What tools are there to protect directors
Directors & Officers Insurance
Directors & Officers Insurance is one of the most economical and underutilised tools to protect company directors. In the past this cover was considered a requirement if you were a large PLC but this is now a necessity for those in the SME sector that value their limited liability status. On average the cost is very low for profitable businesses and even new ventures and businesses seeking external investment will be able to buy the cover if they have a solid business plan.
There is a significant variation in the cover provided by some insurers so it is important to get a policy which has few exclusions and provides value for money.
Risk Management Including Corporate Compliance
A Directors and Officers Insurance policy will provide the defence costs and compensation but it will not prevent claims from happening. Risk management and making genuine efforts to be compliant with current legislation is vital. Very few SME businesses have the in house knowledge to achieve this and external help is often needed. Recognising this is a step in the right direction for most companies. Accepting that being compliant in all ways is not an overnight possibility is the second step and putting a game plan in place to achieve this over time is the third step.
For more information on this see Diligence Risk Management
Articles of Association
A director can be indemnified by the company under certain circumstances. This would be laid our in the Articles of Association. It is important that company directors are aware of this and the terms. A review of the articles by the companies solicitors would provide guidance and possibly some recommendations on this matter
Contracts of Employment
Company directors , even if they are also the shareholder should consider a contract of employment. Within this we would recommend that it states that Directors & Officers Insurance will be purchased and maintained throughout the period of employment and for a period after the employment is terminated. Legal advice on this and other aspects of the contract should be taken but a contract of employment provides protection to both the employee and the company.
Training & Education
Markets change and no business stands still. As professionals and experts in the services and products we provide we recognise the ongoing need to learn new aspects to help us compete in today's market place. Being a Director of a company is no different. It takes 6 years to obtain a law degree but less than a week to start a company and become a Director with all the legal responsibilities associated with this. It is not something to fear but neither is it something to be taken lightly. Those individuals who are unsure of their directorial duties need to seek guidance and education in these areas just as they would in developing their trade knowledge.
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