Directors and officers in M&A litigation

Hogan Lovells

We’ve asked lawyers from our offices in Spain, France, Germany, the Netherlands, and the U.S. to talk about when directors and officers get caught up in M&A litigation.

To start, let’s talk about the company’s constituting documents — articles of association, by-laws, and so on. How do they affect whether directors or officers can be held liable in M&A deals?

Pauline Faron, France: In France and Spain, directors’ liability can’t be limited or modified, not even by the company’s constituting documents. Any terms that aim to limit liability or limit shareholders’ rights to act against the directors or officers aren’t binding. Likewise, the general meeting of shareholders can’t decide to strike an action to hold directors or officers liable.

Olaf Gärtner, Germany: A stock company can’t limit or waive a claim it may have against a director in advance, but it can three years after the claim. The company can also stipulate duties of the board beyond the statutory law.

Bas Keizers, Netherlands: Shareholders can discharge a director from internal liability against the company during the approval of the annual accounts. This can only be adopted in a shareholders’ resolution and is limited to the information in the accounts (or otherwise) given before the discharge. The company can also indemnify the board against the claims of third parties, and this could be included in the articles of association or in the director’s employment contract. But this indemnity may not apply to reckless behavior or if serious blame can be attributed.

Ryan Philp, U.S.: Many corporate statutes allow terms to prevent directors from being personally liable for monetary liability for breaches of the duty of care. Terms like this don’t apply to breaches of the duty of loyalty or for acts in bad faith, though.

What about the standard for deciding whether a director or officer can be held liable to shareholders in an M&A deal? What is it?

Christine Gateau, France: Directors and officers can only be held liable if they’re at fault — that is, if they break laws or regulations, overstep the company’s articles of incorporation, or mismanage the company. Mismanagement is assessed by comparing the behavior at fault with what a reasonable person, acting in good faith, prudently and diligently, would have done in a similar situation.

Carla Wiedeck, Germany: There aren’t specific standards, as such, for an M&A deal. Because the deal itself is a business decision, the business judgment rule applies. For tortious acts, the director or officer must have meant to harm the shareholders in an immoral way and cause them a loss.

Jon Aurrecoechea, Spain: Directors who break the law or the company’s by-laws are presumed guilty until they prove otherwise. Where directors fall short of their legal duties (of diligence, loyalty, and so on), liability isn’t presumed. Instead, the claimant has to prove otherwise and that such actions caused damages.

Manon Cordewener, Netherlands: The board, or the directors individually, can be held liable if they can be blamed for serious instances of mismanagement. This is a high threshold.

Bill Regan, U.S.: The business judgment rule applies here, too, for arm’s-length transactions. Two other standards that may apply are enhanced scrutiny, which typically applies where transactions are entered into in response to perceived threats to the corporation, and entire fairness, which typically applies in conflict of interest and controlling stockholder transactions.

What can boards do to make the most of the business judgment rule, or its equivalent in various jurisdictions?

Bas Keizers, Netherlands: One way would be for directors to record the reasons behind their decision-making. If they were to face litigation later on, they could rely on these documents to defend themselves.

Pauline Faron, France: The business judgment rule doesn’t exist in France. So there’s nothing to stop a court from second-guessing the board’s decisions. That said, courts are reluctant to interfere too much. As has been said, directors should really document their decisions and keep this as proof that they acted in the best interests of the company, and not their own.

Jon Aurrecoechea, Spain: Directors must act in good faith, without personal interest in the subject matter, with sufficient information, and following a proper decision-making process. Documenting all the above very much facilitates a subsequent defense in a litigation scenario.

Ryan Philp, U.S.: Boards must be independent and disinterested with respect to the business decision at issue. This can be difficult where, say, institutional holders with large portions of the stock also sit on the board. These situations need careful attention to governance — special committees, for example, that are sensitive to conflict, can be considered. There are many examples of where this sort of special committee governance has resulted in dismissal of litigation.

