The Illegality Defence in Corporate Law Claims Against Directors or Officers
Posted: 2 Dec 2015
Date Written: 2016
If a company incurs substantial fines or other pecuniary losses as a result of its unlawful conduct, can the company obtain an indemnity from its director/officer for having caused the company to incur such fines and losses? In particular, can the director/officer utilise the defence of illegality, notwithstanding that he has breached his duties owed to the company? The illegality defence, which raises the twin issues of the relationship between the unlawful act to the corporate claim and the attribution of the unlawful act to the company, has been the subject of detailed analysis recently in England, Singapore and Hong Kong. This article argues that absent clear legislative intention, there is no reason for English law to bar the claims against the delinquent director/officer, once regard is made to the relevant constituencies of the company.
In particular, there is no reason for the illegality defence to operate if the result will prejudice the non-complicit constituencies of the company, such as the creditors where company is insolvent or where the company has innocent participants. Likewise, it argues that in determining the proper scope of the attribution of the acts or knowledge of the delinquent director/officer to the company, regard should also be made to the relevant constituencies of the company. If the result is one that does not lead to the delinquent director/officer benefitting from the corporate claim, there is no reason to attribute the wrongdoing so as to bar the corporate claim.
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