Litigation Risk

Litigation Risk

Despite prudent decisions and the best possible advice, corporate directors face an increase in international legal actions that can impact their personal assets. think:act examines what top managers should look for in corporate D&O (directors and officers) programs.

The Enron scandal of the last decade transformed corporate governance. It also had a lasting effect on the D&O insurance market, given CEO Jeffrey Skilling's legal bills estimated at $23 million: The case piqued interest in the coverage that protects company officers from personal financial liability if they are sued. And, as insurers assessed the riskier business climate, premiums began to rise. Like malpractice insurance for high-level managers, the "directors and officers" insurance forms a worldwide market today, worth $8.8 billion in 2008, and covers top managers in the event of a breach of duty and a resulting lawsuit. Usually reserved for companies with a fair share of assets and management board structures, the pricey insurance policies, with premiums that can reach up to several hundred thousand euros a year for millions in coverage, essentially let individuals hedge the personal financial risks they face by playing in the top league. At the same time, the policies are a tool for making corporate entities responsible for the actions of their employees and protecting corporate assets.

D&O Policy Holders are more likely than ever to be sued.

In the aftermath of the subprime financial crisis, companies as well as their directors are advised to be even more cautious about potential financial liability for their management decisions, says attorney Kevin M. LaCroix, the author of the D&O Diary and a director of OakBridge Insurance Services. That's because D&O policyholders are now more likely to be sued, and more likely to be sued for larger amounts, than in the presubprime era. Whereas class-action lawsuits were once common only in the US, such lawsuits— with their massive potential for financial damage—are gaining popularity outside North America as part of governance reform aimed at securing recourse for shareholders. According to Advisen, an insurance research firm, cases settled since 2005 in Europe were for average settlements of €117 million. Although some anti-corporate activists argue that the coverage creates an incentive for misbehavior, scholars find no evidence that the coverage motivates mismanagement, just as carrying auto liability insurance hardly gives drivers a reason to cause an accident. Suits against managers can come with a host of punitive effects, including reputational loss, jail time and possible fines in the event of a scandal. Enron's Skilling is serving a 24-year term in prison and was fined $45 million. Fines are typically excluded from a policy's benefits. D&O coverage tends to be best advised on by lawyers and specialized insurance brokers. The specialists recommend that policies go far beyond the basic requirements of being large enough to cover the cost of settlements. They stress that policies must be tailored for each individual buyer, depending on the area of business and the risks present. In the US, a large number of D&O claims are made for a manager's conduct related to human resources, such as hiring and firing decisions. But an increasing number of claims are being filed against directors and officers for securities-related misconduct. What's more, American law is known to have a long arm from which managers around the world might need to defend themselves. Witness the Enron-related case of the NatWest Three. The British bankers involved were extradited to and tried in the United States, where they also served prison terms for wire fraud committed in the UK.

Megan Colwell, an expert in management liability insurance at Woodruff Sawyer & Co., a California insurance brokerage and specialist of international legal actions, offers her clients a choice of roughly 10 to 15 insurers. Her firm is paid by commission from insurance companies or consulting fees from the client. Colwell recommends that companies with international operations acquire specialized advice to align their corporate D&O program to the risks in different countries.

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Transfer pricing in China

Transfer pricing in China

Braxton is an international tax specialist in transfer pricing. This also covers China. Years ago, when we actively represented corporate clients in Chinese tax matters, there was not a transfer pricing "problem" for smaller wholly foreign enterprises, as the number of SAT specialists was so small that they could only delve into matters of corporate entities far larger than those I represented. But now it is quite different. On July 12 Circular 323 was issued by the SAT. The SAT is beginning a nationwide inspection of transfer pricing documentation. Local authorities have been instructed to select for audit for years 2008 and 2009 a minimum of 10 percent of taxpayers who have related-party transactions. While we don't know if this instruction filtered down to all levels of SAT offices, we do know that it has reached the Guangzhou SAT. It is time for some of those smaller businesses - the type that we used to work with - to be concerned about having their transfer pricing documentation in order. From what we hear, it will be more than the minimum of 10 percent who will be audited.

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Moving from the UK to a prescribed territory

Moving from the UK to a prescribed territory

According to the Savings Directive, "If a UK individual changes address to a prescribed territory you will need to report on the basis of the new address. This may mean you need to obtain additional information and/or update your system.

For example, a UK paying agent pays savings income to an individual who lives in the UK. This is not reportable under the scheme. He has a contractual relationship made on or after 1 January 2004 with the individual.