Olaf Gärtner, Germany: Directors need to make sure their decision-making focuses on solely what’s best for the company. If a decision has been taken on the basis of sufficient information and on this basis looks right, yet later turns out to have been wrong, you cannot be punished for it. That’s part of the risk of being in business.

And what if a director or officer has a potential conflict of interest? Does the standard vary then?

Pauline Faron, France: To avoid conflicts of interest, these so-called related-party agreements — deals between the company and a director or between two companies where a director has an interest in both — follow a specific procedure. These deals must be agreed by the board, then ratified by the shareholders; otherwise, they can be annulled if the company is harmed. That’s the approach in France.

Olaf Gärtner, Germany: If there’s a conflict of interest, the business judgment rule doesn’t apply. Also, as a precaution, directors affected by the conflict of interest are regularly excluded from the decision-making process around the M&A transaction.

Jon Aurrecoechea, Spain: The duty to avoid conflicts of interest is embedded in the duty of loyalty, which makes any conflict of interest a breach of the duty of loyalty. The standard, then, is there’s no presumption of liability. Shareholders must prove the directors’ willful or negligent actions caused damages.

Carlijn van Rest, Netherlands: The standard for liability of directors does not vary if the directors have a (potential) conflict of interest. It should be noted, though, that a director should not take part in resolutions if the director has a direct or indirect personal interest that conflicts with the interests of the company. Should the director — in disregard of these provisions — take part in the adoption of the resolution, the resolution may be annulled and the director could be potentially liable.

Ryan Philp, U.S.: And here, a deal in which a majority of the directors is interested will be subject to the entire fairness test. This means the board has to show the deal was the result of an arm’s-length fair process that resulted in a fair price.

What’s the role of insurance in M&A deals? Where is this heading?

Ryan Philp, U.S.: Buy-side representations and warranties insurance has become increasingly common in private M&A deals. It allows the seller to get its money without the need to hold back a portion of the purchase price in an indemnification escrow. It also helps the buyer avoid having to potentially litigate. To date, there hasn’t been much litigation under these policies, but that may start to change.

Carla Wiedeck, Germany: If you do a deal and despite due diligence certain points remain open, warranties and indemnities insurance can provide cover to allow a deal to go ahead.

Olaf Gärtner, Germany: Five to seven years ago, no one in Germany really insured these types of risks. But over the last three to four years, we’ve seen this type of cover become the rule rather than the exception.

Jon Aurrecoechea, Spain: Reps and warranties insurance, which is quite new in Spain, is beginning to take off. Directors’ and officers’ insurance is more common. In both cases, the insurance companies generally pay out when obliged. But they can claim repayment from the insured if they are found to have acted intentionally or in bad faith.

Is a company’s ability to indemnify or put up the legal fees of its directors or officers named as defendants limited in your jurisdiction?

Pauline Faron, France: In most cases in France and Germany, the company pays for directors’ and officers’ insurance. (However, sometimes directors and officers are required by law to participate in these payments to a certain extent.) The insurance covers, among other things, the legal fees of directors and officers. As an alternative, French law allows the company to put up or repay the legal fees. Until, and unless, judgment is handed down, the defendant is presumed not liable.

Jon Aurrecoechea, Spain: In tenders and initial public offerings, it would be a conflict of interest to indemnify directors or put up legal fees, because the board would be generally approving such a decision for its own benefit. And for other claims it wouldn’t make sense; for example, where the company is the claimant, it wouldn’t make sense to pay the defendant’s (director’s) costs.

Bas Keizers, Netherlands: It’s considered unacceptable for a company to indemnify directors for any internal liability against the company due to serious mismanagement. The company can indemnify directors against external liability, that is, claims of third parties. Such indemnity could be included in the articles of association or the director’s management or employment contract, but it isn’t unlimited.

Bill Regan, U.S.: Corporate law statutes in the U.S. generally allow companies to advance defense costs and indemnify directors for liabilities for breaches of the duty of care. The vast majority of companies uses this authority and provides for broad advancement and indemnification rights in their articles of incorporation and by-laws. The exception to the general rule is that directors typically cannot be indemnified for breaches of the duty of loyalty.

