1 00118601 Emerging themes 2019 A4 AW v31 combined - Page 22



INVESTIGATIONS
There are two principal ways of providing
some protection against the impact of this:
indemnities for directors and officers, and
directors and officers (or management liability)
insurance. Large financial services companies
typically have D&O insurance and give
corporate indemnities: 75% of FTSE 100
companies have both in place for directors.
However, smaller organisations are less likely
to have either or both in place. It is those
organisations who are more likely to feel the
financial impact of an investigation into the
activities of its management (each member
of which may have to incur substantial legal
costs and potential liability as a consequence
of an investigation).
The risk posed to directors in regulatory and criminal
investigations is both financial and reputational. There
is also a risk that investigators pursue a “divide and rule”
approach, by exploiting a firm’s desire to draw a line
quickly under the matter, which may expose the director
to allegations he considers are false and which
potentially impact on his/her reputation and career.
This is illustrated by the 2017 case of FCA v Macris which
related to a significant fine against the bank for whom
Mr Macris worked. The bank’s chief investment officer
(Mr Macris) claimed that he was indirectly referred to in
an FCA Notice without being given an opportunity to
defend himself. While some of the allegations against Mr
Macris were upheld, the more serious ones (including one
which arguably implied a lack of honesty) were rejected.
The Supreme Court ruled in favour of the FCA but Lord
Neuberger stated:
“The interests of the …[firm and director]… are by no
means necessarily aligned. Thus, it may well be that
an employer would want to try and curtail any publicity
about the alleged failings by quickly negotiating and
paying a penalty, even if there may be grounds for
challenging the allegation in whole or in part. But this
may often not suit the employee, who might well feel
that, in the absence of the Tribunal exonerating him,
his reputation, and therefore his future employment
prospects, could be severely harmed or even ruined.”
A director may be found to have committed to
wrongdoing but may still face substantial legal costs
in defending himself/herself.
It is common for companies to indemnify their directors
against liabilities the director may incur. However,
this may only provide limited protection due to:
(a) restrictions under the Companies Act 2006 on
what an indemnity can cover; (b) risks of the company
becoming insolvent; (c) an indemnity may not cover
former directors and officers; and (d) the fact that the
indemnity may be subject to the board’s discretion
and/or can be withdrawn.
22/

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