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Article
Publication date: 29 November 2011

Arthur Delibert and Gregory Wright

The purpose of this paper is to review significant questions raised by the US Supreme Court's June 13, 2011 decision in Janus Capital Group, Inc. v. First Derivative

Abstract

Purpose

The purpose of this paper is to review significant questions raised by the US Supreme Court's June 13, 2011 decision in Janus Capital Group, Inc. v. First Derivative Traders and discuss issues that fund directors and advisers may want to consider as a result.

Design/methodology/approach

The paper explains the narrow interpretation of Rule 10b‐5 that the Court decision represents and the Court's effort not to allow expansion of secondary liability for aiding and abetting under the federal securities laws. It raises questions about the allocation of liability for prospectus content among fund directors, officers, and advisers. It compares liability of advisers and their affiliates under provisions of Rule 10b‐5 and Sections 11 and 12 of the Securities Act of 1933. It recommends three matters that directors should consider concerning the allocation of liability in a case involving a false prospectus: the best way for fund directors to carry out their “due diligence” regarding the content of fund registration statements; the provisions of advisory, administrative and distribution contracts that allocate liability between those entities and the fund for prospectus misstatements and omissions; and various avenues for indemnification and shared liability, including D&O/E&O coverage and an indemnification agreement with the adviser. It introduces the alternative of shared liability in which the adviser signs the fund's registration statement.

Practical implications

The paper finds that the Janus decision has caused fund directors, officers and advisers to focus on the allocation of liability for prospectus errors.

Originality/value

The paper provides a practical guidance from experienced securities lawyers.

Article
Publication date: 4 April 2019

Tareq Na’el Al-Tawil

The purpose of this paper is to examine the available judicial precedence using both the United Arab Emirates and UK laws to bring up a much broader understanding of…

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Abstract

Purpose

The purpose of this paper is to examine the available judicial precedence using both the United Arab Emirates and UK laws to bring up a much broader understanding of wrongful and fraudulent trading concepts and provide a critical analysis of potential personal liabilities of directors in the UK and UAE jurisdictions for the acts of fraud and mismanagement.

Design/methodology/approach

This paper seeks to understand corporate fraud from the aspect of trading. It will take an in-depth look into wrongful trading and fraudulent trading in the UAE and UK jurisdictions while analyzing the punishment for the same. The study will also look at famous cases for the same while seeking to understand the mitigation measures undertaken in various nations across the world.

Findings

The author studies the contents and provisions of the UK Insolvency Act 1986, truly the concepts of wrongful trading and fraudulent trading are not explicitly mentioned in the UAE Law, but the said terms associated with “lifting of corporate veil” are notionally existent under the UAE Federal Law No2/2015, otherwise known as Companies Law (Articles 84 and 162-1), and under the UAE Bankruptcy Law (Federal Decree Law No. 9 of 2016), which provides legislation governing trading while the company is insolvent.

Originality/value

In the current paper, the author is keen to examine the available judicial precedence to bring up a much broader understanding of the mentioned concepts and provide a critical analysis of potential personal liabilities of directors in the UK and UAE jurisdictions for the acts of fraud and mismanagement.

Details

International Journal of Law and Management, vol. 61 no. 2
Type: Research Article
ISSN: 1754-243X

Keywords

Article
Publication date: 13 July 2019

Daniel A. Street and Dana R. Hermanson

This paper reviews academic literature related to the consequences that outside directors and boards may face in the wake of earnings restatements and suggests directions…

Abstract

This paper reviews academic literature related to the consequences that outside directors and boards may face in the wake of earnings restatements and suggests directions for future research. We examine loss of board seats; recruitment of new directors; proxy recommendations and shareholder support; pre-emptive director departures; director wealth effects; director reputation, litigation, and sanction risks; international evidence; and legal proposals for reform. The overall picture that emerges from the literature is that directors’ primary risk in the wake of earnings restatements is loss of board seats, in part through adverse proxy advisor recommendations and reduced shareholder support. Directors typically face little risk of legal liability or SEC sanctions, and some directors pre-emptively leave a problem company’s board and reduce their loss of interlocked board seats. Some legal scholars have called for director liability to be increased so as to promote more vigilant board oversight. Companies often focus on increasing the independence of the board in the wake of a restatement in an effort to repair organizational reputation. While researchers have revealed a host of important findings to date, much more can be learned about the effects of restatements on outside directors and boards.

Details

Journal of Accounting Literature, vol. 43 no. 1
Type: Research Article
ISSN: 0737-4607

Keywords

Article
Publication date: 1 July 2019

John Nowland

This study aims to document the variation in director attendance rates around the world and investigate the influence of cross-country differences in law and…

Abstract

Purpose

This study aims to document the variation in director attendance rates around the world and investigate the influence of cross-country differences in law and infrastructure on director attendance practices.