Finally, what’s the role of directors’ and officers’ insurance in M&A litigation?

Ryan Philp, U.S.: The main role is to minimize the risk that a director or officer will become personally liable in shareholder litigation. It can also influence the parties’ willingness or ability to settle claims. Insurers often play a small role in the early stages of litigation and may become more involved if the case progresses or enters settlement talks, such as mediation.

Bill Regan, U.S.: It’s worth noting that in recent years, many insurers increased the deductibles that apply to public company M&A claims. The purpose of these increases was to reduce the insurers’ exposure to, and financial responsibility for, the “disclosure-only” settlements that until recently had been commonly used to resolve many public company M&A litigations.

If the deductible is reached, D&O policies typically cover the directors’ defense costs and, if necessary, liability incurred due to breaches of the duty of care. Most policies, however, contain an exclusion that eliminates coverage when there has been a final adjudication of intentional fraud by a director.

Minimize litigation risk

In general, courts are reluctant to interfere in companies’ business decisions provided the board of directors was independent and disinterested. Companies therefore should pay careful attention to the loyalties and affiliations of board members to minimize the risk that shareholders will challenge the legitimacy of the board’s decision-making process.

Boards also should pay careful attention to the way their decisions are documented, especially the sensitive decisions. Well-drafted board minutes, for example, can be a valuable tool to defend against claims.

If litigation is initiated, board conflicts can make a claim more difficult to defend. In certain jurisdictions, like the U.S., a much more rigorous standard than the business judgment rule – such as the entire fairness standard – may apply. In other jurisdictions, absent specific safeguards, a transaction may be annulled.

Directors themselves also should be sensitive to conflicts. While most jurisdictions permit a company to exculpate or indemnify directors for certain types of conduct, there are limitations. Insurance typically plays a role in an M&A litigation. D&O litigation may provide another layer of protection against director personal liability. Therefore, companies should notify their carriers and should expect insurers to play an increased role when settlement is in play. Likewise, in private M&A deals, representations and warranties insurance is increasingly prevalent and provides yet another way for some companies to minimize litigation exposure.

As you can imagine, we’ve only scratched the surface in this write-up. Getting the Deal Through: M&A Litigation 2018 goes much deeper. It covers 13 jurisdictions — Brazil to the U.S. It explores a wider range of the risks of M&A deals. And it brings home just how much getting your deal through matters.

We’ve recorded two podcasts as well. In these you’ll hear about some common themes in global M&A litigation. You can listen to these at

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Hogan Lovells | Attorney Advertising

Written by:

Hogan Lovells

Hogan Lovells on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide

JD Supra Privacy Policy

Updated: May 25, 2018:

JD Supra is a legal publishing service that connects experts and their content with broader audiences of professionals, journalists and associations.

This Privacy Policy describes how JD Supra, LLC ("JD Supra" or "we," "us," or "our") collects, uses and shares personal data collected from visitors to our website (located at (our "Website") who view only publicly-available content as well as subscribers to our services (such as our email digests or author tools)(our "Services"). By using our Website and registering for one of our Services, you are agreeing to the terms of this Privacy Policy.

Please note that if you subscribe to one of our Services, you can make choices about how we collect, use and share your information through our Privacy Center under the "My Account" dashboard (available if you are logged into your JD Supra account).

Collection of Information

Registration Information. When you register with JD Supra for our Website and Services, either as an author or as a subscriber, you will be asked to provide identifying information to create your JD Supra account ("Registration Data"), such as your:

  • Email
  • First Name
  • Last Name
  • Company Name
  • Company Industry
  • Title
  • Country

Other Information: We also collect other information you may voluntarily provide. This may include content you provide for publication. We may also receive your communications with others through our Website and Services (such as contacting an author through our Website) or communications directly with us (such as through email, feedback or other forms or social media). If you are a subscribed user, we will also collect your user preferences, such as the types of articles you would like to read.

