines on financial institutions for non-compliance of their regulatory requirements. For example, a securities trading company was fined HK$2.7m for internal control failures and not reporting the deficiencies to the SFC in a timely manner. In 2016, the SFC also publicly censured or criticized a number of financial institutions for breaches of the Code on Takeovers and Mergers. It is expected that the SFC will continue to adopt a robust approach in its enforcement actions.



In 2014, the Singapore Companies Act was amended, with a number of provisions impacting directors and officers implemented in 2015 and 2016. These include the expansion of the definition of director to include a person in accordance with whose directions or instructions the majority of the directors of a corporation are accustomed to act; making it a criminal offense for an officer to make improper use of their position to gain, directly or indirectly, an advantage for themselves or for any other person or to cause detriment to the company.

They also empower the Accounting and Corporate Regulatory Authority to debar a director in certain circumstances for the company’s failure to file any required document. Notably, the amendments also allow shareholders to bring statutory derivative action against directors of a listed company. More positively for directors, companies are now permitted (subject to certain exceptions) to indemnify an officer of the company against liability incurred to third parties.


United Arab Emirates

A significant change to directors’ exposures is the introduction of the UAE Commercial Companies law, which came into effect on 1 July 2015, and creates a statement of directors’ duties. The new law sets out the basis on which liability can be found against directors, which includes material error. These provisions of the new law may lead to an increase in the number of claims. Article 24 of the new law contains a new restriction on companies exempting officers (current and former) from liability.

Regulatory scrutiny across the region is increasing, particularly in the Dubai International Financial Centre, where enforcement action has increased. This has been accompanied by a regulatory focus on attributing blame against individual managers.

A particular risk area is outside entity directorships in foreign jurisdictions - an area where an increase in claims is expected, particularly as companies diversify their interests internationally. Awareness of the possibility of bringing a claim against a director is also increasing due to the publicity of some significant claims against D&Os ongoing in the UAE.


South Africa

There has been a recent trend towards shareholders seeking to hold directors liable for losses suffered by them as a result of the negligent or reckless conduct of directors. The statutory underpinning for such claims is the Companies Act No.71 of 2008 which codified directors’ liability in South Africa.

Overall, as the law stands, shareholder actions are likely to fail, but there is the potential for the position to shift. The environment for directors appears to be toughening and the more frequent use of class actions may also expose directors to more claims. The use of derivative actions as envisaged by section 165(2) of the Act may also increase.



The focus on personal accountability is notable in Germany, where regulators, prosecutors and companies have been known to actively pursue individual directors for conduct or compliance failings. Corruption, and bribery, together with competition and cartel investigations, have been the some of the main causes of German management liability claims, where directors at some of the largest German companies have been sued.

Board members at companies in Germany should be cognizant of how the organization approaches corporate governance and compliance, as executive liability is all about having the right controls and procedures in place within the organizational culture. Executives in Germany may also find they are held accountable by their own companies. The German market is typified by internal liability claims, where the company sues executives for wrongdoing or compliance failings. Around 80% of German D&O claims seen annually by AGCS are for such cases.

Meanwhile, collective redress is being used in Germany under the German Capital Markets Model Case Act, which enables similar securities lawsuits to be combined in a streamlined process.

The law has not yet been widely tested, but that could change if large claims like that filed by Volkswagen investors make it to court. Hundreds of investors filed a suit in a German regional court seeking billions in damages for alleged breaches of stock market duty related to evading emissions tests.



Brazil is actively pursuing corruption cases due to recent high-profile corporate and political criminal and regulatory scandals. As a result, many directors of impacted companies have hired defense at enormous expense. This has resulted in several securities class actions filings in the US and other countries, thus increasing insurance take-up in Brazil. The public awareness of D&O risks reached its peak in 2016.