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

Discussion

Member states differ both with respect to the general approach to the regulation of directors’ duties – based on a system of statutory rules or general principles of law (e.g., fiduciary principles or the law of agency51) that are elaborated and amplified by the courts – and the level of detail with which the duties are laid down in statute. The first point relates to the well-known distinction between common law and civil law countries, although we will see that this distinction has lost much of its meaning in the context of directors’ duties. As far as the second point is concerned, we can distinguish between jurisdictions that provide for a largely exhaustive list of specifically defined duties and jurisdictions that rely on a general clause that defines the behavioural expectations of directors in broad terms. The two points are not parallel. Directors’ duties may be uncodified but nevertheless distinguish between specific duties and attempt to regulate all relevant conflicts exhaustively. This is the case with Cyprus, Ireland, and (until the company law reforms of 2006) the United Kingdom. On the other hand, civil law jurisdictions may simply contain a broad formulation of the directors’ responsibilities, which we observe in particular in the case of Belgium, France, Luxembourg, and the Netherlands (but no longer in other countries influenced by French commercial law, notably Spain and Portugal, which have recently moved towards a system of specific and express duties), and in the Nordic and Baltic countries (Denmark, Estonia, Finland, Latvia, and Sweden). Either way, we note that all legal systems draw on principles of general contract law, tort law, or fiduciary principles to supplement the company law-specific rules where necessary. For example, French, Belgian, and Dutch law utilise the general liability provisions of the law of tort and negligence;52 many jurisdictions, among them Bulgaria,

51Fiduciary principles are trust law based in common law jurisdictions, i.e. directors are seen as having to act exclusively for the benefit of the beneficiaries (the shareholders). Agency (sometimes called ‘mandate’), on the other hand, refers to the contractual relationship by means of which the principal confers authority on the agent to act on the principal’s behalf within a specified area of business or to carry out a particular transaction. From the common law point of view, these two concepts are to be distinguished. The law imposes more demanding expectations on trustees than on agents: ‘Directors are not only agents, but to a certain extent trustees. . . . The duty of directors to shareholders is so to conduct the business of the company, as to obtain for the benefit of the shareholders the greatest advantages that can be obtained consistently with the trust reposed in them by the shareholders and with honesty to other people; and although it is true that the directors have more power, both for good and for evil, than is possessed by the shareholders individually, still that power is limited and accompanied by at trust, and is to be exercised bona fide for the purposes for which it was given, and in the manner contemplated by those who gave it.’ N. Lindley, A Treatise on the Law of Partnerships, Including its Application to Companies (Callaghan & Company 1878), 364. Civil law jurisdictions are less familiar with the concept of the trustee; they have not developed a clear distinction between trust and agency. Rather, they generally assume that certain principles of good faith and honesty underlie all contractual or commercial relationships (see, for example, s. 242 of the German Civil Code, requiring debtors to act in good faith and take account of customary practice).

52Belgian Civil Code, Arts. 1382, 1383; French Civil Code, Arts. 1382, 1383; Dutch Civil Code, s. 6:162.

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Greece, Latvia, Romania, Slovakia, and Slovenia, explicitly refer to the law on agency to complement directors’ liability.

In Map 2.1.a, we classify the Member States according to the divide between codified and common law duties. The directors’ duties of virtually all countries derive, at least to some extent, from case law, even if the company law is largely codified. The distinction between codified and common law countries is not so much one of a strict dichotomy as of a gradual difference or change in emphasis. The jurisdictions are located on a continuum and the importance accorded to case law or statutory law, respectively, changes incrementally, without a clear dividing line between the two regulatory approaches. With this caveat in mind, we assign the jurisdictions to three groups: (1) Countries with predominantly codified systems of directors’ duties; (2) jurisdictions where some of the main duties

(e.g., duty of skill and care, duty not to enter into related-party transactions, etc.) are codified, but a significant number of duties are not; and (3) countries with predominantly case-law based duties.

Map 2.1.a: Regulatory approach to directors’ duties

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In almost all countries, directors’ duties are predominantly codified. The only exceptions are Ireland, where directors’ duties are derived from case law, similar to the situation in the United Kingdom before the company law reform that led to the adoption of the Companies Act 2006, and Cyprus, where the main duties (duty of skill and care, duty to act in good faith for the benefit of the company, and duty to exercise powers for purposes for which they were conferred) are not codified. The codification (or lack thereof) of directors’ duties exemplifies well the affiliation of countries to different legal families. The countries belonging to the common law (Cyprus, Ireland, and UK) have, or have had until recently (UK pre-2006) largely or exclusively case-law derived directors’ duties. Therefore, they conform to the type of law-making and legal sources that we would expect from that legal family. This no longer applies to the United Kingdom, of course, but the UK’s common law heritage continues to be generally determinative of directors’ duties because the Companies Act 2006 aims to a large extent to codify the existing common law principles, rather than rewrite the law.54 In addition, the Companies Act 2006 expressly stipulates that ‘regard shall be had to the corresponding common law rules and equitable principles in interpreting and applying’ the statutory duties.55