Design/methodology/approach

Director attendance data are hand-collected from company annual reports and are related to differences in shareholder rights, director liability and transportation and telecommunications infrastructure across countries.

Findings

Using a hand-collected data set of 4,344 directorships from 33 countries, the results indicate that director attendance is significantly lower in emerging markets and is positively related to the extent of shareholder rights and the quality of telecommunications infrastructure.

Originality/value

For policymakers and shareholders, the findings of this study indicate that there is substantial variation in director attendance practices around the world. Across all markets, director attendance is higher when the telecommunications infrastructure better enables the potential for virtual attendance, thereby allowing directors to participate in meetings when they cannot be physically present. In emerging markets, director attendance is also higher where there is a stronger emphasis on shareholder rights, highlighting an avenue for improved director attendance by strengthening shareholder involvement in major corporate decisions.

Details

Accounting Research Journal, vol. 32 no. 2
Type: Research Article
ISSN: 1030-9616

Keywords

Article
Publication date: 6 September 2013

Alexandra Dobson

The purpose of this paper is to focus on the liability of directors and senior officers within organisations (primarily companies but partnerships and sole traderships are…

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Abstract

Purpose

The purpose of this paper is to focus on the liability of directors and senior officers within organisations (primarily companies but partnerships and sole traderships are considered where appropriate) and primarily focus on workplace settings.

Design/methodology/approach

Desk‐based research was carried out.

Findings

The scope of the paper is confined to two major aspects of the criminal law – that of manslaughter, both statutory and at common law and also touches on the range of health and safety offences available to the courts. In terms of manslaughter, under the common law, it is gross negligence that is considered.

Research limitations/implications

The paper does not attempt an analysis of forms of civil liability but does reflect on the broader relationship between responsibility of directors and company law. The debate over the responsibility of those in leading positions following death or injury to members of the workforce remains a live and problematic one. It is clearly linked to wider considerations of corporate responsibility.

Originality/value

On the one hand, those advocates of a system targeting erring directors in a direct fashion see utilisation of the criminal law (apportioning the full weight of public opprobrium), as the most effective way of improving safety for the workforce. By contrast the opposing view is that senior personnel rarely set out to kill or injure those who work for them and that a better way forward is to consider systemic failings running across an organisation. Linked to this is the notion that placing too much responsibility on companies and the senior personnel at their helm is a disincentive to the entrepreneurial spirit that allows business to flourish.

Details

International Journal of Law and Management, vol. 55 no. 5
Type: Research Article
ISSN: 1754-243X

Keywords

Article
Publication date: 20 June 2019

Richard Ridyard

This paper aims to investigate how bank governance can be altered to reduce risk taking and engender greater financial stability.

Abstract

Purpose

This paper aims to investigate how bank governance can be altered to reduce risk taking and engender greater financial stability.

Design/methodology/approach

The paper reviews existing bank governance arrangements, contemporary challenges and alternative reforms.

Findings

It is argued that recent reforms are incomplete. Greater countervailing incentives for bank managers and shareholders are required. This prompts an inquiry into the merits and demerits of four types of reform: changes to executive compensation arrangements; the introduction of a liability standard for directors; the removal of limited liability for bank shareholders; and a criminal offence for managers.

Originality/value

Discussion illumines several problems with the current approach to bank governance and provides insights that can help direct future reform.

Details

Journal of Financial Regulation and Compliance, vol. 28 no. 4
Type: Research Article
ISSN: 1358-1988

Keywords

Article
Publication date: 19 August 2021

Muhammad Saleem Korejo, Ramalinggam Rajamanickam and Muhamad Helmi Md. Said

Money laundering (ML) is one of the greatest challenges, the global community faces today. Corporate entities such as financial institutions (FIs) are most susceptible to…

Abstract

Purpose

Money laundering (ML) is one of the greatest challenges, the global community faces today. Corporate entities such as financial institutions (FIs) are most susceptible to facilitate and launder money. The paper raises the following question: Who is to bear the burden of liability? Either a corporation or an individual, thus this paper examines liability issues in a corporate setting particularly financial institutions, which arise from regulatory noncompliance or failure to oversight in the context of ML.

Design/methodology/approach

The study is legal doctrinal mainly based on case laws, legislation and research articles.

Findings

Firstly, this study provides how the concept of liability in a corporate setting in UK and USA has drifted from its traditional “duty to care” standard to a new “duty to oversight” and “Responsible Corporate Officer” concepts resulting a shift in corporate to individual liability. Secondly, in the context of anti-ML violations in FIs, imposition of corporate or personal liability solely may not effectively deter ML and may create conflicts between management and shareholders.

