Global economic developments and insolvency exposures
2021 proved to be volatile for businesses and their officers, pummeled by a ‘perfect storm’ of exposures: from the economic downturn to a global pandemic to unstable political developments and an unprecedented warning of insolvencies to come. Markets are expected to remain fragile in 2022 due to the recent bullish reaction to positive Covid-19 vaccine news. In addition, the US and China tech war and the end of the Brexit transition period will remain active to add to an overall high level of economic uncertainty.
The frequency of federal court filings is on track to match rates in 2017 and 2018 and will be in excess of every year prior – and the average percentage of new filings targeting foreign-domiciled issuers has nearly doubled, most from China and Singapore. Meanwhile, new merger-objection suits have reduced this year, while increased IPO activity appears to be a natural by-product of heightened levels of securities class action lawsuits in recent years. Actions are growing in Australia and Canada, while the European landscape for collective redress is evolving.
Companies face an evolving landscape of cyber security threats – including potential vulnerabilities caused by the increase in remote working due to Covid-19 – and investors view cyber security risk management as a critical component of the board’s risk oversight responsibilities. As cyber security threats evolve and risks become more complex and widespread, focus on corporate disclosures in the form of public filings related to cyber is also likely to intensify.
In the wake of the ‘Black Lives Matter’ and ‘MeToo’ movements, activist shareholders are driving a growing D&O liability threat which may further push an increase in frequency and severity of US securities class actions noted recently against high-profile companies. In future, more and more D&O claims based on race, gender, climate change and environmental, social and governmental (ESG) interests have the potential to substantially impact the reputation of a company.
Private company exposures continue to challenge management of non-public companies
A private company’s officers can be sued for breaching their fiduciary duties – such as in the context of the sale of a company for an alleged inadequate price, to combat anti-trust claims or due to regulatory actions. Private companies and their senior management need to be aware of the potential liability risk under federal securities regulations for alleged misrepresentations to prospective investors and others. Management of privately-held companies need to understand that the inherent D&O risk environment for this business segment is quickly changing.
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