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UBS: Director liability discharges on the agenda

UBS has confirmed that it will be seeking a formal liability discharge at next month’s AGM for the board members and senior executives involved in the bank’s management during the financial crisis.

No liability discharge resolution has been proposed for the past two financial years due to ongoing internal and external investigations into the multi-billion dollar write-offs the company was forced to make.

Former chairman Marcel Ospel, the former UBS chairman and two prior CEOs Peter Wuffli and Marcel Rohner will be under scrutiny from shareholders and their lawyers. For some shareholders the discharge resolution is seen as an opportunity to vent their displeasure at the board’s actions or an obscure procedural event without legal consequences.  But unlike remuneration report/say on pay votes, discharge resolutions can carry significant legal ramifications.

In 2008 Aviva Investors (Morley Fund Management at that time) and RailPen commissioned Manifest to undertake a review of the key points for investors to consider about Liability Discharge Resolutions to help encourage the market to move away from this “one size fits all” approach.

Here’s a key extract from that report which will be pertinent for UBS shareholders:

Switzerland differs from other European markets insofar as a valid discharge granted by shareholders shelters directors from liability claims arising from both intentional and negligent violation of their duties. It can hinder claims against directors notwithstanding the fact that such claims are based on wilful misconduct, fraud or any criminal offences (although directors may still become liable for such actions vis-à-vis third parties under other bodies of law). This is mitigated by the fact that voting privileges do not apply in the context of a discharge resolution. In addition, persons who participated in the management of the company (this may also apply to de facto directors) are excluded from voting their shares, which also applies to the extent that such a person acts as a proxy for another shareholder. Consequently, given the shareholding structure of Swiss companies, directors can often be discharged from liabilities by minority shareholders only.

Importantly, the discharge of liabilities resolution passed by the general meeting is effective:

• only for facts that have been disclosed; and

• only vis-à-vis the company and those shareholders who consented to the resolution or who acquired shares subsequently with knowledge of the resolution.

The rights of those shareholders, who did not approve the discharge of liabilities resolution, to file an action are extinguished six months after the resolution was adopted.

So the lesson for UBS shareholders is: if you are considering your position re potential action against the company, make sure your vote is counted (the adoption of the discharge only requires a simple majority) and make any decisions within 6 months of the vote. If you vote in favour of the discharge you may be precluded from future compensation claims.


Links

Directors’ Liability Discharge Proposals – The Implications for Shareholders >>

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