Seminar on Director s Duties and Liabilities Issues for Japanese companies investing overseas

Transcription

1 Seminar on Director s Duties and Liabilities Issues for Japanese companies investing overseas Ean Mac Pherson 13 April 2007 Baker & McKenzie GJBJ Tokyo Aoyama Aoki Koma Law Office (Gaikokuho Joint Enterprise) is a member of Baker & McKenzie International, a Swiss Verein with member law firms around the world. In accordance with the common terminology used in professional service organizations, reference to a partner means a person who is a partner, or equivalent, in such a law firm. Similarly,reference to an office means an office of any such law firm.

2 Table of contents 1. Case Study Hollinger International 2. What is a Fiduciary Duty? 3. Who are the Directors? 4. Who do the Directors owe duties to? 5. What are the main Duties? 6. Nominee Directors 7. Criminal Penalties 8. Listed Company Issues 2007 Baker & McKenzie 2

3 Case study - Hollinger International Global media company Owner of London Daily Telegraph & Chicago Sun Times Conrad Black Chairman, CEO & Shareholder Listed on New York Stock Exchange 2007 Baker & McKenzie 3

4 The Hollinger Structure Conrad Black CEO - Conrad Black Ravelston Corporation 65% CEO - Conrad Black Hollinger Inc. (Listed on Toronto Stock Exchange) 70% Non Competition Payment Non Competition Payment 20% + B Class Voting Shares CEO - Conrad Black Hollinger International Inc. (Delaware Company listed on New York Stock Exchange) Non Competition Payment Project Companies A B C D Sale of Business Buyer 2007 Baker & McKenzie 4

5 Conrad Black s Jet Trips Cost $565, Baker & McKenzie 5

6 The Allegations US District Court Case alleging Conrad Black breached his Fiduciary duties to Hollinger International, including: Duty of loyalty Duty to maximize transaction benefits to Hollinger Duty to refrain from acting to Hollinger s detriment Duty to disclose Related Party Transactions Duty to refrain from making false or fraudulently misleading statements 2007 Baker & McKenzie 6

7 The Penalties If convicted Mr Black may face: Imprisonment Fines Forfeiture of his property 2007 Baker & McKenzie 7

8 Japanese Companies Perspective Directors appointed by Japanese Companies unlikely to need to make decisions about private jet trips but Such Directors may have to balance and/or choose between competing interests relating to their position as Directors 2007 Baker & McKenzie 8

9 Common Issues for Japanese appointed Directors 1. Problems in 100% owned overseas subsidiaries of Japanese Companies 2. Problems in Joint Venture Companies 2007 Baker & McKenzie 9

10 Comparison of Director duties in different countries Australia Thailand United States Japan (Private Company) (Delaware) Directors must act honestly and with care and diligence Directors must apply the diligence of a careful businessman Directors have a duty of care to the Company Directors must perform their duties faithfully for the benefit of the Company Directors must not have conflicts between their own interests and Company s interests Directors duties and personal interest must not conflict with those of the Company Directors have a duty of loyalty (i.e. to operate the Company without regard for personal interests) Directors must report to board or shareholders meeting if they intend to transact with the Company Directors must not misuse position for own benefit Director must not take part in transactions that are in competition with the Company Directors must not seize corporate opportunities for themselves 2007 Baker & McKenzie 10

11 What is a Fiduciary Duty? ( 忠実義務 ) Duty to act with loyalty and trust to the other person Duty to put the interests of the other person above the fiduciary s own interests The duty arises when you are in a position of special trust or power over another person 2007 Baker & McKenzie 11

12 Examples of Fiduciary Relationships Trustee/Beneficiary Partner/Partner Lawyer/Client Agent/Principal Doctor/Patient Director/Company 2007 Baker & McKenzie 12

13 Who are the Directors? Executive/Non-executive Directors Alternate Directors Shadow Directors Generally no distinction between full time and part time Directors 2007 Baker & McKenzie 13

14 To whom are Director duties owed? Directors owe their obligations to the Company The Company means the shareholders (and sometimes future shareholders) Directors do not owe fiduciary duties to employees or to society at large Generally no duty to creditors but their interests should be considered (especially if Company is near insolvency) 2007 Baker & McKenzie 14

15 Specific Director Duties Duty to act honestly Duty to act with care and diligence Duty to avoid insolvent trading Duty not to misuse position of Director Duty to avoid conflicts of interest Duty to act in accordance with Articles of Association 2007 Baker & McKenzie 15

16 Duty to Act Honestly Directors must act: (a) in good faith and (b) for a proper purpose in what they consider to be the bona fide best interests of the Company honestly in dealings with shareholders and must not mislead shareholders 2007 Baker & McKenzie 16

17 Duty to Act with Care and Diligence Directors must give reasonable attention to the affairs of the Company but they can delegate their duties to appropriate officers of the Company Directors must take reasonable steps to be in a position to guide and monitor the management of the Company Directors should attend all Directors meetings and be aware of Company s overall financial situation 2007 Baker & McKenzie 17

18 Business Judgment Rule (e.g. Delaware, Australia) In Australia, Directors will satisfy duty of care and diligence if they: exercise their judgment in good faith for a proper purpose do not have a material personal interest in the transaction inform themselves of the subject matter of the decision to the extent they reasonably believe appropriate rationally believe the judgment to be in the best interests of the Company 2007 Baker & McKenzie 18

19 Duty to avoid Insolvent Trading Company insolvency will affect employees, creditors, suppliers, customers etc Directors must sign off on accounts that the Company is solvent If the Company becomes insolvent, Directors have a duty to cease trading and put the Company into administration or liquidation Potential criminal liability for insolvent trading 2007 Baker & McKenzie 19

20 Duty not to misuse position of Director Hollinger Case Directors alleged to misuse position for personal gain Duty not to misuse position to obtain a private benefit for yourself or your related party to the detriment of the Company Duty not to make improper use of information 2007 Baker & McKenzie 20

21 Duty to avoid conflicts of interest Duty generally requires interested Directors to step aside and let remainder of board decide the issue Duty is to inform the board and usually to step aside, does not generally require you to stop the Company entering into a contract with your related Company even if the deal advantages your related Company Some jurisdictions require you to notify the Company of your related parties on becoming a Director 2007 Baker & McKenzie 21

22 Nominee Directors Q. To what extent can a Director take into account the interests of his appointing shareholder? A. Generally Director may take into account the interests of his appointing shareholder if: - he honestly believes those interests are consistent with the interests of the Company as a whole - such belief is not unreasonable 2007 Baker & McKenzie 22

23 Nominee Directors Shareholders Agreement and Articles also relevant (e.g. may show Company is a vehicle for the joint venture, that shareholders will cause Directors to give effect to Shareholders Agreement etc) Japan Abrasive Materials Pty Ltd & Ors v. Australian Fused Materials Pty Ltd & Ors [1998] WASC 60 (Directors not acting for improper purpose) 2007 Baker & McKenzie 23

24 Criminal Penalties Director can face criminal penalties (fine/imprisonment) for breach of Director duties (usually when fraud is involved) Other laws: - Health & safety laws - Environment laws - Private criminal actions (e.g. Thailand TPI case) 2007 Baker & McKenzie 24

25 Listed Company Issues Insider trading (esp. on share sell down) Continuous disclosure (market announcements) Share sale or purchase notifications Shareholder approval for related party transactions 2007 Baker & McKenzie 25

26 Other Issues Immigration (Thailand work permits) Residency (minimum no. of resident Directors) Filing requirements 2007 Baker & McKenzie 26