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personal bank account when that money had in fact been paid for services provided by WHSG to a football club of which Mr Ridsdale was the chairman. • He did not disclose the relevant transactions to WHSG’s liquidator, who was subsequently told about them by the football club. • He failed to ensure that WHSG complied with its statutory obligations to make tax returns and payments to HMRC as and when they were due. • On three successive occasions, he failed to ensure that WHSG complied with its statutory obligations to prepare and file accounts. The judge took the unusual step of issuing a statement which exonerated the directors and criticised the action brought by the secretary of stateeffect as a disqualification order made by a court and is therefore legally binding. The Farepak directors The outcome in the Ridsdale saga contrasts with the collapse of the case brought by the secretary of state for the Department for Business, Innovation & Skills (BIS) which attempted to disqualify the former directors of Farepak. Farepak hit the headlines in 2006 when over tens of thousands of its customers lost “deposits” to secure their Christmas and other These two cases illustrate the importance of D&O cover, with Mr Ridsdale’s ban a high-profile example of the penalties that can be imposed in the highly regulated world in which directors operate. food and retail vouchers. Fourteen days into the trial, the secretary of state decided to discontinue the proceedings. The judge took the unusual step of issuing a statement which exonerated the directors and criticised the action brought by the secretary of state. Recently, it has been reported that the Insolvency Service (an executive agency of BIS) faces a legal bill of more than £6m, with £5.1m going towards the legal costs of the Farepak directors who had challenged the ban. Good news for the Farepak directors then, if not the taxpayer. Comment These two cases illustrate the importance of D&O cover, with Mr Ridsdale’s ban a high-profile example of the penalties that can be imposed in the highly regulated world in which directors operate. The case against the Farepak directors, on the other hand, points up the costs that can be involved in defending any such regulatory action. Without D&O cover, a director may have to selffinance any proceedings in which they are involved, or alternatively find a legal representative who is happy to act on a no win/no fee basis. However, not all directors will be able to afford the first course of action and the no win/no fee option may not always be available. A third source of funding might be the company itself, but this may be unlikely in cases similar to the two present ones. In a case where a director is seeking cover under a D&O policy in respect of disqualification proceedings, the insurers will need to be satisfied that adequate disclosure was provided before the inception of the policy and that the matter has been notified in compliance with the policy’s provisions. Further, the nature of any allegations made and the proceedings themselves will have to be carefully considered since any findings or admissions of dishonesty or unlawful profit by a director will often justify the withdrawal of insurance cover. If disqualification proceedings are unsuccessful, D&O insurers may be entitled to recover any indemnity provided should costs be awarded against the Secretary of State for BIS. Donal Clark Solicitor London d.clark@kennedys-law.com 6
Taking a consistent approach The EU proposes a major overhaul of the medical devices rules. The European Commission has recently published its plans for revising the current regulations governing medical devices in Europe. The new proposals aim to ensure that the rules for such products are applied consistently across all EU member states. If implemented, they will cover all medical devices marketed within the EU and replace the current directives dealing with medical, active implantable medical and in vitro diagnostic medical equipment. The proposals come at a moment when the current regulatory system is under close scrutiny, following the recent controversy over the manufacture of silicone breast implants by the French company, Poly Implant Prothese, which did not conform to specification. The proposals will affect everyone who is involved in the manufacture of medical devices and their supply to patients and consumers. Background to the proposals The scope of these proposals is extremely wide, encompassing the whole range of medical devices from the simplest of products such as sticking plaster to the most sophisticated x-ray and life support machinery. The proposals will affect everyone who is involved in the manufacture of medical devices and their supply to patients and consumers. Key points The legislation will take the form of regulations rather than directives. Whereas a directive would require transposition into the law in each Member State, the use of regulations ensures they will come into effect immediately in all EU countries. The key changes can be summarised as follows: • The definition of medical devices will be widened and clarified to ensure that all devices are assessed for safety before being placed on the EU market. • There will be stronger supervision of national “notified bodies” by EU Member States – the independent assessment organisations tasked with granting pre-market authorisations – to ensure effective premarketing assessment of devices. • Notified bodies will also be given greater powers to ensure quality control. This will include being able to make unannounced factory inspections and carrying out sample testing on devices. These proposals will result in far closer monitoring of the manufacture, distribution and post-marketing surveillance of medical devices within the EU. • A unique device identification (UDI) system will be introduced for all devices with the aim of improving post-market traceability and speeding up alert notifications. • A centralised EU-wide database will be created where manufacturers, their authorised representatives and importers will register themselves and their products, making use of the UDI system. • Manufacturers of high-risk devices will have to provide summaries of safety and clinical data for such equipment and make this information publicly available. • Manufacturers will be required to have at least one ‘Qualified Person’, as defined by the regulations, who is responsible for compliance with medical device regulatory requirements. • The European databank on medical devices will be further developed so as to improve transparency and public access. • There will be better market surveillance and vigilance, supported by “national competent authorities” such as the UK’s Medicines and Healthcare products Regulatory Agency (MHRA), which is responsible for ensuring that medicines and medical devices work and are safe. • An EU-level medical device co-ordination group, staffed by experts, will be established. It will scrutinise devices before they are placed on the EU market and keep the European Commission advised about implementation of the new regulations. Too much regulation can delay life-saving products coming to market and undermine research and development. Comment These proposals will result in far closer monitoring of the manufacture, distribution and post-marketing surveillance of medical devices within the EU. However, they are more of a 7
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