The Liability of Board of Directors in Financial Companies: With Special Focus on the Business Judgement Rule and the Employee Representation

Malene Skovby & Martin Hougaard Hansen

Student thesis: Master thesis

Abstract

A number of Danish banks went bankrupt in the period 2008-2011, due to the effects of the financial crisis. Following the collapse of the banks, the legislature has further tightened its grip on the financial sector, using increased regulation of administration, operations, and capital requirements. The tightened requirements beg the question of, whether the sector also carries more responsibility, when the members of the board of directors act culpably.
In this thesis, the board of directors’ duties are explained for both common limited companies and financial companies. For this purpose, the historical development of relevant legislation is examined, in order to explain the legislature’s intents when continuously changing the laws. When comparing the Companies Act (“Selskabsloven”) and the Financial Business Act (“Lov om finansiel virksomhed”), the Business Judgement Rule is also to be considered. Based on legislation, this thesis determines that a higher standard of liability should apply to the board of directors in financial companies, but this thesis also finds that the principle in the Business Judgment Rule can be applied in the same way as for common limited companies.
In connection with the above, the standard of liability and the Business Judgement Rule is analyzed in the three bank convictions regarding Capinordic Bank A/S, Amagerbanken A/S, and Roskilde Bank A/S. In all of these cases the court finds, that there are no grounds for interpreting the current legislation as a tightened standard of liability, and that the principle in the Business Judgement Rule can also be applied to financial companies, even though the court in very special cases limit this rule, when conflicts of interest or gross negligence are present.
Based on the above, it is discussed whether the standard of liability should be tightened as a result of the opposing interpretations in the case-law in the intent behind the Financial Business Act, respectively. In the discussion, the legislature’s agreement of 27. March 2019, Strengthening of the effort against financial crime (“Styrkelse af indsatsen mod finansiel kriminalitet”), is also considered. The agreement contains a series of initiatives, where appointed workgroups among other things have to determine how the standard of liability can be tightened for financial companies. Malene Skovby Copenhagen Business School Martin Hougaard Hansen Cand.merc.aud Side 2 af 126 As a result of the thoughts and explanations behind the agreement, and the wording of the agreement in general, together with the consequences that a tightened standard of liability would entail, and combined with the considerations made in the three bank convictions, this thesis finds no grounds for concluding that a tightening of the standard of liability is needed.
Parallel with the above, this thesis also focuses on the rules regarding employee representation. Sources of law have concluded that there is no distinction between common members and employee selected members of the board of directors. However, it is proven in this thesis that the court in certain cases is inclined to make a distinction, meaning that the current sources of laws are challenged. This applies to both common limited companies and financial companies.

EducationsMSc in Auditing, (Graduate Programme) Final Thesis
LanguageDanish
Publication date2020
Number of pages127
SupervisorsSøren Friis Hansen