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Directors and Officers liability insurance vital in company risk management

As a result of the economic impact of COVID-19 there is a heightened threat of claims against Directors and Officers (D&O) for failing to adequately manage the risks during the pandemic.

Against this backdrop, is it increasingly important that Directors and Officers clearly understand their duties and responsibilities.

A breach of duty may result in a director being personally liable to the company. For instance, where a director has profited from a breach, he or she may have to account to the company for any profit made.

Even if a director has not made any personal gain, they may still be liable to the company for any loss it has suffered. If a company director or officer is found to have acted outside of their terms of reference, civil, criminal or regulatory proceedings can be brought against them. All these risks are in addition to the risk of claims made against directors arising from their negligent actions and/or their failure in performing their fiduciary duties.

Directors and Officers liability insurance covers the cost of defending these proceedings, as well as any compensation costs that arise from an unsuccessful defence. If Directors and Officers do not have D&O insurance, they face a greater risk of not being able to defend themselves.

W Denis Insurance Brokers arranges competitive D&O Insurance, including:

 

Side A - To cover individual directors where the company is unable to reimburse, e.g., if it’s against the company constitution or if it cannot because the company is insolvent.

 

Side B - To cover the company where it has reimbursed the director or officer.

 

Side C - To insure claims for securities litigation. This could relate to private placements fundraising, bond issuance or selling shares via a stock market listing.

 

W Denis ProFin experts explain, in the context of UK law, what the seven duties that form the basis of being a director are:

Your company’s constitution: The first of these duties is that a director must act within their powers under the company’s constitution.

Promoting the success of the company: The second major duty of a company director is to promote the success of the company in a way he considers, in good faith, would be most likely to promote the success for the benefit of its members as a whole.

 Independent judgement: The third major duty requires directors to exercise independent judgement. Directors are meant to develop their own informed view on the company’s activities.

Exercise reasonable care, skill and diligence: A director must act with the care, skill and diligence that would be exercised by a reasonably diligent person with the general knowledge, skill and experience that may reasonably be expected of a person carrying out the functions carried out by the director in relation to the company, and the general knowledge, skill and experience that the director possesses.

Conflicts of interest and personal benefits: A director of a company must avoid a situation in which he has, or can have, a direct or indirect interest that conflicts, or possibly may conflict, with the interests of the company. A director is under a duty not to accept benefits from third parties conferred by reason of his being a director, or his doing - or not doing- anything as a director. If a director of a company is in any way, directly or indirectly, interested in a proposed transaction

Duty not to accept benefits from third parties: A director is under a duty not to accept benefits from third parties conferred by reason of his being a director, or his doing (or not doing) anything as a director.

Duty to declare interests in proposed transactions or arrangements: If a director of a company is in any way, directly or indirectly, interested in a proposed transaction or arrangement with the company, he must declare the nature and extent of that interest to the other directors. A director does not need to declare an interest if it cannot reasonably be regarded as likely to give rise to a conflict of interest, the director is not aware of their interest or the transaction or arrangement in question, or the other directors are already aware of it.

The W Denis dedicated ProFin team specialises in Management Liability Insurance, including Directors & Officers Insurance, Trustees Liability Insurance, Public Offering of Securities Insurance, Corporate Liability Insurance as well as other types of Professional Liability Insurance.

To discuss this further with an expert at W Denis, please make arrangements with Richard Bowdidge on 0203 713 3982 or at Richard.Bowdidge@wdenis.co.uk and Daniel Moss at daniel.moss@wdenis.co.uk or on 0044 (0)113 2439812

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