At a forum organised by the British Chamber of Commerce last Wednesday on the topic of “Risks for directors of Luxembourg companies - What every director should know”, hosted by Allen & Overy at their Kirchberg offices, partner Peter Myners led a discussion involving colleagues Vincent Naveaux and Renaud Graas, together with, Graham Cook of Talisman Insurance Broking and Oliver Wheeler of Axis Capital.
Peter Myners emphasised that, while becoming a company director is a proud moment, the role is challenging and demanding in practice.
Normally a director of a Luxembourg company should not be exposed to personal liability, if he or she exercises his considerable powers carefully and responsibly. But the world has become increasingly litigious, events of recent years have placed the spotlight on corporate governance and regulation has become ever more intense.
In a recent survey conducted by Allen & Overy, it was found that:
• 1 in 5 respondents has experience of a claim or investigation involving a director of their company, a surprisingly high figure;
• regulatory and other investigations and inquiries are considered to be the greatest risks facing businesses and their directors;
• anti-corruption legislation, which places great demands on businesses to know who they are dealing with, comes in second place.
In Luxembourg, more than 2,000 new companies were registered between January and March 2016. So the demand for directors is high, with a trend towards diversity, independence and avoiding conflicts of interest, in part by limiting the number of mandates accepted.
Are directors sufficiently aware of their duties and liabilities under Luxembourg law?
Those duties and liabilities can be summarised as compliance and awareness: compliance with legal requirements and the company’s articles and awareness of the extent and limitations to director’s powers, awareness of what is going on in the company. Speakers emphasised director’s duty to keep themselves informed, their right and duty to ask for and receive information so that they can counter the allegation that they did not know what they could reasonably be expected to know.
Personal liability of directors remains an exception rather than the norm, provided they act reasonably, in good faith, with reasonable diligence and skill, within the scope of their powers, and in compliance with their duties and responsibilities.
Directors can help to minimise the risk of personal liability by following certain practical tips, including:
• Due diligence and being informed;
• Due process in the board and minuting of decisions and positions taken;
• Discharge from shareholders on an (at least) annual basis;
• Independence ;
• Indemnification by the company and adequate Directors & Officers (D&O) insurance.
The company or the group to which directors belong may have D&O insurance in place, but that may not provide the personal protection that the individual could need in respect of the wide range of activities and organisations that they might be involved in.
As a result of demand for such a solution in Luxembourg, Talisman has designed an insurance policy to complement corporate D&O placements. This policy is placed in the individuals’ name and under their personal control. It also includes legal and reputational defence costs for individuals and their spouses, heirs and estates.