Information from third parties (such as, from your employer or LinkedIn): We may also receive information about you from third party sources. For example, your employer may provide your information to us, such as in connection with an article submitted by your employer for publication. If you choose to use LinkedIn to subscribe to our Website and Services, we also collect information related to your LinkedIn account and profile.

Your interactions with our Website and Services: As is true of most websites, we gather certain information automatically. This information includes IP addresses, browser type, Internet service provider (ISP), referring/exit pages, operating system, date/time stamp and clickstream data. We use this information to analyze trends, to administer the Website and our Services, to improve the content and performance of our Website and Services, and to track users' movements around the site. We may also link this automatically-collected data to personal information, for example, to inform authors about who has read their articles. Some of this data is collected through information sent by your web browser. We also use cookies and other tracking technologies to collect this information. To learn more about cookies and other tracking technologies that JD Supra may use on our Website and Services please see our "Cookies Guide" page.

How do we use this information?

We use the information and data we collect principally in order to provide our Website and Services. More specifically, we may use your personal information to:

  • Operate our Website and Services and publish content;
  • Distribute content to you in accordance with your preferences as well as to provide other notifications to you (for example, updates about our policies and terms);
  • Measure readership and usage of the Website and Services;
  • Communicate with you regarding your questions and requests;
  • Authenticate users and to provide for the safety and security of our Website and Services;
  • Conduct research and similar activities to improve our Website and Services; and
  • Comply with our legal and regulatory responsibilities and to enforce our rights.

How is your information shared?

  • Content and other public information (such as an author profile) is shared on our Website and Services, including via email digests and social media feeds, and is accessible to the general public.
  • If you choose to use our Website and Services to communicate directly with a company or individual, such communication may be shared accordingly.
  • Readership information is provided to publishing law firms and authors of content to give them insight into their readership and to help them to improve their content.
  • Our Website may offer you the opportunity to share information through our Website, such as through Facebook's "Like" or Twitter's "Tweet" button. We offer this functionality to help generate interest in our Website and content and to permit you to recommend content to your contacts. You should be aware that sharing through such functionality may result in information being collected by the applicable social media network and possibly being made publicly available (for example, through a search engine). Any such information collection would be subject to such third party social media network's privacy policy.
  • Your information may also be shared to parties who support our business, such as professional advisors as well as web-hosting providers, analytics providers and other information technology providers.
  • Any court, governmental authority, law enforcement agency or other third party where we believe disclosure is necessary to comply with a legal or regulatory obligation, or otherwise to protect our rights, the rights of any third party or individuals' personal safety, or to detect, prevent, or otherwise address fraud, security or safety issues.
  • To our affiliated entities and in connection with the sale, assignment or other transfer of our company or our business.

How We Protect Your Information

JD Supra takes reasonable and appropriate precautions to insure that user information is protected from loss, misuse and unauthorized access, disclosure, alteration and destruction. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. You should keep in mind that no Internet transmission is ever 100% secure or error-free. Where you use log-in credentials (usernames, passwords) on our Website, please remember that it is your responsibility to safeguard them. If you believe that your log-in credentials have been compromised, please contact us at

Children's Information

Our Website and Services are not directed at children under the age of 16 and we do not knowingly collect personal information from children under the age of 16 through our Website and/or Services. If you have reason to believe that a child under the age of 16 has provided personal information to us, please contact us, and we will endeavor to delete that information from our databases.

Links to Other Websites

Our Website and Services may contain links to other websites. The operators of such other websites may collect information about you, including through cookies or other technologies. If you are using our Website or Services and click a link to another site, you will leave our Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We are not responsible for the data collection and use practices of such other sites. This Policy applies solely to the information collected in connection with your use of our Website and Services and does not apply to any practices conducted offline or in connection with any other websites.

Information for EU and Swiss Residents

JD Supra's principal place of business is in the United States. By subscribing to our website, you expressly consent to your information being processed in the United States.

