An Introduction to Directors & Officers
Directors and Officers Liability Insurance is designed to indemnify directors,
senior executives and employees in respect of loss arising from claims made
against them in the discharge of their duties on behalf of the company.
Developments in statute introduced by parliament have not only broadened
the scope of who may be deemed to be a director but has also placed an
increased responsibility on directors. Importantly the duties imposed on
directors have become easier to enforce.
Receivers, Liquidators and other third parties now focus on the past
activities of directors to determine if they have engaged in reckless trading
or incurred obligations unreasonably, which have resulted in creditors
suffering a loss or a fall in the value of the company for shareholders.
Personal Liability of Directors
The liability of directors & officers is personal. It is an unlimited liability and
cannot be contracted out of. If uninsured, directors risk their personal
wealth (and that of their heirs, spouses and legal representatives) through
litigation. Trust arrangements are not a complete solution.
Even if a claim is successfully defended it may still involve significant legal fees.
Directors can be held liable for the actions of their co-directors. A director
can not plead ignorance of company affairs simply because they have
delegated their duties to another individual.
The nature of a director’s duties
Directors are charged with managing the assets and controlling the business
activities of their company. Whilst performing this role directors must
exercise a duty of skill and care to a standard expected of a person with
their knowledge and experience.
The introduction of the Companies Act 1993 clarified many of the duties
owed by directors by crystallising:
• the standards of service, new duties and a higher standard of care
• the ability of parties to enforce obligations against directors
• the definition of “director” to include managers and employees as