Directors Officers Liability Quoted Companies
We are now able to arrange a bespoke Directors & Officers insurance policy (D & O) offered by leading insurers which will be of particular benefit for directors of AiM companies.
If there is a liability under a D & O policy it usually relates to the legal costs of dealing with the relevant claim or issue, rather than an underlying faulty action by the board. This policy has an especially wide definition of the legal and similar expenses which are covered. It also has several features which should be of particular interest to “professional” non-executive directors.
D & O insurance is designed to meet the legal defence and settlement costs incurred by individual company directors and other senior personnel as a result of allegations of corporate malpractice. It ensures that they receive expert legal advice and benefit from the support of a professional defence team. In the event that damages and other costs are awarded against them, these too will normally be met under the terms of the policy.
In most cases premiums will be relatively low, so that directors can enjoy real peace of mind at little cost.
An Increasing Need
Increasing awareness of the rights of consumers/shareholders/employees and the expanding number of regulatory bodies is leading to a dramatic rise in the number of cases of alleged corporate malpractice coming to court.
In many such cases individual directors and senior managers find themselves facing an entirely personal liability for legal expenses and settlement costs. Often, the company concerned will either refuse to foot the bill or be unable to do so. In some circumstances they may be forbidden by law to so do. This will involve the defendant in funding his own defence and meeting any settlement costs which can lead to personal bankruptcy and the seizing of personal assets.
If those same company directors and senior personnel had arranged D & O cover then such costs would be met by their insurers.
Cover protects the personal liabilities of directors, officers and senior employees from their wrongful acts whilst running the company. A wrongful act is generally defined as 'breach of duty, breach of trust, neglect, error, misstatement, misleading statement, omission, breach of warranty of authority or other act ……..'
It also funds the company when the company is permitted to indemnify the director, officer or employee concerned. Normally this indemnification is only allowed when the director, officer or employee is innocent of the allegation and legal defence costs have been incurred in defending them.
- Shareholders for Financial mismanagement
- Mis-filing of accounts
- Breaches of company law
- Creditors - when wrongful trading has been established
- Employees - Employment issues including
- Failure to promote and unfair dismissal
- Competitors - restrictive trade practices
- Regulatory authorities - DTI, Health and Safety etc
- Acquisitions and disposals – mis-statements over the value of a company
The Scope of this Policy
The legal and related expense coverage in this policy is wide. It includes:
- A “fighting fund” of up to £50,000 to respond to “Dawn Raids” even where no claim or investigation result
- Costs of representation at investigations, even if no claim subsequently arises
- In an emergency, up to 10% of the insured limit can be used without the prior consent of the Insurer
- There is free advice from Dibb Lupton corporate governance and mitigation
- There are no restrictions on the lawyers to be used, but AIG has pre-agreed discounts with a prestigious panel of firms
- Importantly for a quoted company, PR costs of up to 10% of the insured limit can be expended to publicise a successful defence.
- Other, more general, strong features are aggregate limits of up to £25m and an automatic 12 months period for discovery of claims related back to the insured period.
The features that particularly address concerns of non-executive directors, who may be professionals involved in flotation are:
- Specific limits for named non-executive directors of up to £1m each so that they are not uninsured following substantial claims on the company (e.g. Equitable non-executives)
- Continuation of cover for non-executive directors who retire from the board (but not necessarily from business) for 6 years
- Nearly all policies exclude inter board disputes (Insured vs. Insured)
- This is not excluded, unless the USA is involved
- Unlike other such policies, it is not rescindable in the event of a discovery of non-disclosure or misrepresentation. The individual responsible will not be protected, but the company will still have the benefit of the policy.
- If additional directorships are taken on at the request of the Insured Company, these will be covered unless they are in the USA or have negative net worth.
- If a regulated firm, all persons from CF1 – CF20 are covered (all supervisory roles)
AiM Prospectus Cover
Insurers will in addition to a wide D & O coverage, offer specific extensions in the AiM D&O and Prospectus Liability Policy which are:
- Legal costs in dealing with claims of misrepresentation
- Costs in addressing warranty or indemnity claims from nomads or brokers or both
- Optional protection in regard to claims from shareholders exiting on flotation such as private equity funds.
Less Developed Countries
A number of AiM companies are resource companies which have operations outside Western Europe.
Special features include an Assets and Liberty clause which can fund the costs of unfreezing assets, freeing employees from custody by bail bonds etc.
In addition there is up to £50,000 cover for the services of leading advisers on Kidnap and Ransom situations. The policy will not, however, cover any ransom for fairly obvious reasons.
The policy is available with or without the prospectus liability extension.
We would be happy to advise on particular situations, pre or post flotation.