Sarvesh Raj IPS - A Journey of Dedication and Leadership.pptx
Offshore directors - Are they untouchable?
1. Simon Thomas
Advocate – Baker & Partners, Jersey
Charles Coleman
Director – Gough Law, Isle of Man
Offshore
directors –
Are they
untouchable?
Offshore Alert London
25 November 2015
Grange St. Pauls,
London
4. How active is the regulator?
How egregious are the actions of the director?
Available sanctions?
Unlikely effective remedy for loser.
Regulatory Sanctions?
5. 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 duties
Must 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?
6. 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
8. “low hanging fruit”?
Fraud cases
Insolvent fraud
Enforceability issues against “fraudsters” and/or principal
characters
Insurance coverage
Minimum level of cover?
Why pursue directors?
9. Establish breach of fiduciary duty by directors
Pursue those who may have dishonesty assisted
that breach.
Stepping stone to other parties:
Dishonest assistance
10. Central Bank of Ecuador v.
Conticorp SA & others [2015]
UKPC 11
Case Study
11. The structure
Conticorp SA
Grupo Financiero Conticorp SA
Banco Continental
Banco Curacao
Interamerican Asset Management Fund
Limited “IAMF”
12. 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
13. On instructions signed away portfolio of assets worth $190m in
transaction at undervalue
Orchestrated by Conticorp to extract value from failing
subsidiary
Taylor made no enquiries as to commercial benefit to company
of transaction.
No independent judgment
Fixed with knowledge of those instructing him.
The transactions
14. No reason to believe that the instructions he
received were dishonest
Impossible on the information that he was provided
with for him to conclude where the interests of the
Company lay
BUT made no reasonable enquiry.
Taylor’s defence
15. Mr Taylor gave effect “blindly and ignorantly” to others’
instructions and this was so whether or not he was, in the
event fortunate enough to receive only instructions which
were in IAMF’s best interest
It was his duty to understand IAMF’s affairs and apply his
own mind to its interests
He took the risk, at the very least, that the instructions he
received and followed may not be proper
No different standard for offshore nominees
16. “Dishonesty”
Defendant must be conscious of those elements of the
transaction which make his participation transgress ordinary
standards of honest behaviour, but there is no requirement
that he should have thought about what those standards
were
Barlow Clowes v Eurotrust [2006]
Dishonest Assisters
17. Joint and several liability US$ 191m
Compound 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
18. 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
21. 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
22. Possibility of exclusion clauses
Articles of association
Contracts of services
Only liable for “wilful default”
Negligence
23. 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
24. Need to establish either
Intentional and conscious breach of duty, or
Reckless disregard by director for duty he owed
Re City Equitable Fire insurance [1925] Ch 407
“Wilful default”
26. Judgments proof
Lack of assets
Insurance agreements
Collusive agreement between defendant director & insurer?
Practical difficulties
27. Reflective loss-type arguments
Proper 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 courts
Freeman v Ansbacher [2009] Jersey
Jefcoate v Spread Trustee Co Ltd [2014] Guernsey
Risk remains
Legal difficulties
28. Difficulty in proving “fraud” or “dishonesty”
Causation
“Honestly & reasonably” clauses
Ratification of conduct by shareholders
Apportionment of damages
Contributory negligence
Legal difficulties
30. Offshore
directors –
Are they
untouchable?
Offshore Alert London
25 November 2015
Grange St. Pauls,
London
Simon Thomas
Advocate – Baker & Partners, Jersey
Charles Coleman
Director – Gough Law, Isle of Man