Board of Directors' Liability for Capital Resources

Abstract

This thesis is based on the Danish provisions in the Companies Act regarding the board of directors’ liability for capital resources. According to the provisions of the Companies Act, there is a requirement that the board of directors, following the Companies Act § 115, subsection 1, no. 5 must ensure that there is adequate capital availability, however, there is no specific requirement in Danish law for when an assessment must be made.

To shed light on the problem, a legal analysis has therefore been drawn up which sheds light on the board's obligations. In addition, the legal analysis sheds light on the importance of the board's obligations when assessing whether liability for damages is imposed. In addition, it can be explained that the company's board of directors according to the Companies Act § 115, subsection 1. No. 5 must ensure that the company always has sufficient liquidity to meet current and future obligations. In addition, board members may, following the Companies Act § 361, subsection 1 in the event of liability for intentional or negligent acts. The board can be liable for damages if they disregard their obligations.

It will then be examined which incentives the board of directors, respectively the parent company and the subsidiary, have in connection with observing the subsidiary's financial position. In this study, use has been made of game theory and the principal-agent theory. Thereby, the principal-agent theory is used to investigate whether the parties have the incentive to deviate from their obligations and thereby break the agreement between the parties. Furthermore, the analysis will investigate whether the Nash equilibrium is efficient Here it was found that the parties have an incentive to deviate from the obligation when they learn that the other party deviates and thereby the Nash equilibrium is not efficient.

Finally, the thesis examines how optimal creditor protection can be ensured. In addition, Danish law is compared with Norwegian law, and based on the results, a legal policy proposal is drawn up for implementation. The thesis concludes that the board of directors of a capital company can comply with its duty to secure capital availability by having to assess the company's financial position at least twice a year and thereby ensure optimal creditor protection. The board will have continuous knowledge of the company's financial situation so that the board can react appropriately in connection with disproportionately large losses.