!Корпоративное право 2023-2024 / 2013-study-analysis_en

		hold directors
		liable if their
		decisions fall
		within the
		boundaries of
		normal business
		risk
Ireland		No BJR	-		-	-
Italy		The approach	The director must		Contractual	Rationality review
		developed by the	not have acted		liability standards	(decisione
		courts resembles	grossly negligently		apply: once it has	irrazionale o
		the Delaware	in the process of		been established	arbitraria)
		BJR, but it has	making the		that the company
		never been	business		has suffered a
		expressly	decisions.		loss due to the
		endorsed by the	If gross		director’s actions,
		courts			the director has to
			negligence: the
					demonstrate the
			court will review
					lack of gross
			the fairness of the
					negligence
			transaction (vaglio
			della legittimità
			della decisione)
Latvia		No BJR	-		-	-
Lithuania		Developed by	The director is not		-	-
		case law	liable if his/her
			decision complies
			with legal
			requirements,
			does not exceed
			normal economic
			risk, and is not
			obviously loss-
			making to the
			company
Luxembourg		No statutory BJR,	1) Courts consider		-	-
		but courts accord	the circumstances
		directors a certain	that existed at the
		margin of	time when the
		discretion, i.e.	directors’ decision
		management	was made and the
		errors do not give	information which
		rise to liability as	was known or
		long as the	should have been
		directors stay	known to the
		within their margin	director when
		of discretion	deciding whether
		(marge	the director acted
		d’appréciation). In	within his/her
		addition, directors	margin of
		are only subject to	discretion
		an ‘obligation de	2) The BJR does
		moyens’, i.e. a
			not apply to the
		duty to use their
			responsabilité
		best endeavours
			légale under Art.
		without having to
			59(2) for breaches
		achieve a
			111	Directors’ Duties and Liability in the EU

		concrete result.	of the Companies
			Act or the articles
			of association
Malta		No BJR, but the	-		-	-
		courts do not hold
		directors liable for
		culpa levissima,
		i.e. slight
		negligence which
		could have even
		been committed
		by an attentive
		person
Netherlands		No BJR, but it is	-		-	-
		widely recognized
		in the literature as
		well as in case
		law that judges
		should apply a
		margin of
		discretion when
		assessing
		directors’ liability
Poland		No BJR	-		-	-
		- Supreme Court:
		the reference to
		an economic risk
		cannot exculpate
		the manager
		when damage
		caused to the
		company was the
		result of careless
		management
		- However, in
		some judgments
		Polish courts
		accepted a
		degree of
		managerial
		discretion and
		allowed directors
		to take risks
		inherent in
		economic
		activities
Portugal		- Yes, Art. 72(2)	The director must		Director	Rationality review
		- It is controversial	have acted:			exists, but
						belongs to the
		whether the BJR	1) in an informed
						threshold criteria
		applies only to the	manner
						that have to be
		directors who	2) free of any
						shown by the
		perform
			personal interests
						director
		management
			3) not irrationally:
		functions or also
			the director has to
		to members of the
			show that he took
		audit committee;
			112	Directors’ Duties and Liability in the EU

		some	a reasonable and
		commentators	adequate decision
		argue that the	compared with the
		BJR applies to the	possible set of
		latter if the	decisions that
		decision involves	could have been
		a discretionary	taken. Directors
		margin	must not to
		- The majority of	dissipate the
			company’s assets
		the legal literature
			or take
		argues that the
			disproportionate
		BJR does not
			risks. → objective
		apply in actions
			standard
		brought by
		creditors, by
		shareholders in
		their own capacity
		and by third
		parties, because
		the law requires
		the breach of
		specific rules
		which protect
		those people
		(there is no
		discretion; the
		question is simply
		one of compliance
		or non-
		compliance)
Romania		Yes, Art. 144(1)	1) Existence of a		Director (see also	No
			business decision		the general
			taken within the		remarks regarding
			powers (intra		the burden of
			vires)		proof above in
			2) The director		Table 2.4.2.a)
			was disinterested
			and acted in good
			faith (the director
			was reasonably
			entitled to believe
			that he/she acted
			in the best interest
			of the company)
			3) The director
			was adequately
			informed prior to
			taking the
			decision
Slovakia		No express BJR;	-		-	-
		acccording to s.
		194(7)
		Commercial
		Code, a director is
		not liable for
		actions taken in (i)
			113	Directors’ Duties and Liability in the EU

