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Published 25 May 2017
As Insurers underwriting risks in Spain are aware, the recent financial crisis resulted in a significant increase in claims against directors by trustees appointed when a company enters into an insolvency process. Insolvency proceedings in Spain reach a determination as to the culpability of directors implicated in the company's demise. In this context, the Spanish courts will look at whether the directors were "guilty" or whether the insolvency was "fortuitous". However, not all determinations will express whether the director's conduct was in bad faith or wilful. A negligent act, capable of causing or aggravating the insolvency situation (such as a relevant breach of accountancy duties) is sufficient to lead the court to determine the directors were "guilty".
This has resulted in difficult coverage issues where the application of a dishonest act exclusion is in dispute.
The application of relevant exclusions has become such an issue that it is on the radar of both insolvency practitioners and commercial judges dealing with the insolvency proceedings. There is a discernible trend in this context of relevant findings steering away from a full analysis of whether wilful or dishonest conduct is involved, with the result that dishonest act exclusions are more difficult or impossible to invoke.
One strategy for insurers is to seek to settle claims within the shortest period of time to achieve the most favourable outcome. Such claims, if unresolved, can result in very high indemnities being awarded.
However, the ability to compromise claims such as this is in doubt - some Commercial Courts are reluctant to accept such claims can be settled as they are claims of a particularly public nature, whilst others generally accept an agreement on quantum subject to certain terms and conditions and without prejudice to any right to impose other consequences on the director, for instance, prohibition.
In our view, the current position on this issue based upon the most recent court decisions is that it is not possible to compromise a claim in respect of: (i) the declaration of liability of the person who caused / worsened the insolvency situation; (ii) the declaration of ineligibility of such person (save as to the duration of such a declaration which may be the subject of compromise); and (iii) the obligation to reimburse any unlawful benefits together with the deprivation of any rights as creditor of the insolvent company. It remains possible however to reach a compromise in respect of the economic consequences which follow, being compensation for damages and payment of the insolvency deficit.
London - Walbrook
+44 (0) 20 7894 6440
Olugbenga Dansu, Jack Reynolds