During the recent financial crisis several Danish banks have collapsed and surveys conducted by lawyers suggest that negligent management has been one of the main causes. This has occasioned to reconsider the deterrence of the liability rule in Danish law. On this background, the subject of this thesis is the rule’s influence on the risk of negligent behaviour of bank managements. According to the Danish Companies Act, management liability is based on the culpa rule, which incurs liability if management acts negligently – that is, if the management’s level of care is considered less than due care. Uncertainty surrounds the level of due care for bank managements, which, according to theory, can increase the risk of negligent behaviour. However, in some of the collapsed banks negligent behaviour is seen even in areas where no or little uncertainty about the level of due care is found. This behaviour must be considered opportunistic indicating that management liability lacks adequate deterrence. Furthermore, banks have a certain character and act under special conditions, which is found to have an adverse impact on management incentives to exercise due care. Thus, it is argued that management liability of banks should be modified. It is proposed that professional liability should be applied rather than the culpa rule. This liability rule is a variant of the culpa rule and requires a professional standard of due care which should be based on a higher level of competences. A higher level of competences can ensure the ability of the board of directors to undertake its obligations to supervise the executive directors and pursue strategic management. Simultaneously, the ability of the board of directors to discipline the executive directors is strengthened. As a specific proposal, a social scientific education and a mandatory course on banking should be required. Moreover, a recruitment policy based on the specific competence needs of the bank should be demanded. This policy should be approved by the Danish FSA, who should also conduct an extensive evaluation of the bank’s appointed members of the management. To ensure the maintenance of competences the management should review these annually and the Danish FSA shall approve this review. In combination, the professional liability and the specific proposal should clarify the level of due care and thereby reduce the risk of negligent behaviour of management of banks.
|Educations||MSc in Commercial Law, (Graduate Programme) Final Thesis|
|Number of pages||130|