Company Directors at Risk
Directors and Officers Insurance
It is widely believed that the current financial crisis will lead to an increasingly litigious environment. This has already been very much evidenced at the ‘top end of town' by the number of class actions that have been and are being brought against companies. But all Directors of all businesses need appropriate protection due to the array of litigation they could potentially face on a personal level.
Directors and Officers of any Company are personally liable for everything they do in their capacity as a Director or Executive Officer of the Company. The limitation of liability enjoyed by a company does not extend to its Directors. To make matters worse, Section 241 of the Corporations Law limits the ability of a Company to indemnify its Directors and Officers against these liabilities until after an individual has successfully defended a claim.
Directors should also be aware that they are jointly liable for the acts of fellow Directors and that the courts have placed onerous conditions on the ability to avoid joint liability.
There are many parties who, under certain circumstances, may take action against Directors and Officers of a Company. These include shareholders, employees, creditors, clients/customers, parties to commercial transactions, government and regulatory authorities and the general public. Liability for such actions can arise at common law or from statutory provisions, the applicability of which varies amongst the parties mentioned.
The current environment also places additional pressures on Directors and many individuals are very concerned about their personal exposures. Insolvency practitioners can and do lodge claims against Directors alleging that companies had continued trading whilst they were in fact insolvent. The current business climate and attendant risks dictate the essential nature of appropriate insurance protection for Company Directors and Officers.
The realisation of all of the above is having the effect of increasing premiums in this class of business and now is an opportune and important time for Directors to review their current arrangements through the advice of their insurance broker.n
Information in this article provided by Queensland Council of Insurance Brokers - CQIB.
This article is provided as information only. It is not general or insurance broking or legal advice. It is important you seek advice relevant to your particular circumstance.