		good faith and (ii)
		with professional
		diligence,
		meaning that the
		objective standard
		also applies in
		reviewing
		business
		decisions
Slovenia		No statutory	-		-	-
		regulation, but
		some judges have
		expressed the
		willingness to
		apply the US BJR
		in judicial practice;
		however, case law
		does not yet exist
Spain		Not explicitly	Some court		Normal rules	Rationality review
		regulated, but the	decisions: the		apply
		literature	BJR prevent the
		interprets some	review of business
		judgments as	decisions,
		accepting the BJR	provided that:
			1) the director
			acts in the best
			interests of the
			company
			2) the decision is
			not irrational
			3) no technical
			mistakes
Sweden		No BJR is	If the directors		Claimant	-
		expressed in the	have based their
		Companies Act,	decision on
		but it is mentioned	information that is
		in the literature. In	sufficient and
		addition,	appropriate,
		according to case	considering the
		law certain	circumstances,
		mistakes of the	they will not be
		board in making	held liable.
		business
		decisions will be
		tolerated,
		provided that
		these mistakes
		remain within the
		range of the
		discretion
		accorded to the
		director.
United Kingdom		No, at least not	-		-	-
		explicit, although
		courts are
			114	Directors’ Duties and Liability in the EU

prepared to grant directors a margin of discretion

Discussion

The business judgment rule is an invention of the US courts that dates back at least to the first decades of the 19th century.130 In its modern version, which has mainly been shaped by the Delaware courts, it is interpreted as ‘a presumption that in making a business decision the directors of a corporation acted on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the company.’131 If this presumption is not rebutted by the claimant, i.e. if the claimant does not show that the directors did not act on an informed basis, in bad faith, or in breach of the duty of loyalty, the courts will respect the directors’ business judgment, ‘unless it cannot be “attributed to any rational business purpose.”’132 If the presumption is rebutted by the claimant, the burden of proof shifts to the directors to demonstrate that the transaction was ‘entirely fair’ to the corporation.133 Thus, the Delaware version of the business judgment rule consists of three elements: First, a number of threshold requirements that have to be satisfied for the protections of the rule to be triggered (acting on an informed basis, in good faith, without conflict of interest); second, a procedural element that allocates the burden of proof and provides for a shift in the burden when the presumptions are rebutted; and third, a standard of review that is either very light (irrationality test) or, if the presumptions are rebutted, consists in a complete fairness review. These three elements make the Delawware business judgment rule very effective in protecting directors against liability if the context does not give rise to a conflict of interest.134 It is important to note that this effectiveness is a function of a combination of the three elements: the relatively high threshold requirements (for example, in order to refute the presumption that the director acted on an informed basis, the claimant has to show gross negligence135), the allocation of the burden of proof (initially on the claimant), and the limited review if the presumptions cannot be not rebutted (irrationality136).

Accordingly, we test the jurisdictions of the Member States along all three dimensions. We first ask whether an express, codified business judgment rule exists or the courts accord directors an implied margin of discretion, within which business decisions are not subjected to full review. If an express or implied business judgment rule can be found, we then examine the threshold requirements, the burden of proof for these requirements, and the remaining standard of review if the protections apply.

Map 2.4.3.a shows (1) the Member States that have adopted a codified business judgment rule that resembles the US version at least to some extent, without necessarily being identical in the three dimensions of the rule; (2) the Member States that have no express business judgment rule, but where case law indicates that the courts are willing to grant the directors a margin of discretion and exercise restraint in reviewing business decisions or, if no case law to the point exists, where the

130Percy v. Millaudon, 8 Mart. (n.s.) 68 (La. 1829). While the precise contours of the rule have changed over time, its main tenets are already clearly discernible in the early case law: ‘But when the [director] has the qualifications necessary for the discharge of the ordinary duties of the trust imposed, we are of opinion that on the occurrence of difficulties, in the exercise of it, which offer only a choice of measures, the adoption of a course from which loss ensues cannot make the agent responsible, if the error was one into which a prudent man might have fallen. . . . The test of responsibility therefore should be, not the certainty of wisdom in others, but the possession of ordinary knowledge; and by shewing that the error of the agent is of so gross a kind, that a man of common sense, and ordinary attention, would not have fallen into it.’ Id. at 4.