As far as countries belonging to the first category are concerned (predominantly codified duties), a more detailed analysis shows that all jurisdictions rely to varying degrees on case law to define and amplify directors’ duties. Case law is, first of all, important in interpreting and clarifying the content of the codified duties. In addition, we can observe that, where the codified rules are insufficient, the courts and/or the legal literature may take recourse to the legal relationship between the company and the director, which is commonly held to be of a fiduciary nature and, accordingly, give rise to fiduciary duties, or to other general principles of law.56 Good examples of this interplay between statutory rules and case-law influences are France, Germany, and some of the Nordic and Baltic countries (Denmark, Finland, Latvia, and Sweden). The French Code de Commerce expressly provides for liability in case of infringements of the law or the articles of association or management mistakes (faute de gestion).57 It does not, however, mention the duty of loyalty, which has been developed by the courts and whose dogmatic basis remains controversial.58 Similarly, the German Stock

Corporation Act contains only one provision regarding directors’ liability, which is structured around the duty of care,59 and a number of norms specifically tailored to situations that would fall within the remit of the duty of loyalty, using common law terminology, notably the duty not to compete with the company60 and the duty of confidentiality.61 Nevertheless, it is well established under German law that directors are bound by a general duty of loyalty developed by the courts and derived from good faith principles of contract law that covers cases not explicitly regulated by the statute. Finally, the Nordic and Baltic countries often provide only for a fragmentary codification of directors’ duties, with the consequences that contractual freedom plays an important role and a number of duties (for example, the duty of loyalty) are implied under general legal principles.

53In most countries, case law plays an important role in interpreting and amplifying directors’ duties. We classify a country as

‘partly statutory law, partly case-law’ if several of the most important duties, e.g. the duty of skill and care and the duty of loyalty, are not derived from a statutory enactment, but are exclusively developed by the courts.

54A notable exception are the rules on derivative actions (Companies Act 2006, ss. 260-269), which have replaced the famous (and for individual shareholders disadvantageous) principles established by Foss v Harbottle (1843) 67 ER 189 and its progeny.

In countries influenced by the English common law that have not followed the UK’s lead in changing the case law, namely Cyprus and Ireland, the restrictive rule in Foss v Harbottle continues to apply, see Table 3.2.a below.

55Companies Act 2006, s. 170(4).

56See the description of directors’ duties in Table 2.1.a above.

57Code de Commerce, L225-251.

58See below 3.4.

59German Stock Corporation Act, § 93.

60German Stock Corporation Act, § 88.

61German Stock Corporation Act, § 93(1), sentence 2.

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Therefore, the source of the jurisdiction’s rules on directors’ duties and liability seems to be of secondary importance. Notwithstanding a country’s regular approach, the analysis suggests that the law in most legal systems is elastic enough to allow the courts to derive solutions for novel conflicts that are not addressed by the statute. Furthermore, irrespective of the paucity or indeterminacy of the statutory sources of directors’ duties, we find that the content of the duties is nuanced and applicable to a variety of conflicts, provided that the courts have had the opportunity to build on the codified rules and develop the legal principles.62 This observation implies two findings. First, the indeterminate or fragmentary codification of directors’ duties as such does not necessarily lead to an insufficient level of investor protection. Second, it may, however, suggest a higher level of legal uncertainty, at least until judicially developed rules are well established, which, in turn, may require time and the existence of procedural rules that facilitate access to justice.

2.2 Addressees of directors’ duties

2.2.1 Who owes the duties?

Summary of the country reports

Table 2.2.1.a: Who owes the duties?

62 Case in point is Dutch law, which contains only two rather indeterminate provisions on the (internal) responsibility of directors: ss. 2:8 and 2:9 of the Dutch Civil Code. The sections provide that ‘the legal entity and those who . . . are involved in its organisation must act in relation to each other in accordance with the principles of reasonableness and fairness’ (s. 2:8 DCC) and that directors ‘are responsible towards the legal person for a proper performance of the tasks assigned to them’ (s. 2:9

DCC). The Dutch courts have relied on these provisions to regulate issues as diverse as the determination of the required standard of care and competence of directors, noncompliance with the articles of associations, entering into related-party transactions for which the director lacked authority, or starting a competing business. For more details see the Dutch country report and the summary below in Tables 2.4.2.a and 2.5.2.a.

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63 See PH Conac, L Enriques, and M Gelter, ‘Constraining Dominant Shareholders' Self-Dealing: The Legal Framework in

France, Germany, and Italy’ (2007) 4 European Company and Financial Law Review 491, 509.

64 The Rozenblum doctrine is derived from the criminal law judgment of the French Supreme Court of 4 February 1985 (‘Arrêt Rozenblum’). It provides that financial assistance by one group company to another will not be qualified as a misuse of company assets (abus de biens sociaux) if (1) a firmly established group structure exists; (2) the financial assistance was dictated by a common economic or financial interest of the group; and (3) it involves an element of consideration and does not disturb the balance of commitments of the group companies.

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