It can be very reassuring being a director of a company knowing that if anything goes wrong, then the company will pick up the tab.  Unfortunately, this is not always the case.

All too often now, if something goes wrong or if someone has a grievance about how they have been treated, they will take action against the company AND an individual director.  This means the director has to defend themselves and may not be able to recover the costs from the company…which means that their house and other assets are on the line because legal costs can be staggering.

 

It won’t happen to me

Sadly, it is happening more often:

  • All sizes of company are increasingly seen as targets for criticism, which may even include mischievous allegations that could cost significant sums to defend.
  • The numbers of employment disputes are on the increase
  • Firms in family ownership are not immune as family disputes can occur, resulting in exposure to litigation.
  • Increasing numbers of Health & Safety Eexecutive audits and investigations, which can be lengthy and costly.

 

What is a typical claim?

The following are a few examples of what can happen.

  • A small shareholder in a private company took action against its directors alleging that, over a period of several years, the directors had abused their positions by paying themselves excessive salaries but paying low dividends to the shareholders. The shareholder applied to the High Court for a review of the directors’ actions and demanded that the directors repay over £1,000,000 back to the company.
  • 14 directors of a privately owned delivery business were banned following the company’s insolvency and subsequent DTI investigation. Although only two directors ran the business on a day to day basis, all were found to be responsible for the books and records not being up to the necessary standards and for a lack of working capital. Considerable defence costs were incurred to defend the legal actions against the directors.
  • A director signed a company cheque but omitted the word ‘Limited’. The cheque was not honoured and by the time the corrected cheque was re-presented, the company had gone into liquidation. As a consequence, the managing director was held personally liable for the value of the cheque, over £30,000.
  • A former director of a company sued the current directors, alleging that they had conspired to deny him his correct pension benefits. The directors personally incurred costs of £36,000 defending the claim.
  • In October 1997 a driver fell asleep whilst driving for the family-run haulage company for which he was employed. Two motorists were killed. The court held that the operations manager should have ensured that his driver adhered to the relevant driving regulations. He had also failed to keep in close touch on these matters with his co-director. Both directors incurred substantial defence costs before being convicted of corporate manslaughter.
  • The company secretary of a leisure group who owned a number of bars was prosecuted for short measures being served at one of the bars.

 

If you would like to discuss how to protect the directors of your business against these financial losses, CLICK HERE or call us on 01527 306 041.