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Directors & Officers - is it a real threat?

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Personal Liability of Directors and Officers is it a real threat??

Developments in Statute Law and in the growing willingness of complainants to litigate have placed Directors and decision makers personally in the firing line.

All of these Acts create opportunities for legal actions against individuals personally!

Wildlife and Countryside Act 1980

Insolvency Act 1986 

Environment Act 1995

Companies Act 2006

Employment Rights Act 2009

Equality Act 2010

Bribery Act 2010

Defamation Act 2013

Shareholders, employees, HMRC and environmentalists are the main threats but there are many others.

Many actions are malicious and do not make it to court however the cost and time spent in preparing a response and defence will usually be high as will any award or regulators fine if the complaint is even partly successful. Without the correct cover Directors or senior staff may have to find the time and buy in expertise from their personal resources.

Only specialist policies will protect the personal position of Directors and company officers. Traditional Policies are intended to protect the Company and they will leave individual directors personally exposed to these very real and growing threats.

The solution is simple and inexpensive - as an example - for only £286.36 (including tax and fees) a firm with a turnover of £3.5m can secure the correct cover with a limit of £500,000 for all of its Directors and officers. 

We can arrange a quotation for your company and bind the cover for you in minutes if you wish to proceed.

Many actions are settled quietly to avoid damage to reputations however here are a few examples of claims that have hit the headlines in the UK.


    1. A shareholder sued two directors for damages arising out of their failure to secure the purchase of some land which the company had an option to purchase and where it had previously been agreed at a directors’ meeting that such an option would be exercised.  Total claim costs £800,000.

    2. A company was taken over by a French entity and the new owners sued the former chairman and managing director, alleging that during negotiations leading up to the sale, the former directors had made false representations regarding the financial condition of the company. They also provided misleading profit forecasts so as to induce the claimants to purchase a majority shareholding in the company at an inflated price.  Damages of over £22 million were sought.

    3. A director was held responsible for another director’s illegal company loan account when the company went into liquidation costing the ‘innocent’ director’ £1,430,000 plus legal costs.

    4. A boat builder went into liquidation with losses of £1.5 million.  Existing directors believed the company was making a profit.  Liquidators sued the directors for negligence after finding that no accurate financial records had been kept.

    5. 14 directors of a privately owned delivery business were banned after the company went into insolvency and was the subject of a subsequent DTI investigation. Only two Directors ran the business on a day to day basis, but all Directors were found to be responsible for the books and records not being up to the correct standards. Defence costs were incurred to defend the legal actions against the Directors.

    6. A Director signed a cheque but did not include the word 'Limited'. The cheque was not honoured and by the time the corrected cheque was re-presented, the company had gone into liquidation. Due to this, the Managing Director was held personally responsible for the value of the cheque, over £30,000.

    7. In the final two weeks before their company went into receivership, two directors allowed their company to continue to trade, although knowing that it could not avoid going down. Trading during the two weeks created a VAT liability of £50,000, which, because of the receivership, was not paid to the Crown. For the trading while insolvent the directors received orders disqualifying them from being company directors. They succeeded in having the orders overturned on appeal. But only narrowly: the court criticised them for failing to take advice, but their incompetence was not so great that they should be disqualified. Defence costs estimate: £100,000.

    8. Following expansion into America and refinancing in order to do so, a large UK food supply group went into liquidation. The group’s lenders accused the parent’s Directors of negligently providing inaccurate statements of the financial and trading position of several subsidiaries. The bankers sued and the eventual settlement and defence costs came to £7,000,000.

    9. The Financial Conduct Authority (formerly the Financial Services Authority) brought criminal proceedings against the Finance Director and the CEO of a publicly traded software company for a misleading trading statement which was designed to entice others to buy shares in the company. Both were found not guilty of knowing that the statements were misleading, but their large expenditure on defence costs did not prevent them from being found guilty of making the Sexual discrimination and harassment. The claimant was officially dismissed from her employment for gross misconduct on the grounds of her failure to pass a test. The claimant subsequently sued her former employers together with a number of her former colleagues one of whom was deemed to be an officer of the company, alleging sexual discrimination and sexual harassment. The complaint was ultimately settled for £50,000, but the insured also incurred defence costs. Insurers contributed to both the settlement as well as the defence costs.

    10. The Estate of a deceased employee claimed that a director of the company employing her was responsible for arranging her death-in-service life insurance cover and had negligently failed to do so. Defence cost: £16,000.

    11. The acquiring company in a UK acquisition launched proceedings against the principal directors of the target company, alleging negligent and/or fraudulent misrepresentation of the financial standing of the company. The amount claimed was the entirety of the purchase price.- Estimates of the defence costs exceed several million pounds.