131Aronson v. Lewis, 473 A.2d 805, 812 (Del. 1984).

132Re Walt Disney Co. Derivative Litigation, 907 A.2d 693 (Del. Ch. 2005) (quoting Sinclair Oil Corp. v. Levien, 280 A.2d 717,

720(Del.1971); Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946, 954 (Del.1985)).

133See, for example, Walt Disney, 907 A.2d 747.

134See, e.g., In re Citigroup Inc. Shareholder Derivative Litigation, 964 A.2d 106 (Del.Ch. 2009), dealing with the fallout from the global financial crisis. The case served as a template for our Hypothetical III. Under Delaware law, the defendant directors and officers of Citigroup were not found liable for the losses that the company had suffered from exposure to the subprime lending market.

135Re Walt Disney Co. Derivative Litigation, 906 A.2d 27, 52 (Del. 2006).

136The Delaware courts have defined a business transaction as irrational if it ‘is so one sided that no business person of ordinary, sound judgment could conclude that the corporation has received adequate consideration’, see Glazer v. Zapata Corp., 658 A.2d 176, 183 (Del. Ch. 1993). In other words, liability under this standard is ‘confined to unconscionable cases where directors irrationally squander or give away corporate assets’, Brehm v. Eisner, 746 A.2d 244, 263 (Del. 2000).

115 Directors’ Duties and Liability in the EU

literature argues that the law should be interpreted in this way; and (3) the Member States that have no express or implied business judgment rule.

Map 2.4.3.a: Business judgment rule and managerial discretion

Legend	Country
Codified BJR with similarities to	HR, DE, EL, PT, RO
the Delaware approach
No express BJR, but the courts	AT, BE, BG, CY, DK, FI, HU, IT, LT, LU,
and/or the literature	ES, SE, SI, UK
acknowledge that the directors
enjoy a margin of discretion and
that their decisions will not be
reviewed if they act within this
margin
No express or implied BJR	CZ, EE, FR, IE, LV, MT, PL, SK

General comments: The business judgment rule as a codified legal institution has spread over the last six or seven years to a number of European jurisdictions. The first country to introduce the rule was

116 Directors’ Duties and Liability in the EU

Germany,137 followed by Portugal,138 Romania,139 Croatia,140 and Greece.141 The majority of legal systems in the EU, however, do not contain an explicit formulation of the business judgment rule. In that case, the margin of discretion accorded to the directors depends on the interpretation of the duty of care’s behavioural expectations by the respective courts. Often, clear definitions and bright-line rules are missing, with the consequence that the limits of the implied protection of business judgments are shifting and not easy to identify. Naturally, therefore, the border between what we classify as group 2 (no express business judgment rule, but the courts and/or the literature acknowledge that the directors enjoy a margin of discretion and that their decisions will not be reviewed if they act within this margin) and group 3 (no business judgment rule) is blurred. Three countries on the borderline are Cyprus, Poland, and the United Kingdom. Courts in these countries have not endorsed the business judgment rule and also do not expressly accord the directors a margin of discretion. It is suggested that the United Kingdom and Cyprus, which follows the UK case law in most respects, fall on one side of the demarcation (implied business judgment rule), because the UK courts take a hands-off approach if the directors have taken an informed decision and the transaction was not tainted by bad faith or a conflict of interest. Poland is on the other side (no business judgment rule), as the Polish Supreme Court has held that the reference to an economic risk cannot exculpate the manager when damage caused to the company was the result of careless management. However, in some judgments Polish courts accept a degree of managerial discretion and allow directors to take risks inherent in economic activities.

