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Insured against risk: Time directors took cover

In the current era of legislation and regulation, company directors have numerous responsibilities to ensure the correct operation of the business and proper treatment of its workforce.

If they fail to do so, they may easily find themselves in court defending their companies or their own actions.

The Institute of Directors points out that anyone who takes up the position may be criminally prosecuted or personally sued by employees, bankers and customers. If the company runs into difficulties a director’s home and assets could be at risk.

Insurers can offer directors and officers liability insurance, which will protect against liability for negligence, default, breach of duty and breach of trust. The cover can provide funding for a legal defence and, depending on the policy, enable the director to settle out of court or cover any damages if the case is lost.

Directors or officers should not act outside their own authority, or commit the company to transactions or agreements that are outside the law or its own articles of association. Equally, they must not put themselves in a position of conflicting interests.

Since the 2006 Companies Act was brought in, which prevents directors from hiding behind limited companies, the directors may be pursued for personal liabilities in some exceptional circumstances by shareholders who feel the company has suffered because of the directors’ actions or omissions. Equally, creditors of an insolvent company might bring a claim against the directors directly.

There’s also the possibility of being prosecuted personally by HM Revenue & Customs, the Financial Services Authority, Trading Standards or the Health & Safety Executive. Their view is that companies only operate through the actions of their employees and directors, so where an offence is detected it is likely that there will have been some personal failure by these individuals.

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