Policy Gives Protection for Directors and Officers; Continued Next Page

The Birmingham Post (England), March 11, 1999 | Go to article overview

Policy Gives Protection for Directors and Officers; Continued Next Page


As a director or officer of a company you are automatically exposed to unlimited personal liability.

You are required to account for your personal actions and in some cases, the actions of your fellow directors or officers.

This is particularly poignant in the light of the onerous obligations imposed by both case law and current statutes, in the UK and overseas.

In the UK alone, the Companies Act of 1985 gives rise to over 250 areas of statutory liability.

Although a directors' and officers' duty is owed to the company, they must be exercised with specific regard to individual shareholders, investors, creditors and employees.

Directors are required to exercise skill and care, to fulfil fiduciary duties and to comply with statutory obligations. A director or officer stands alone when sued personally.

Although, ultimately he may be entitled to indemnity from the company, this is by no means guaranteed and, as such, the likelihood is that his personal assets may be put entirely at risk.

A directors' & officers' liability policy has been designed to provide financial protection for the directors and officers of companies for civil damages and legal costs incurred in defending alleged wrongful acts.

While the company is not able to indemnify directors and officers in all circumstances, the amendment to Section 310 of the Companies Act 1985 (Section 137 of the Companies Act 1989) expressly states that a company can purchase and maintain insurance for the protection of its directors and officers against liability for negligence, default, breach of duty, or breach of trust in relation to the company.

It also confirmed that the existence of such insurance will be required to be noted in the Company's Annual Report and Accounts.

There are many and varied groups of people or bodies who bring actions against directors.

Employees, for health & safety, discrimination or harassment;

Government, for DTI investigations, Customs & Excise and Weights & Measures;

Shareholders;

Creditors, including Receivers and Insolvency Act;

Competitors, for unfair trade practices;

Suppliers.

In the corporate world, directors of companies large and small face situations which make them vulnerable to litigation in various circumstances.

These are some of the areas which are most likely to bring claims:-

Health & safety, to employees and the public;

Mergers and takeovers from shareholders and purchasers;

Trading losses, shareholder creditors;

Liquidation, from creditors;

Pollution, from NRA and EPA litigation.

What other protection is there for directors?

This is a complex subject, but a general observation would conclude that there is a question mark over any indemnity clauses put in a company's Articles or Memorandum of Association, which are supposed to give comfort to a director. …

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