Under the Companies Act 2006, directors and company officers are subject to over 200 areas of statutory liability. A breach of any legislation has the potential to lead to civil or even criminal charges. Directors and officers of companies can be held personally liable for these charges and could face significant fines and possible custodial sentences.
Regulatory compliance is an ever-growing challenge, and the powers of regulatory bodies are becoming increasingly onerous. Risks are also apparent in the workplace in the form of employees who are these days well aware of their rights and do not hold back in taking action where they feel those rights have been violated.
Keeping your head above water amidst all this is an exceptional challenge for any business owner, particularly when the business is a smaller one that doesn’t have its own in-house legal department.
Personal Risks for Company Directors and Officers
Directors and officers face a raft of personal risks. These include health and safety failings; employee claims; data protection breaches; advertising standards violations and company activity irregularities.
In some cases, convicted directors can face sentences of between two and ten years as well as being banned from running a company for up to 15 years.
Thankfully there is a way to protect yourself from these risks if you are a company director or officer.
How to Protect Yourself from Personal Risk as a Company Director or Officer
If an investigation is launched against your company you will obviously need to put up a solid defence. The legal costs involved in this can run into tens or hundreds of thousands of pounds, even if the outcome is favourable. This will obviously put a significant strain on both company and personal finances.
The way to protect against this risk is by taking out a Directors and Officers Liability insurance policy, also known as D&O insurance.
These policies take away the financial risks faced by directors and officers, protecting them in the event of claims or allegations needing to be defended.
D&O insurance provides cover for key officers and directors of a business, protecting them by covering legal defence costs in cases of regulatory inquiries; environmental mismanagement investigations; employee claims; licensing breach actions, corporate manslaughter allegations and more.
Most directors and officers taking up new positions have an expectation for such cover to be in place to protect them in their new role. This cover is not expensive and premiums are based on a sliding scale according to turnover.
If you think in terms of the potential costs involved in NOT having the cover, it has to be considered a wise move.