Post on 08-Jan-2017
Simon ThomasPartner – Baker & Partners, Jersey
Charles ColemanDirector – Gough Law, Isle of Man
Offshore directors – Are they untouchable?
Offshore Alert London25 November 2015Grange St. Pauls, London
Professional DirectorsNominee Directors Independent Directors
Definitions
Requisite criminal intent?“dishonesty”?
Strict liabilityRegulatory offences?Offences under proceed of crime legislation?
Criminal law?
How active is the regulator?How egregious are the actions of the director?Available sanctions?Unlikely effective remedy for loser.
Regulatory Sanctions?
Statutory duties:E.G. art 74(1) Companies (Jersey) Law
General duty to act honestly in good faith and with due care, diligence and skill
Common law dutiesMust act bona fide in the best interests of the Company
Must positively apply his mind to the question of what the Company’s interests are
Must exercise independent judgement and not fetter discretion
Must act in accordance with the powers given by articles.
No “special rules”
The Basics: What are duties of director?
Nothing legally wrong
“So long as the director is left free to exercise his best judgment in the interests of the company which he serves... but if he is put upon terms that he is bound to act in the affairs of the company in accordance with the directions of his patron, it is beyond doubt unlawful”
Bouting v. Association of Cinematograph [1963] 2 QB 626
A director who acts without exercising any discretion at the direction of a stranger to the company is “fixed with the stranger’s knowledge of the nature of the transactions”
Selangor v United Rubber Estates [1968] 1 WLR 1555
“Nominee” Directors
Why pursue directors?
“low hanging fruit”? Fraud casesInsolvent fraud
Enforceability issues against “fraudsters” and/or principal characters
Insurance coverageMinimum level of cover?
Why pursue directors?
Establish breach of fiduciary duty by directorsPursue those who may have dishonesty assisted
that breach.
Stepping stone to other parties: Dishonest assistance
Central Bank of Ecuador v. Conticorp SA & others [2015] UKPC
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Case Study
The structureConticorp SA
Grupo Financiero Conticorp SA
Banco Continental
Banco Curacao
Interamerican Asset Management Fund Limited “IAMF”
2,500 Bahamanian $ per year 5 individuals authorised to give him “full
instructions”Members of the family which controlled Conticorp “never more than an instrument executing the
Respondents’ instructions”
Mr Taylor
On instructions signed away portfolio of assets worth $190m in transaction at undervalue
Orchestrated by Conticorp to extract value from failing subsidiary
Taylor made no enquiries as to commercial benefit to company of transaction.
No independent judgment
Fixed with knowledge of those instructing him.
The transactions
No reason to believe that the instructions he received were dishonest
Impossible on the information that he was provided with for him to conclude where the interests of the Company lay
BUT made no reasonable enquiry.
Taylor’s defence
Mr Taylor gave effect “blindly and ignorantly” to others’ instructions and this was so whether or not he was, in the event fortunate enough to receive only instructions which were in IAMF’s best interest
It was his duty to understand IAMF’s affairs and apply his own mind to its interests
He took the risk, at the very least, that the instructions he received and followed may not be proper
No different standard for offshore nominees
“Dishonesty”Defendant must be conscious of those elements of the
transaction which make his participation transgress ordinary standards of honest behaviour, but there is no requirement that he should have thought about what those standards were
Barlow Clowes v Eurotrust [2006]
Dishonest Assisters
Joint and several liability US$ 191mCompound interest
Available where money obtained and retained by fraud by someone in fiduciary position
Applies equally to those who assist the fiducuiary
Interest US$381m
Judgment
Corporate Services Provider provides services to fraudster
Fraudster obtained funds from victim on trust CSP paid away funds Court found knowledge sufficient for dishonest assistance Judgment against CSP £4.5m and €8.4m
Nolan v Minerva [2014] - Jersey
Causes of action
Breach of fiduciary dutyNegligence
Causes of action
Directors acting in interests of another company within group/shareholders of another company
Angelmist Properties Ltd v. Leonard [2015]Transaction for benefit of another company in group is potentially in the
overall, albeit indirect interest of their company
But must still exercise appropriate care in the interests of the company of which they are director. Cannot forego that Company’s interest
Conflict of interest
Possibility of exclusion clausesArticles of association
Contracts of services
Only liable for “wilful default”
Negligence
Failings of directors, included:Signing minutes of meetings and reports prepared by professionals
appointed to manage fund without reading them
Signed financial statements, management representation letters and side letters without making enquiries
Signed sham investment management and advisory agreements without reading them
Failed to read a report which identified a related entity as investment counterparty.
Weavering v Peterson - Caymans
Need to establish eitherIntentional and conscious breach of duty, or
Reckless disregard by director for duty he owedRe City Equitable Fire insurance [1925] Ch 407
“Wilful default”
Difficulties
Judgments proof Lack of assets Insurance agreementsCollusive agreement between defendant director & insurer?
Practical difficulties
Reflective loss-type argumentsProper Plaintiff in action for loss suffered by a wrong to the Company
will normally be the Company itself and not its shareholders
Impact for offshore trust structures?
Positive indications from some courtsFreeman v Ansbacher [2009] Jersey
Jefcoate v Spread Trustee Co Ltd [2014] Guernsey
Risk remains
Legal difficulties
Difficulty in proving “fraud” or “dishonesty”Causation “Honestly & reasonably” clausesRatification of conduct by shareholdersApportionment of damagesContributory negligence
Legal difficulties
Conclusions
Simon ThomasPartner – Baker & Partners, Jersey
Charles ColemanDirector – Gough Law, Isle of Man
Offshore directors – Are they untouchable?
Offshore Alert London25 November 2015Grange St. Pauls, London