Solutions > Miscellaneous > Directors and Officers Liability  
 
DIRECTORS AND OFFICERS LIABILITY
 
  As a Company Director are your Personal Assets Protected from Law Suits?
 

WHY YOU NEED DIRECTORS
LIABILITY INSURANCE
Not only globally but in Sri Lanka too the trend of claims filed against corporate executives exposing them to potential personal liabilities for violations of laws and regulations has shown a marked increase, especially with the collapse of some major financial institutions recently. Some well known business leaders and top corporate executives have lost virtually everything they had earned during their life time.
One out of every twelve companies listed in the New York Stock Exchange has been hit by a Shareholder’s lawsuit against Directors/Officers, with average claims per suit in excess of US$ 10 Million.
Government regulatory bodies, depositors, shareholders/investors, employees, and consumer groups are more aggressively asserting their perceived rights to influence corporate decisions and business strategies. Business leaders are thus confronted with various risks such as hazards associated with mergers, acquisitions, public offerings, day-to-day operations.
Business leaders are confronted with various risks such as hazards associated with expansions, mergers, acquisitions, public offerings and day-to--day operations.
The new Companies Act NO.7 of 2007 places greater accountability on company directors and officers for their business decisions and never before have they faced a greater likelihood of being sued, even to the extent of exposing their personal assets.
Strict monitoring and supervision is now required on the part of non-executive and independent directors.
 
Who can take action?
Shareholders        - Financial loss due to a failure of a director or office
Employees           - Unfair dismissal, discrimination and sexual harassment
Customers           - Financial losses resulting from any ill advice of a director/officer
Competitors         - Adverse effect on their business operations due to restrictive trade practices such as price fixing
Public                  - Failure to effect and rnaintaine adequate control
Regulatory Bodies - Offences & breaches under any of the statutes or statutory bodies.
 
POSSIBLE ALLEGATIONS
Inaccurate statements of financial status
Decisions, acts, errors or omissions that lower share price
Errors in annual accounts
Conflict of interest
Lack of judgment, diligence or good faith
Mismanagement of funds
Inaccuracies in prospectuses
Unfair allotment of shares
Unauthorised or imprudent loans or investments
Failure to obtain competitive bids
Imprudent expansion resulting in a loss
Overlooking significant growth or investment opportunities
Using inside information
Unwarranted dividend payments, salaries or compensation
Misleading statements filed with the Stock Exchange
Wrongful dismissal of an employee or harassment
Depriving an employee of a career opportunity
Misrepresentation in the acquisition agreement for the purchase of another company
Compromising a competitive industry position
 
Possible Consequences
Many allegations brought against a director or officer will probably lead to either civil or criminal proceedings against the director or officer.
Civil Action may lead to liability for
Damages awarded to the claimant against the director or officer
Claimant's costs
Costs of personal legal representation
Criminal Action can be brought under various statutes including
Companies Act
Inland Revenue Act
Labour Act
 
The new act also stipulates that if expressly authorised by Articles and with the prior approval of the Board, a company may effect insurance to indemnify a director or employee in respect of:
Liability not being criminal liability, for any acts or omission
Costs incurred by a director or employee in defending or settling any claim or proceedings relating to any liability other than criminal liability
Costs incurred by that director or employee in defending any criminal proceedings in which he/she is acquitted
   
  SCOPE OF POLICY PROTECTION
Janashakthi Directors' & Officers Liability Insurance coverage is provided on a "Claims Made" basis, i.e. the claims made during the policy period of the insurance, irrespective of the date of committing the wrongful act, are covered. When the company indemnify (relieve liability) a director or an officer as provided by the Companies Act No.7, 2007 and Company Articles, Janashakthi D&O Liability Insurance will reimburse such outlays as stipulated under the policy terms and conditions When the company is precluded from indemnifying a director or an officer, Janashakthi D&O Liability Insurance will directly respond to the said director or officer, provided that he/she has not acted with intentional dishonesty. However fines & penalties under criminal actions are not insurable
   
 
Who is Covered by the policy?
All former, present & future Directors and Officers
Independent, Nominee, Non-Executive & even Shadow Directors
Officers refer to employees occupying a management or supervisory capacity
Directors & Officers of a holding company, parent company and existing subsidiaries
Directors representing the Group in an associate company
  A host of unique additional covers such as Public Relations Cover & Retirement Cover (discovery period extended to 72 months) are also available. Therefore please contact your Janashakthi Insurance Sales Professional to tailor-make a unique Directors' and Officer's liability insurance policy for your organisation.
  Note: This is only a general information leaflet and the specific benefits an insured in entitled under a Directors' and Officers' liability insurance is contained in detail in the policy schedule and policy document
 
DIRECTORS’ DUTIES UNDER THE NEW COMPANIES ACT
Act in good faith in what he believes to be in the best interests of the company. (Sec. 187)
Comply with the provisions of the Companies Act and the Articles of Association of the company (Sec. 188)
Not to act in a manner, which is reckless or grossly negligent but to exercise the degree of skill and care that may reasonably be expected of a person of his knowledge and experience. (Sec. 169)
Rely on advice given and information prepared or supplied by professionals, experts, other directors and employees of the company on matters he believes to be within such person's competence. (Sec. 190)
Disclose any 'interest' he has in a transaction with the company, to the Board of Directors and enter it in the 'Interest Register. (Sec.191, 192)
Avoid transactions in which a director has had an interest, if the company has not received a 'fair value'. (Sec. 193,194)
Not to disclose company information except for the purpose of the company, as required by law, or as authorised by the Articles of the company or by the board. (sec. 197)
Disclose to the board and enter in the 'Interest Register' any interest that he has in any shares of the company directly and/or indirectly. (Sec. 198)
Approve remuneration and other benefits for directors only as provided for in the Act. (sec. 217)
Not to give loans or provide guarantee or security in connection with a loan made by any person to a director of the company or of a related company except as provided by the Act. ( Sec. 217)
To call a meeting of the board 10 consider whether the board should appoint a liquidator or an administrator if the director believes that the company is unable to pay its debts as they fall due. (Sec.219)
  To make the board aware if the net assets of the company become less than half of its stated capital. (Sec. 220)
If you need to meet one of our Financial Advisors to customise any of our Miscellaneous Insurance Protection Plans according to the distinct requirements of your business organisation please click here to Contact Us.
 



Top
Home | About Us | Solutions | Customer Service | News & Events | CSR | Careers | e Services | Locations | Contact Us

© 2009, All rights reserved. Janashakthi Insurance PLC
Web Development Team