  • Our Legal Basis for Processing: Generally, we rely on our legitimate interests in order to process your personal information. For example, we rely on this legal ground if we use your personal information to manage your Registration Data and administer our relationship with you; to deliver our Website and Services; understand and improve our Website and Services; report reader analytics to our authors; to personalize your experience on our Website and Services; and where necessary to protect or defend our or another's rights or property, or to detect, prevent, or otherwise address fraud, security, safety or privacy issues. Please see Article 6(1)(f) of the E.U. General Data Protection Regulation ("GDPR") In addition, there may be other situations where other grounds for processing may exist, such as where processing is a result of legal requirements (GDPR Article 6(1)(c)) or for reasons of public interest (GDPR Article 6(1)(e)). Please see the "Your Rights" section of this Privacy Policy immediately below for more information about how you may request that we limit or refrain from processing your personal information.
  • Your Rights
    • Right of Access/Portability: You can ask to review details about the information we hold about you and how that information has been used and disclosed. Note that we may request to verify your identification before fulfilling your request. You can also request that your personal information is provided to you in a commonly used electronic format so that you can share it with other organizations.
    • Right to Correct Information: You may ask that we make corrections to any information we hold, if you believe such correction to be necessary.
    • Right to Restrict Our Processing or Erasure of Information: You also have the right in certain circumstances to ask us to restrict processing of your personal information or to erase your personal information. Where you have consented to our use of your personal information, you can withdraw your consent at any time.

You can make a request to exercise any of these rights by emailing us at or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

You can also manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard.

We will make all practical efforts to respect your wishes. There may be times, however, where we are not able to fulfill your request, for example, if applicable law prohibits our compliance. Please note that JD Supra does not use "automatic decision making" or "profiling" as those terms are defined in the GDPR.

  • Timeframe for retaining your personal information: We will retain your personal information in a form that identifies you only for as long as it serves the purpose(s) for which it was initially collected as stated in this Privacy Policy, or subsequently authorized. We may continue processing your personal information for longer periods, but only for the time and to the extent such processing reasonably serves the purposes of archiving in the public interest, journalism, literature and art, scientific or historical research and statistical analysis, and subject to the protection of this Privacy Policy. For example, if you are an author, your personal information may continue to be published in connection with your article indefinitely. When we have no ongoing legitimate business need to process your personal information, we will either delete or anonymize it, or, if this is not possible (for example, because your personal information has been stored in backup archives), then we will securely store your personal information and isolate it from any further processing until deletion is possible.
  • Onward Transfer to Third Parties: As noted in the "How We Share Your Data" Section above, JD Supra may share your information with third parties. When JD Supra discloses your personal information to third parties, we have ensured that such third parties have either certified under the EU-U.S. or Swiss Privacy Shield Framework and will process all personal data received from EU member states/Switzerland in reliance on the applicable Privacy Shield Framework or that they have been subjected to strict contractual provisions in their contract with us to guarantee an adequate level of data protection for your data.

California Privacy Rights

Pursuant to Section 1798.83 of the California Civil Code, our customers who are California residents have the right to request certain information regarding our disclosure of personal information to third parties for their direct marketing purposes.

You can make a request for this information by emailing us at or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

Some browsers have incorporated a Do Not Track (DNT) feature. These features, when turned on, send a signal that you prefer that the website you are visiting not collect and use data regarding your online searching and browsing activities. As there is not yet a common understanding on how to interpret the DNT signal, we currently do not respond to DNT signals on our site.

Access/Correct/Update/Delete Personal Information

For non-EU/Swiss residents, if you would like to know what personal information we have about you, you can send an e-mail to We will be in contact with you (by mail or otherwise) to verify your identity and provide you the information you request. We will respond within 30 days to your request for access to your personal information. In some cases, we may not be able to remove your personal information, in which case we will let you know if we are unable to do so and why. If you would like to correct or update your personal information, you can manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard. If you would like to delete your account or remove your information from our Website and Services, send an e-mail to

Changes in Our Privacy Policy

We reserve the right to change this Privacy Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our Privacy Policy will become effective upon posting of the revised policy on the Website. By continuing to use our Website and Services following such changes, you will be deemed to have agreed to such changes.