If the payee moves to Spain, they will become reportable and the paying agent will need to update his records to fulfill his obligations under the scheme. Since he has a relationship which began on or after 1 January 2004 with the individual, he will also need to verify the name and address in addition to obtaining and verifying the TIN or the date and place of birth.

Where both the identity and UK address were verified to KYC standards, and the contractual relationship began after 1 January 2004, subsequent changes can be 'self certified' in accordance with paragraph 183.

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Advantage of Cash shells in the Plus Market Exchange in London

Advantage of Cash shells in the Plus Market Exchange in London

Reversing into a cash shell saves management time in accessing capital.

They also often come with established boards, cash resources and good contacts with institutional investors.

For shareholders of the shell company, a reverse is a way to invest in the target before it attracts a premium to its share price for its quote, while the target gains the benefit of a listing and any cash the shell may have in the bank.

Moreover a readymade shareholder base can assist creating liquidity in the company‟s shares and can provide an excellent source of future funding.

Not all are attractive

Not all cash shells appear to offer attractive prospects.

The money in shells often appears insufficient; others may have liabilities, financial or otherwise.

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The big questions for many managers: Should you get off the plane?

In some cases, these risks can impact the subsidiary organization's directors, officers and managers. In others, executives from the home territory may be at risk: Some have even been known to question if they should get off the plane in countries in which their company's subsidiary may be involved in a legal tangle, she says. To avoid potential problems, Colwell tells executives to consider D&O coverage for offshore subsidiaries placed by the corporate headquarters, or as local laws require, placed in the subsidiary's country. An important consideration for buyers is to make sure the company's D&O broker has access to partner brokers abroad. "We need insurance policies and programs that can adapt to various indemnification scenarios, so that individuals are protected in all jurisdictions." Hartmut Mai, the Global Head of Financial Lines at Allianz Global Corporate & Specialty, a major provider of D&O insurance, says policies used to have global reach but are now increasingly subject to local regulations. He recommends one-stop shopping for D&O coverage at larger insurance providers that can meet needs in all territories and advise on peculiarities. Mai also advises that managers who are trying to steer their company's D&O program insist on close contact with insurers to foster a mutual understanding of risk exposure. "Keeping in constant communication is not just good for underwriters, it's also good for the client because the client begins to understand how the underwriter thinks and what he is looking for in the risk assessment process," says Mai. David Walters, who manages the commercial D&O business of Chartis Insurance in the UK and Ireland, a part of the former AIG and one of the world's largest D&O insurers, also recommends that companies communicate frequently with their insurance brokers and insurers about business developments that could potentially change a company's risk profile.

According to Walters, companies should treat their D&O providers just like one of their stockholders—and for good reason: "At the point of crisis, if the communication has been two-way and open, a solid relationship would be in place to back up the claims process."

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NEW ADMISSIONS IN THE PLUS MARKET (LONDON)

Imperial Music and Media Plc

was floated on the PLUS quoted market on the 9th June 2010 and intends to make "investments in new musical talent within the UK music industry, predominantly in the areas of rock, jazz and easy listening". The directors "anticipated that investment will be by way of investing capital into and the management and development of new talent, or acquiring and managing the rights and revenues to existing artists catalogues and/or managing existing recorded artists."

Imperial Music and Media Plc has cash of circa £200,000 and has the largest market cap of £3.44m.

Japanese Turnaround Capital Plc was floated on the PLUS quoted market on the 9th April 2010 and intends to "take advantage of opportunities in connection with distressed financial assets in Japan, primarily in relation to portfolios of distressed Japanese consumer loans."
Japanese Turnaround Capital Plc has cash of £448,000 and net assets of £194,000.


more information on:

http://international-tax-lawyer.blogspot.com/

http://foreign-tax.blogspot.com/

Cash shells in the Plus Markets Exchange in London

The PLUS Markets is a London based stock exchange aimed at small and mid-cap companies looking to raise capital and gain international exposure with a flexible regulatory environment compared to the traditional capital markets.

PLUS offers the same advantages of AIM such as the ability to raise funds, increase company profile and tax advantages for investors but with the added benefits of lower costs and a more flexible regulatory regime.

Cash shells are companies with a stock market quote, board of directors and money in the bank but no active business.

Generally set up as an „investment vehicle‟, the entrepreneurs and shareholders of a cash shell are looking for a business to fund.

Rather than going through the traditional Initial Public Offering (IPO), a company looking for capital is „acquired‟ by a cash shell, known as a „reverse takeover‟. A reverse takeover can be a quicker and more certain route to a public quotation compared to a standard IPO with the added benefit of a known quantity of available capital.

you can find more information about the Plus Markets Exchange on:

http://www.Braxton-co.com