Practical implications

The paper can be a source to explore the issue of ML liability for regulatory noncompliance based on UK, USA and Pakistan law.

Originality/value

This paper demonstrates that the imposition of either corporate or personal liability may create dilemma either for shareholders or management; however, a “combine or collective liability” approach carries potential to retard ML activities in FIs and balancing the harm-penalties incurred upon a corporation while addressing shareholders concerns.

Details

Journal of Money Laundering Control, vol. 25 no. 3
Type: Research Article
ISSN: 1368-5201

Keywords

Article
Publication date: 1 April 1999

Max Gillman and James Hogan

New Zealand’s 1993 Companies Act defines reckless trading as when a director/manager induces a “substantial risk of serious loss to the company’s creditors”. The…

Abstract

New Zealand’s 1993 Companies Act defines reckless trading as when a director/manager induces a “substantial risk of serious loss to the company’s creditors”. The definition contrasts with international common and statutory law that holds managers personally liable only under circumstances of moral failing. It also allows for managers to be found liable for bad investments during the continued existence of a firm. Replacing the standard of moral failing with a standard of objective risk evaluation and allowing culpability beyond bankruptcy proceedings extends liability in a way that indirectly taxes corporations. This extension of liability stands contrary to the evolutionary development of the corporation as based on an efficient redistribution of property rights. It biases investment towards lower risk, lower yield ventures, and is expected to decrease New Zealand’s innovation‐driven economic growth

Details

International Journal of Social Economics, vol. 26 no. 4
Type: Research Article
ISSN: 0306-8293

Keywords

Article
Publication date: 27 March 2007

Chun‐Keung (Stan) Hoi, Ashok Robin and Daniel Tessoni

This paper aims to study the audit committee (AC) provisions of the Sarbanes‐Oxley Act with the objective of identifying implementation issues and to recommend firm and…

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Abstract

Purpose

This paper aims to study the audit committee (AC) provisions of the Sarbanes‐Oxley Act with the objective of identifying implementation issues and to recommend firm and board actions to remedy the problems that are identified.

Design/methodology/approach

Standard economic theory was used to analyze the incentives and abilities of AC members, relying on results in the financial economics literature regarding outside director behavior.

Findings

The framework predicts that the new provisions in conjunction with the new regulatory/liability environment will increase risk‐aversion in directors belonging to ACs. This, in turn, creates an incentive alignment problem between AC members and shareholders leading to sub‐optimal decisions with regard to the audit. In particular, it is noted that demand will increase for high‐quality audits irrespective of cost considerations. The analysis also indicates that director labor markets will not mitigate this sub‐optimality.

Research limitations/implications

Because Sarbanes‐Oxley places direct responsibility for the audit in the hands of the AC, interventions by managers who may have incentives more aligned with those of shareholders are not considered. In a real world setting, managers may be playing a constructive role behind the scenes.

Practical implications

Specific action items to mitigate the problems are suggested. These steps have the combined effect of: increasing compensation for AC members (to support the additional workload); decreasing their risk exposure (to facilitate incentive alignment); and providing additional resources (to ensure efficiency of oversight).

Originality/value

In studying the AC provisions of the Sarbanes‐Oxley Act, this paper has gone someway towards identifying implementation issues and recommending firm and board actions to remedy the identified problems.

Details

Managerial Auditing Journal, vol. 22 no. 3
Type: Research Article
ISSN: 0268-6902

Keywords

Article
Publication date: 15 March 2013

Alexandra Dobson

The aim of this paper is to seek to examine the operation of S.37 of the Health and Safety at Work Act 1974 in the context of the debate about director's duties for health…

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Abstract

Purpose

The aim of this paper is to seek to examine the operation of S.37 of the Health and Safety at Work Act 1974 in the context of the debate about director's duties for health and safety. It goes on to consider whether its increased use is indicative of an inclination on the part of regulators to more readily target senior officers within companies.

Design/methodology/approach

This is a conceptual paper.

Findings

The section has received much attention in recent years because unlike the bulk of the Health and Safety at Work Act 1974 from which it derives, it imposes no positive duties. Its use arises via a secondary duty and only comes into operation following proof of organisational fault. However, this indirect duty is imposed typically against directors and the section is therefore of great interest as part of a wider debate on the imposition of liability at board level.

Originality/value

Drawing on an a review of leading cases and the initial findings from analysis of the response to a Freedom of Information request made to the Health and Safety Executive in February 2012, the use of the section will be placed under the spotlight and considered in the context of other linked statutes.

Details

International Journal of Law and Management, vol. 55 no. 2
Type: Research Article
ISSN: 1754-243X

Keywords

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