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AIDA France Climate Change Working Party

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Volkswagen wrote to me

Text of AIDA France Climate Change Working Party

AIDA France Climate Change Working Party
The VW Scandalwatched with D&o Spectacles By Dr Adolfo Paolini University of Buckingham UK and DACBeachcroft LLP Paris, December 2nd2015 Volkswagen wrote to me D&O Main Features Developed to protect Directors and Officers and not the Company Liability Insurance: Professional Indemnity Insurance/Third PartyInsurance Liability must be established to trigger substantive cover Claims Made Policies D&O does not cover wilful misconduct/fraud D&Odoes cover regulatory investigations Types: Side A , Side B and Side C Pollution is often excluded Uncontested Facts 11/09/2015 VW made public a statement highlighting howprosperous and environmentally friendly VW was. worlds mostsustainable automotive group Investors had purchased American Depository Receipts (ADRs) inUS/ share price lost more than a third of its value 18/09/15 US Environmental Protection Agency served a notice ofVW VW faces billions of Dollars in fines: $ per vehicle/VW set aside$ 7 Billion / Almost 0.5 million cars affected in US and 11 millionworldwide. Uncontested Facts 25/09/15 Germany disclosed that 2.8 million cars have beenaffectedand VW supervisory board has instructed lawyers both inUS and Germany to investigate the case VW admitted liability for the use of defeat devices to rig theemissions test/software to circumvent EPA VW senior officers denied liability and/or knowledge ofmisconduct Volkswagen Scenarios Companys Liability forbreaching anti-pollution rules Directors Liability to the Company for breach of directors duties Class Actions against VW by consumers Class Actions against VW by company shareholders/investors Attempted actions against directors by third parties Attempted actions against directors by Environmental Agencies Regulatory Investigations Defence Costs Cover German Scenario and D&O Implications
German Two tier system: Supervisory and Executive Board 1. Stock Corporation Act s 111: supervisory board brings the claim, onbehalf of the company, against the executive board and/ormanagement board s 93(4)(3) 2. Shareholders could pass a resolution and force the supervisory boardto proceed s 147 3. Shareholders have also the statutory derivative action/1% of theshareholding or Euro nominal value. Leave of court is required/suspicion of dishonesty/must be beneficial for the company/ sharesmust be acquired before the issue arises 3.1 Shareholders bear the cost/ claim it back if successful 3.2 unfounded actions/shareholders do not recoup costs German Scenario and D&O Implications
D&O policies ( as any other form of insurance) exclude fraud and/or wilful misconduct/ liability must be ascertained before theexclusion applies Companys admission of liability may not affect innocentdirectors/composite insurance policy/severability Two tier system and potential conflict of interest/insured v insured(less used these days)/policy wording/policy limits Insurer choice to defend or settle out of court/ duty to defend andindemnify Bentham Europe Ltd: shareholder action litigation financing forbreach of Securities Trading Act German Scenario and D&O Implications
Defence Costs? Who bears that defence costs?/Policy Wording/ Hendricks and Fassback (Howden Broking Group) proposal: twin model tower/different limits of indemnity/supervisory andexecutive board Two towers with different limits of indemnity/like excess policies Third party notice to the SB triggers liability. The UK Strategy One tier system/executive and non-executive directors
Directors duties owed to the company/breach of duty Minority Shareholders derivative action The strategy; Rules of Attribution/directors misconduct attributed to thecompany Jetivia v Bilta effect Safeway v Twigger/ competition rules/ illegality/ effect Could Directors be personally Liable to third parties?
Northstar Aerospace v Ministry of Environment Ontario Canada [2012] The company knew about the polluting agent and did its best toclean the site. The Company run out of cash to continue to clean the site andbecame insolvent. Directors did not act maliciously or negligently Directors and Officers were held personally liable to fund thecleaning up cost of companys site. D&Os agree to pay up to 4.5 Can $ and the dispute was settled D&O Insurance policy excluded pollution. Conclusions Directors personal liability Side C cover/policy limits
Pollution exclusion Defence costs cover German Two tier system UK potential exposures Thank You