Company directors and officers increasingly need to protect themselves against personal litigation. Incredibly, the Companies Act lists over 200 offences that they can commit.  No matter how small your company, the corporate umbrella is no longer sufficient protection as the scope of personal accountability widens, both to shareholders and employees.

For example:

• The Companies Act 2006 made changes to simplify the old common law use of “derivative actions”, easing the way for even individual shareholders to bring actions against directors
• EU legislation makes directors that act as a company’s “mind and will” personally liable for their actions. Unlike a company with limited liability,  directors can literally be taken to the cleaners for every penny they possess
• The Cadbury and Greenbury reports, covering corporate governance and director’s responsibilities, further extended liability to include non-executive directors in the defence of shareholder interests

So who might sue? The list is quite a long one, including:

• Employees, both current and former, for a range of claims such as wrongful dismissal, discrimination or sexual harassment.
• Shareholders, including minority shareholders for loss of value caused by perceived incompetence.
• Government and regulatory bodies, particularly for health & safety and environmental issues.
• Customers, suppliers, creditors and pressure groups.

Not surprisingly, the number of insurers offering Directors and Officers (D&O) cover has grown rapidly, from a handful a decade ago to nearly 50 today. One of the most important aspects of D&O policies is covering not only the claim but the legal costs entailed in defending an action.

J Bennett & Son has broad expertise in providing advice on the right cover for directors and senior managers. For instance, The Management Liability Portfolio (MLP) from the insurers Arista includes both D&O cover for the individuals, as well as protection for the company.  It also incorporates Employment Practices Liability, which is the most usual type of claim made against management.

Unfortunately, the current recession brings with it the increased likelihood of redundancies, which may be contested, especially with many legal firms being short of work!

As well as the reassurance of cover if matters get to court, directors also have the support of invaluable advice from experts in the field.  The old adage of expecting the best but preparing for the worst holds particularly true in this litigious age.