Commencing or defending litigation on behalf of a company: a checklist for directors

In a previous article Advisers advise, but directors decide we considered the statutory duties that apply to directors when considering whether to bring or defend legal proceedings.

This follow up article is a practical checklist for directors facing litigation.

The key actions for directors are:

• Legal advice Take specialist legal advice, whether from in-house counsel or external lawyers, on:
  • the legal merits of the claim
  • the value of the claim
  • future costs to trial
  • the risk of having to pay the other side’s legal costs and what those costs might be
  • (for claimants) risks concerning recovering any award ordered by the court from the defendant
• Funding options Consider how the litigation will be funded. Discuss the different available funding options with your lawyers. Always review the company’s existing insurance coverage.
• Privilege Speak to your lawyers about how the company can preserve legal professional privilege in respect of the privileged documents that the company currently holds and the documents that the company will create / receive in the future.
• Preservation of data Take steps to preserve all documents and electronic data potentially relevant to the dispute. Suspend policies that delete data automatically. If necessary, engage an expert to forensically preserve data.
• Reputation Consider the impact that the litigation may have on the company’s reputation and, if press interest is likely, consider a media and PR strategy.
• Management time Consider the amount of time and energy that the board and staff will have to devote to the litigation. How can this be managed? Can the board delegate authority for running the litigation down to a sub-committee?
• Strategy Consider the options available to the company. Claimants should consider whether they need to issue proceedings straight away or whether they should set out their case in pre-action correspondence. Settlement should always be considered, but would settlement offers be more effective if they were combined if a robust legal approach?

Taking the decision

• Conflict of interest Does any director have a conflict of interest? If so, the articles of association will likely provide that the conflicted director will not count towards the quorum or votes. In most cases, the conflicted director should be removed from the decision-making process entirely.
• Information Weigh the information that you have gathered.
• S172 requirements S172 expressly states that directors should have regard to:
  • the likely consequences of any decision in the long term
  • the interests of the company's employees
  • the need to foster the company's business relationships with suppliers, customers and others
  • the impact of the company's operations on the community and the environment
  • the desirability of the company maintaining a reputation for high standards of business conduct
  • the need to act fairly as between shareholders of the company
• Benefit Then decide what course of action would be most likely to promote (encourage / further) the success of the company for the benefit of its shareholders as a whole.