Directors & Officers
All companies have 'appointed' directors whose positions should be fairly obvious to both those within the company and to those who do business with it. Essentially, directors are people described as such in the Company documents.
However Section 741(1) of the Companies Act provides a non-exhaustive definition of director, namely: in this Act, 'director' includes any person occupying the position of director by whatever name called. This could include Executive, Non-Executive, Shadow, Associate, Nominee and Alternate Directors
An 'officer' of a company is a little more difficult to identify. All companies have at least one 'appointed' officer (the company secretary). They are likely to have other employees with significant executive responsibilities who, if they are managers, will also be 'officers'. But then, any employee or company representative might be deemed to be an officer.
How does liability arise?
Director's liabilities can be summarised simplistically under four distinct headings:
- Personal liability to third parties for acts of the company. A director can have a personal liability if he acts as the 'mind and will' of the company, i.e. where he is a sole or majority shareholder or a sole director. Companies can commit crimes and civil wrongs with the active participation of the directors, who can expect to be joined in any resultant proceedings.
- Regulatory/disciplinary proceedings and investigations. E.g. investigations carried out by the Financial Services Authority or proceedings brought by the DTI under the Company Director Disqualification Act 1986 (especially following a period of 'wrongful trading').
- Civil liability to the Company at common law. The fundamental duties imposed upon a director at common law are a fiduciary duty and those of skill and care.
- Statutory liability. The failure to act in accordance with statute law, i.e. an Act of Parliament e.g. the Companies Act 1985, Insolvency Act 1986, Health and Safety at Work Act 1974 and the Environmental Protection Act 1990.
What do Insurers look for?
Insurers will want a proposal form but will usually indicate terms on the basis of the latest published report and accounts. You should attach details of any public offerings and any interim statements. Business activity, location and financial status are major underwriting criteria, whilst turnover and the number of directors and officers are relatively unimportant factors.
Generally, companies in high hazard industries tend to represent the greatest risks. For example, manufacturing, bi-tech, hi-tec companies and financial institutions.