In the end, the difference between groups 2 and 3 is one of emphasis. In most jurisdictions, there is evidence that the courts appreciate that a review of decisions taken under conditions of uncertainty has to acknowledge that the decision-maker has to rely ex ante on expectations and probabilities, and that a full ex post review may suffer from hindsight bias.142 Nevertheless, some differences can be observed. The Netherlands may be said to be an example of a jurisdiction at one end of the spectrum, where, in particular in inquiry proceedings,143 the investigator and the courts conduct a thorough review of the company’s affairs in order to assess whether mismanagement has occurred,144 without taking recourse to any form of business judgement rule. At the other end of the spectrum are the countries that have codified the business judgment rule and thus explicitly provide for an area of managerial decision-making that will not be reviewed by the courts. However, this does not mean that directors face the lowest risk of liability for breaches of the duty of care in these countries. Given that the level of protection afforded by the business judgment rule is a function of several factors, the advantage of recognising a protected margin of discretion by statute may be offset by rules that shift the burden of proof to the directors. This is in fact the case in most of the countries that have codified the business judgment rule.

Procedural nature of the duty of care: Some countries interpret the duty of care as procedural in nature, i.e. the courts will not review the content of the decision if it has been taken on the basis of adequate information and in the absence of any conflict of interest. This approach can be found, for example, in Bulgaria and the United Kingdom. While these jurisdictions do not use the terminology of the business judgment rule, and we classify them, accordingly, differently, their interpretation of the

137 Gesetz zur Unternehmensintegrität und Modernisierung des Anfechtungsrechts (UMAG), Law of 22 September 2005, Federal Law Gazette I, p. 2802. The statutory amendment, in turn, is based on a decision of the Federal Court of Justice (Bundesgerichtshof) of 1997, BGHZ 135, 244 (ARAG/Garmenbeck), which adopted principles resembling the business judgment rule.

138Decree-Law no. 76-A/2006 of 29 March.

139Company Law Reform of 2006.

140Amendments of 2007, Official Gazette 107/2007.

141L. 3604/2007.

142For a justification of the US business judgment rule in light of the problem of hindsight bias, see Bainbridge, n 100 above, 114-116.

143Investigations into the policy and affairs of a legal person conducted by an investigator appointed by the Enterprise Chamber (ondernemingskamer) of the Amsterdam Court of Appeal upon the application of, among others, shareholders holding at least 10% of the issued share capital, see Dutch Civil Code, ss. 2:344-2:359. For more details regarding the Dutch inquiry proceedings see below 3.2.

144Dutch Civil Code, s. 2:355.

117 Directors’ Duties and Liability in the EU

duty of care is very close to the Delaware understanding of the business judgment rule.145 This illustrates that the existence or lack of a formal business judgment rule is of secondary importance, compared to the procedural or substantive function of the duty of care and the precise definition of the duty’s elements.

2.5 Duty of loyalty

The duty of loyalty, broadly understood, addresses conflicts of interest between the director and the company. Particularly in common law, it has a long tradition as a distinct and comprehensive duty that encompasses a variety of situations where the interests of the director are, or may potentially be, in conflict with the interests of the company.146 It may not be surprising that the duty of loyalty was fairly early well developed in common law, given that the business corporation as a legal institution evolved in a series of innovations and reforms from partnership and trust law147 and that the position of the director was, accordingly, seen as that of a trustee or fiduciary who had to display the utmost integrity in dealing with the property of the beneficiaries.148 In other legal traditions, the fiduciary position of directors is less accentuated and the duty to avoid conflicts of interest and not to profit from the position on the board of companies is less pronounced. Nevertheless, the social conflicts that the common law duty of loyalty is intended to address are, of course, identical and are recognised in most jurisdictions as in need of regulatory intervention.

The most important conflicts addressed by the duty of loyalty are: (1) related-party transactions (selfdealing), i.e. transactions between the company and the director, either directly or indirectly because the director is involved in another business association that transacts with the company (as major shareholder, partner, etc.) or because a person related to the director (for example a close relative) deals with the company; (2) corporate opportunities, i.e. the exploitation of information that ‘belongs’

(in some sense of the word, which will need to be defined more precisely) to the company, for example information regarding a business venture that is of commercial interest to the company. Most other aspects associated with the expectation that the director act loyal towards the company can be related to these two main applications of the duty of loyalty, even though they may be regulated separately in some jurisdictions. Examples are the duty not to compete with the company, not to accept benefits from third parties that are granted because of the directorship, or not to abuse the powers vested in the directors for ulterior purposes. We will focus in our analysis on the two main expressions of the duty of loyalty, related-party transactions and corporate opportunities, making references to other formulations of the behavioural expectations of directors in the legal systems of the Member States where appropriate.

