Directorships of Luxembourg companies: What's at risk? How to help mitigate the risks you face.

1. © Allen & Overy LLP 2019
Directorships of Luxembourg
companies: What’s at risk?
7 March 2019
Sylvain Cailleau, Antoine Reillier, Graham Cook, Oliver Wheeler
A summary of
the content

2. Are you
taking on more risk
than the entity
you work for?

7. A corporate
D&O policy
may not
always
cover you

8. 8
A Europe-based PE firm managed a
fund that owned a portfolio company
in another country.
A LuxCo is managed by a
board composed of a
company (Company A) and
other directors.
Dispute between the
shareholders of Company A
regarding the validity of a
capital increase, which
resulted in the eviction of a
shareholder.
Who is validly representing
Company A?
Directors of LuxCo recognise as
manager of Company A the
individual officially registered as
such.
Evicted shareholder of Company
A sues each director of LuxCo
for taking sides.
Criminal complaint filed
against these directors.
Directors had to be represented in court to
defend their interests, despite having
nothing to do with the dispute between
shareholders of Company A.
Background Impact on LuxCo directors
Case study – Escalation of a dispute at a company level
Dispute
Significant loss of time, effort and money
for LuxCo’s directors

9. 9
A Europe-based PE firm managed a
fund that owned a portfolio company
in another country.
A Luxembourg fund is
managed by a board
comprised of the fund
advisor and independent
directors
The fund advisor secretly
misappropriated significant
amounts of money at the
level of the fund portfolio
companies
The fund advisor fled to an
offshore country
Complaint was filed with the
CSSF.
Investors were tempted to start
legal proceedings against the
Luxembourg independent
directors.
Very long discussions between
investors and former
Luxembourg independent
directors.
Background Impact on LuxCo directors
Case study – Claim from investors
Directors had to give substantial
explanations to the CSSF
Dispute
CSSF complaint impacted approval
procedures for other non-related funds for
which Luxembourg independent directors
were to act as director
Significant loss of time, effort and money
for the LuxCo directors

10. 10
A Europe-based PE firm managed a
fund that owned a portfolio company
in another country.
Family-owned company
Shareholders no longer on
speaking terms
A minority shareholder sues
all directors (except for his
own representatives),
making allegations against
them
Directors want to address these
claims in a board meeting.
Board representatives of
minority shareholder do not
cooperate.
Each director retains his own
legal advisor.
Costs for the defence – indemnification
letter.
Background Dispute Impact on independent
directors
Case study – minority shareholders’ claim

11. 11
A Europe-based PE firm managed a
fund that owned a portfolio company
in another country.
A UK financial services company
faced potential shareholder
action after allegations that its
financial reports failed to meet
the requirements of the
Disclosure Guidance and
Transparency Rules, due to the
absence in the reports of any
climate change-related
disclosures.
Complaints were filed with the
UK Financial Conduct Authority
(FCA). Directors faced personal
impact arising from the potential
action.
Request submitted to the
company to clarify whether they
would be covered under the
entity D&O policy, should an
action arise.
The company undertook long discussions with
advisors and could not provide a quick response.
As the company could not immediately confirm
whether cover would be available, the directors
had no access to suitable, immediate advice for
their situation. Leading some board member to
consider finding independent advice whilst
potential action was threatened.
Incurred costs for interim legal counsel and
reputational management advice.
The company The directors’ actions Impact on directors
Case study – climate change non-disclosure

12. 12
A Europe-based PE firm managed a
fund that owned a portfolio company
in another country.
A US-based PE firm
managed a fund that
owned portfolio companies
in various European
countries.
One of the portfolio
companies went into
administration.
Allegations were made
against the local directors.
Requested the PE firm to
indemnify them.
The PE firm refused – fearful
that the Group’s policy
indemnity limit would be
exhausted.
The local directors tried to
access the PE firm’s entity
D&O policy. They were
denied.
Had no access to suitable, immediate
advice for their situation.
Forced to defend themselves during the
administration process, whilst also
challenging the stance taken by the PE
parent.
Incurred costs for legal counsel,
reputational management advice, and costs
for the defence.
The company Local directors’ actions Impact on local directors
Case study – entity and local directors’ needs do not align

13. Practical steps
to mitigate
your personal
risk

14. 14
8 prudent steps
to help mitigate risk on appointments held
CONTRACTUAL
AGREEMENT
DUE
DILIGENCE
INDEMNIFICATION
CHECK
ENTITY
D&O
NOTIFICATION
PROCESS
ANNUAL
ACTIVITY
PREMIUM
PAID
EVIDENCE
OF COVER
2 4
68
1 3
57

15. 15
As best practice, most entities in Luxembourg buy a corporate
D&O policy.
Having an entity D&O policy is NO guarantee that a
director/executive will be covered should a liability situation arise.
1
2
3
For increased certainty, choice and control – more directors
are protecting themselves with an additional individual policy.

16. Benefits of an
individual
policy

17. 17
An Individual Executive Protection policy puts the director in control
Director/officerThe entity
Personal assets
Individual Executive Protection policy
- with more certainty, control and choice
RisksDecisions
The CSSF Declaration of Honour:
CSSF DECLARATION OF HONOUR – FOR NATURAL PERSONS
j) Being covered by an insurance policy covering all risks arising from my
activity (only applicable if the undersigned acts as a natural person)
€
Reputation
Personal finances

18. 18
Complements
entity D&O policy
Reputational
defence
Responds
first
Created for
Luxembourg
directors
Protects you
personally
Cover for you,
spouse,
civil partner
& estate
Legal
defence
Personal wealth.
Extradition
Freezing orders

19. London Branch
2nd Floor
5 Lloyd’s Avenue
London
EC3N 3AE
Luxembourg Branch
4th Floor
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Luxembourg
Graham Cook
Founding Director
Talisman Insurance Broking Ltd
Gcook@talismaninsurance.co.uk
+44 207 977 7848 Talisman is an independent commercial insurance
broker, focused on businesses and executives.
We manage many classes of corporate and individual
insurance, on a single or multi-territory basis.
www.talismaninsurance.lu
Corporate information

20. 20
Questions?
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16/03/2019