Contacting JD Supra

If you have any questions about this Privacy Policy, the practices of this site, your dealings with our Website or Services, or if you would like to change any of the information you have provided to us, please contact us at:

JD Supra Cookie Guide

As with many websites, JD Supra's website (located at (our "Website") and our services (such as our email article digests)(our "Services") use a standard technology called a "cookie" and other similar technologies (such as, pixels and web beacons), which are small data files that are transferred to your computer when you use our Website and Services. These technologies automatically identify your browser whenever you interact with our Website and Services.

How We Use Cookies and Other Tracking Technologies

We use cookies and other tracking technologies to:

  1. Improve the user experience on our Website and Services;
  2. Store the authorization token that users receive when they login to the private areas of our Website. This token is specific to a user's login session and requires a valid username and password to obtain. It is required to access the user's profile information, subscriptions, and analytics;
  3. Track anonymous site usage; and
  4. Permit connectivity with social media networks to permit content sharing.

There are different types of cookies and other technologies used our Website, notably:

  • "Session cookies" - These cookies only last as long as your online session, and disappear from your computer or device when you close your browser (like Internet Explorer, Google Chrome or Safari).
  • "Persistent cookies" - These cookies stay on your computer or device after your browser has been closed and last for a time specified in the cookie. We use persistent cookies when we need to know who you are for more than one browsing session. For example, we use them to remember your preferences for the next time you visit.
  • "Web Beacons/Pixels" - Some of our web pages and emails may also contain small electronic images known as web beacons, clear GIFs or single-pixel GIFs. These images are placed on a web page or email and typically work in conjunction with cookies to collect data. We use these images to identify our users and user behavior, such as counting the number of users who have visited a web page or acted upon one of our email digests.

JD Supra Cookies. We place our own cookies on your computer to track certain information about you while you are using our Website and Services. For example, we place a session cookie on your computer each time you visit our Website. We use these cookies to allow you to log-in to your subscriber account. In addition, through these cookies we are able to collect information about how you use the Website, including what browser you may be using, your IP address, and the URL address you came from upon visiting our Website and the URL you next visit (even if those URLs are not on our Website). We also utilize email web beacons to monitor whether our emails are being delivered and read. We also use these tools to help deliver reader analytics to our authors to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

Analytics/Performance Cookies. JD Supra also uses the following analytic tools to help us analyze the performance of our Website and Services as well as how visitors use our Website and Services:

  • HubSpot - For more information about HubSpot cookies, please visit
  • New Relic - For more information on New Relic cookies, please visit
  • Google Analytics - For more information on Google Analytics cookies, visit To opt-out of being tracked by Google Analytics across all websites visit This will allow you to download and install a Google Analytics cookie-free web browser.

Facebook, Twitter and other Social Network Cookies. Our content pages allow you to share content appearing on our Website and Services to your social media accounts through the "Like," "Tweet," or similar buttons displayed on such pages. To accomplish this Service, we embed code that such third party social networks provide and that we do not control. These buttons know that you are logged in to your social network account and therefore such social networks could also know that you are viewing the JD Supra Website.

Controlling and Deleting Cookies

If you would like to change how a browser uses cookies, including blocking or deleting cookies from the JD Supra Website and Services you can do so by changing the settings in your web browser. To control cookies, most browsers allow you to either accept or reject all cookies, only accept certain types of cookies, or prompt you every time a site wishes to save a cookie. It's also easy to delete cookies that are already saved on your device by a browser.

The processes for controlling and deleting cookies vary depending on which browser you use. To find out how to do so with a particular browser, you can use your browser's "Help" function or alternatively, you can visit which explains, step-by-step, how to control and delete cookies in most browsers.

Updates to This Policy

We may update this cookie policy and our Privacy Policy from time-to-time, particularly as technology changes. You can always check this page for the latest version. We may also notify you of changes to our privacy policy by email.

Contacting JD Supra

If you have any questions about how we use cookies and other tracking technologies, please contact us at:

- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.