While the duty of care is pervasive in the Member States and the formulation of the directors’ behavioural expectations does not differ widely between jurisdictions, the regulatory techniques employed to address conflicts of interest are markedly different. What we call here duty of loyalty, following the common law terminology, is a compilation of functionally comparable legal instruments that are, however, not necessarily duty-based in the strict sense. They range from broad fiduciary standards to approaches that utilise rules determining internal authority, external representation, or classify related-party transactions into prohibited agreements, agreements requiring disclosure and approval, and ordinary transactions valid without further requirements. While no one approach is, by definition, superior to another, it seems that the effectiveness of the respective rules depends on the flexibility that they allow and that some approaches lend themselves more to an application sensitive to the particularities of the individual case than others. We will address these issues below in the relevant context.

145See, e.g., Brehm v. Eisner, 746 A.2d 244, 264 (Del. 2000), speaking of ‘process due care’ when referring to due care in the decision-making context.

146For an early enunciation in common law see the English House of Lords decision in Bray v. Ford [1896] A.C. 44.

147See, e.g., R.R. Formoy, The Historical Foundations of Modern Company Law (Sweet & Maxwell, 1923); B.C. Hunt, The development of the business corporation in England, 1800-1867 (Harvard University Press, 1936).

148See Bray v. Ford, n 146 above, 51.

118 Directors’ Duties and Liability in the EU

2.5.1 Dogmatic foundation

Summary of the country reports

Table 2.5.1.a: Dogmatic foundation of conflicts of interest regulation

Country		Statutory	Fiduciary		Tort	Other
		corporate law	principles
Austria		Yes, three	Yes		-	-
		express
		provisions:
		1) Duty to act in
		the best interests
		of the company, s.
		70 AktG
		2) Duty of non-
		competition, s. 79;
		3) Duty of
		confidentiality, s.
		84(1) last
		sentence
Belgium		Art. 1134, 3 Civil	General duty to		-	-
		Code; specific	act in good faith
		applications in	(in the company
		case of conflicts of	law context
		interest: art.	interpreted as the
		523/524/524ter	duty to act in the
		CC	company’s
			interest), but not
			well developed
Bulgaria		1) Disclosure of	Director’s		-	-
		conflicts of	mandate, s. 280
		interest: s. 237(3)	Obligations and
		Commercial Act	Contracts Act:
		2) Non-	general duty of
			loyalty
		competition: s.
		237(4)
		3) Confidentiality:
		s. 237(5)
Croatia		-	Yes		-	-
Cyprus		Duty to disclose	Other aspects of		No	-
		self-dealing laid	the duty of loyalty
		down in s. 191 CA	(except disclosure
			of self-dealing)
			stem from
			common law
Czech Republic		1) Non-	-		-	-
		competition, s.
		196 Commercial
		Code
		2) Conflict of
		interests, s. 196a
		3) s. 194(5) (duty
		to act with due
			119	Directors’ Duties and Liability in the EU

		managerial care)
		is interpreted as
		being the main
		duty of directors,
		which includes the
		requirement to act
		loyally towards the
		company; ss. 196,
		196a are
		specifications of
		this general duty
Denmark		Two express	-		-	-
		provisions:
		1) Regulation of
		related party
		transactions, s.
		131
		2) Duty of
		confidentiality, s.
		132
Estonia		Yes	-		-	-
		1) General duty of
		loyalty: Civil Code,
		§ 35
		2) Prohibition of
		competition:
		Commercial
		Code, § 312(1)
		3) Confidentiality:
		Commercial
		Code, § 313(1)
		4) Prohibited
		loans:
		Commercial
		Code, § 281
Finland		Companies Act,	-		-	-
		Ch. 1, s. 8 is
		interpreted as
		including the duty
		of loyalty
France		No	Legal basis for		-	-
			duty of loyalty
			unclear; some
			authors argue that
			it is based on the
			role that directors
			assume, others
			that it is based on
			the principle of
			good faith
Germany		The duty of loyalty	Yes		-	-
		finds its
		expression in s,
		88 (duty of non-
			120	Directors’ Duties and Liability in the EU