Talk to The British Chamber of Commerce Fabian Beullekens and Peter Myners Friday 23 September 2011

2. Contents Introduction Powers Duties Potential liability Insolvency Recent developments / Proposed changes Practical tips

3. INTRODUCTION

4. Introduction General overview NOT regulated funds or other regulated entities Last month over 600 new companies registered (Source: RCS) Estimated 1800 "new" directors (using average 3 directors per company) Different nationalities and professional backgrounds How aware are they of their duties and responsibilities under Luxembourg law ? Jargon: "Director"�(S.A.) also means "Manager" (S.� r.l.) unless otherwise stated

5. Introduction (Contd.) Relevant sources include: Law of 1915 on Commercial Companies (as amended); English translation available, but n.b. health warning Civil Code (e.g. general principles relevant to tort / negligence) Commercial Code Criminal Code Articles of association Any applicable service agreement Any applicable shareholders agreement Other applicable contractual arrangements, e.g. domiciliation agreement Listed entities � additional sources Regulated entities � additional sources

6. POWERS

7. Powers Very broad: Any action necessary to realise corporate object, except where expressly reserved by law / articles of association to shareholders Does not include, for example, statutory approval of annual accounts, or appointment and removal of directors Some practical examples of powers of Board: interim dividends issuance of shares within authorised share capital Powers may be subject to: articles of association, shareholders agreement (reserved matters, etc.), external finance documents Power to bind the company towards third parties / sign documents on behalf of the company

8. Can the powers be delegated ? Day-to-day management can be delegated Administrateur d�l�gu� Committees (e.g. nomination; remuneration) Delegation of signing authority for specific documents Powers of attorney But: As a general rule, Board retains responsibility

9. DUTIES

10. Basic duties and standard of care Duty to manage the company�s business in good faith, with reasonable care, in a competent, prudent and active manner Duty to act with the standard of care and diligence that a reasonable director would exercise Special skill of particular director Remunerated director Duty to act in the best corporate interest of the company: N.b. Security and guarantees granted to secure the obligations of a parent or sister company Belgian case law: (i) corporate object needs to permit; (ii) company needs to derive an arm�s length benefit (e.g. more advantageous terms secured by group, with indirect but identifiable benefit to company); and (iii) not disproportionate to the company�s means and the benefits to be derived (e.g. limited recourse clause)

11. Basic duties and standard of care (Contd.) Duty to comply with the company�s articles of association, and the Luxembourg Companies Act Duty not to do anything which falls outside the company�s corporate purpose Duty of confidentiality: E.g. Passing of information to nominating shareholder Duty to avoid conflicts of interest Additional duties if company listed on the Luxembourg Stock Exchange: Transparency and market abuse laws LSE regulations and corporate governance code Contractual duties (e.g. service contract / shareholders agreement) Employment law

12. Conflicts of interest Duty to avoid Duty to disclose to board and ensure properly recorded in minutes "Conflict of interest": Personal, financial, direct or indirect interest that conflicts with that of the company Not applicable to decisions relating to daily management Directorship of shareholder or another group company does not, per se, create a conflict Impact on quorum May not take part in deliberations At next general meeting, special report No express application to S.� r.l.

13. POTENTIAL LIABILITY

14. Potential liability of directors � Criminal Criminal liability: Dishonest use of company assets against corporate interest, or voting against the company�s interest (for personal purposes or for the benefit of another company in which interested) Fines for not submitting accounts for approval within 6 months of financial year end, and not filing within one further month Financial assistance, fictitious dividends, AML and other specific offences Bankruptcy related criminal liability (See later slide) Criminal liability cannot be covered by D&O insurance / indemnities Recent law regarding introduction of criminal liability of legal entities: Liability of the company - if act undertaken on behalf of the company by one of its legal bodies But not "the company or the director" / Liability for accomplices

15. Potential liability of directors - Civil Misconduct: Liable to company for execution of general mandate and any misconduct in management of company�s affairs Possible examples: abuse of the corporate veil (limited liability of company) for own ends lack of interest in the company / diligence entry into a major contract on onerous and off-market terms excessive remuneration failure to pursue debtors making material payments that are not yet due But, depends on the facts / context�.

