Capinordic Bank - judgment concerning management liability

Judgment has just been passed in a case concerning management liability in connection with the bankruptcy of Capinordic Bank A/S. Attorney and Plesner Partner Peter Bang, who has conducted several cases concerning management liability and accountants' liability before the Danish High Court as well as the Danish Supreme Court, summarises the judgment.

Today, the Danish Eastern High Court passed judgment in a case brought by the Danish resolution authority Finansiel Stabilitet against the former chairman of the board of directors, the former managing director and another board member of the bankrupt Capinordic Bank A/S.

Finansiel Stabilitet claimed that the three members of the management had generally acted recklessly and negligently in the execution of their management functions to such an extent that they were liable for Capinordic Bank's total loss. However, the claim for damages was limited to DKK 400m. 

In the 1,330-page judgment the Danish Eastern High Court establishes that there is no basis for deeming the bank's business model, involving large loans to relatively few customers that were inter-connected to a substantial degree, to be negligent in itself. The Danish Eastern High Court does not find any reason to deem the bank's organisation, division of tasks and general mode of operation to be negligent either. On this background, the Danish Eastern High Court finds that the reason for the bankruptcy of Capinordic Bank was not as such negligent conduct or omissions on the part of the management and therefore there is no basis for finding the management liable for the bank's total loss.
 
The Danish Eastern High Court also notes that no attempt has been made to clarify through expert surveys and appraisals, expert opinions or opinions from trade organisations the demands that can generally be made to a sound basis for a bank's credit granting. Further, the Danish Eastern High Court attaches importance to the fact that several loans were evaluated by the Danish Financial Supervisory Authority in connection with its examination of the bank, and the auditors' assessments of loan commitments and requirements for impairment have also been taken into account. Finally, the time of the loans has been included in the assessment, including whether they were granted after the financial crisis. 

Finansiel Stabilitet claimed in the alternative that the three executives were liable for Capinordic Bank's losses in relation to 18 specific loan commitments and 13 investment credits. 

Following reviews of each of these commitments/investment credits the Danish Eastern High Court found that there is liability for the bank's losses in respect of nine of the commitments reviewed, approximately DKK 90.5m in total. The former chairman of the board of directors is found to be liable for approximately DKK 56.3m, the former managing director for approximately DKK 84.5m and the former board member for approximately DKK 82.4m. 

It is expected that the persons against whom judgment has been passed will appeal the judgment, which must be assumed to become guiding in similar cases about management liability in connection with the bankruptcy of banks.