Directors must check personal liability

Many people mistakenly believe that as a director of a limited company, they have no personal liability in regard to their corporate actions.

The truth is that while most corporate bodies are protected through public liability and other insurances, the individuals within the company are often unprotected: particularly where they have acted without proper authority or breached any part of the Companies Act, however inadvertently.

Broadlyspeaking, personal claims or proceedings against directors or officers can arise from any decision made, or act carried out, in the workplace however innocuous it may have seemed at the time.

These range from frivolous and occasionally malicious claims made by disgruntled customers who weren’t happy about the service they received, all the way through to official investigations. Claims and proceedings where personal liability can be involved also typically include:

Claims by investors and shareholders who blame directors personally for their losses.

Actions brought by liquidators, where they suspect wrongful trading or incorrect payments to creditors.

Actions brought by HMRC where insolvent trading or misappropriation of tax payments is suspected.

HSE investigations where negligence is suspected.

Police and SFO investigations where fraud is suspected.

It’s not only company directors that have an exposure here though. While the legal definition of a director is reasonably clear, the legal definition of an officer is vague enough to allow claims or proceedings to be issued against people in almost any managerial or supervisory position.

So, while you maybe confident that all of your company’ s directors are awareoftheir legal responsibilities, it is vital to understand that problems can be caused inadvertently by individuals at many levels of an organisation.

AD& O insurance ensures that company directors and senior management have protection against such claims. It’s important to remember that whilst a company’s liability may be limited to the value of its assets, a company director carries an unlimited personal liability.

This sort of cover is also a important consideration for charities and other not for profit organisations where a director or trustee may be exposing themselves to significant liabilities very often for undertaking a voluntary or unpaid role.

Many organisations overlook this important cover, however we would recommend that anyone with concerns over their potential exposures as a Company Director speak to their usual insurance advisor to discuss this further.