16. Potential liability of directors - Civil Law does not assume infallibility � court will assess misconduct (action or inaction) taking account of the surrounding context at the time Only where such action or inaction, in such context, was unreasonable � a departure from the behaviour of a normal prudent director Director may avoid liability for misconduct if: Can prove not a party to the misconduct and not attributable Reports violation to the first possible general meeting after becoming aware

17. Potential liability of directors � Civil (Contd.) Breach of the Companies Act or the articles of association of the company: Joint and several liability towards company and any third party Tort Bankruptcy related civil liability (See later slide)

18. Potential liability of directors � General Corporate directors: Obligation to appoint permanent representative Same liability as if individual director Shadow / De facto directors Directors and officers (D&O) insurance May not cover criminal liabilities, gross negligence, fraud or wilful misconduct Indemnity from company or parent group ? Limited to third party claims (i.e. not claims brought by the company) May not cover criminal liabilities, gross negligence, fraud or wilful misconduct Domiciliation agreements

19. Potential liability of directors � General (Contd.) Annual discharge of civil liability from shareholders (annual accounts) For the period covered by the accounts Provided no material error / omission in the accounts But discharge vs. Company only - no affect re liability vis-�-vis third parties Impact of resignation

20. Who can sue a director ? State prosecutor (criminal liability) Company, for misconduct or breach of articles of association or Companies Act Shareholders meeting to decide whether to sue Creditors, for breach of articles of association or Companies Act: If company fails to take action against director and creditors harmed Company gets the remedy; creditors acting on behalf of the company Any other third party: For breach of articles of association or the Companies Act In "tort" (for negligence) Receiver in case of bankruptcy

21. INSOLVENCY

22. Impact of insolvency / threat of insolvency Duty to call shareholders meeting: In event of serious losses; exceeding half or three-quarters of the corporate capital To approve the continuation of the company Failure to call may lead to personal liability, joint and several, for the loss Duty to petition for insolvency: Within one month of the company�s credit being compromised and it ceasing to pay its debts Wrongful trading: Wrongful continuation of the activities of the company while in financial distress / where no reasonable prospect that liabilities incurred in the process can be met Dependent on plan for restructuring / rescue � e.g. reasonableness of assumptions and forecasts

23. Impact of insolvency / threat of insolvency (Contd.) Directors may be personally liable, on a joint and several basis, where "severe faults" committed: E.g. Recklessly entering into a transaction which is disproportionate to financial position of company Extension of the company�s bankruptcy to the director: If, hiding behind the company, entered into transactions for his / her benefit Used / disposed of company�s assets as if their own Pursued, in his/her interest and in an abusive manner, a loss-making business which was bound to lead to insolvency Specific criminal liability related to bankruptcy, e.g.: Entering into major obligations without adequate compensation Entering into transaction below market value in order to postpone bankruptcy Misrepresentation of assets and liabilities

24. RECENT DEVELOPMENTS / PROPOSED CHANGES

25. Recent developments / Proposed changes Recent caselaw Introduction of criminal liability of legal entities: 3 March 2010 Impact in the context of companies acting as directors of other companies Corporate interest concept General trend is towards a broad interpretaion Proposed changes Companies law bill Minority shareholder action Conflicts of interest

26. PRACTICAL TIPS

27. Practical tips Be informed: Duty to keep up-to-date with the affairs of the company Understand the law, the company�s articles of association, plus any shareholders agreement and relevant contracts e.g. external finance Ensure properly convened board meetings, with sufficient notice to enable a diligent review of documents Attend as many meetings as possible (important feature of duty of "diligence") Hold face to face meetings rather than telephone meetings / written circular resolutions Ensure proper discussion and deliberation All relevant documents, including background (e.g. due diligence) reports, to be tabled Ensure proper minutes are produced and signed Best practice particularly important where there is any threat or suggestion of insolvency If there is such a threat, seek professional advice without delay, and take positive action to mitigate loss

28. Practical tips (Contd.) "Fairness opinions" ? Ensure adequate D&O Insurance is in place Check scope Impact of change of control / removal or resignation from position Indemnity from company or parent group ? "No personal liability" statement in articles of association ? Seek annual discharge of liability from shareholders (annual accounts) No legal limit to the number of directorships that can be taken on, but do you have so many that you cannot comply with your duties ?

29. About us

30. These are presentation slides only. The information within these slides and the information given during the presentation and any related �Q&A session� is generic in nature and does not constitute definitive advice. It should not be used as the basis for giving definitive advice without checking the primary sources. Allen & Overy means Allen & Overy LLP and/or its affiliated undertakings. The term partner is used to refer to a member of Allen & Overy LLP or an employee or consultant with equivalent standing and qualifications or an individual with equivalent status in one of Allen & Overy LLP's affiliated undertakings.