    12. The directors of a company faced court proceedings by the Liquidators and a major creditor, following their disposal of a subsidiary company which subsequently went into liquidation. The Liquidators alleged that monies from the sale were wrongly diverted away by the directors so that the creditors were prejudiced in the insolvency. The creditor claimed that the alleged diversion of funds amounted to a fraud on the creditors. This would be covered unless there was an actual finding of fraud against a given director (in which case the claim against that director would be excluded).

    13. The acquiring company in a UK acquisition launched proceedings against the principal directors of the target company, alleging negligent and/or fraudulent misrepresentation of the financial standing of the company. The amount claimed was the entirety of the purchase price. Estimates of the defence costs exceed several million pounds.

    14. A director of a telecoms company authorised a large payment to its major supplier, without whose services the business could not continue. At the time the company was having cash flow difficulties and it went into liquidation shortly after the payment was made. The Department for Business Innovation & Skills brought proceedings against the director under the Company Directors Disqualification Act (CDDA). The case concerned issues of possible wrongful trading, but the CDDA proceedings were successfully contested with the support of specialist lawyers appointed to advise the director.

    15. A Company’s Managing Director was quoted in two newspaper articles as having concerns as to the propriety of the owner of one of the company’s suppliers. The owner claimed for defamation. The claim was eventually dropped, but only after insurers had funded the Managing Director’s defence costs of £32,000.

    16. An employee was killed having fallen into a plastic-shredding machine.  The health and safety executive investigated the accident and concluded that two directors were responsible and should be cautioned personally for not providing the employee with a safe system of work, particularly as they had been instructed that the machine was not to be used.

    17. The incident was also reported to the police and crown prosecution office who brought a charge of manslaughter.  One of the directors lost his £250,000 home as a result of the incident. 

    18. Most D&O policies would pay defence costs of individual directors who are prosecuted by the health and safety executive, but not any criminal fine. An employers’ liability policy, however, will pay prosecution defence costs of directors and officers in this situation at the request of the company but on occasions, the interests of the director may not be the same as those of the company.  The company may wish to plead guilty at an early stage in the hope of reducing the fine payable and the damage to the company’s reputation.  The director may however wish to defend the action to avoid the fine and possibly even a prison sentence. A Directors’ and Officers’ liability policy can pay for the director’s separate legal representation.

    19. A Managing Director and several technical managers faced criminal prosecutions for alleged breaches of health and safety legislation, which resulted in the accidental deaths of two employees. Defence costs: £890,000.

    20. The Managing Director of a factory was prosecuted following an outbreak of Legionnaires ‘disease emanating from its water cooling system, which led to the deaths of several people visiting a neighbouring shopping centre. The director was involved in a lengthy criminal trial, which eventually collapsed.

    21. A managing director who, on behalf of his company, fraudulently misrepresented a product specification to a customer was found guilty of fraud and liable for deceit.  He was found to be personally liable for £93,000 in respect of a statement made as to the suitability, or otherwise, of flooring for its intended use.  By making the statement on headed paper he was guilty of a breach of the duty of care. D & O policies pay the defence costs of fraudulent directors until they admit they are or are found guilty.

    22. A full-time director defrauded his company.  His two non-executive directors were ordered to reimburse the company from their own personal assets on the grounds that they had not paid any attention to the management of the company’s affairs. Their defence, that a non-executive director owed a lesser duty of care, failed.  A D&O policy would not protect the fraudulent director but would protect the non-executive directors.

    23. An advertising agency successfully made a claim against its former Managing Director for diverting parts of the business and its opportunities to his new company. The court held that the Managing Director misused the property of the agency, breaching his fiduciary duty, they also confirmed that he was accountable to the company and that he should personally pay compensation to the agency.

    24. A former Director of a company sued the current directors, after alleging that they had conspired to deny him his correct pension benefits. The Directors personally incurred costs of £36,000 defending the claim.

    25. Several named directors of a furniture business faced allegations of unfair dismissal and disability discrimination in the form of an Employment Tribunal claim by an ex-employee. The ex-employee claimed damages for injury to feelings and loss of earnings.

    26. A driver fell asleep whilst driving for a family-run haulage company as an employee. Two motorists were killed. The court held that the operations manager should have ensured that his driver adhered to the relevant driving regulations. He had also failed to keep in close touch on these matters with his Co-Director. Both Directors therefore incurred substantial defence costs before both were convicted of corporate manslaughter.

    27. As a result of his company allowing dangerous goods to be carried by air, the Civil Aviation Authority interviewed a Director under caution. Legal representation expenses: £21,000.