As the director of a company you will be no stranger to risk, as any important decision that has to be made is fundamental to its commercial success. What\u2019s equally important is to understand how you can be held personally liable for these decisions, and the purpose of Management Liability in such cases. McClarrons explain how claims tend to arise, and the precautions you can take against them.<\/p>\n
In cases of corporate wrongdoing, it is no longer enough for those who feel mistreated to hold the company responsible. Claims can all too quickly focus on the individual who is behind bad decisions, indifferent to complaints, or ignorant about questionable company practices.<\/p>\n
For most companies, this is the director, senior manager, or owner. And because the claims battle is now being taken to those in charge, focusing on their shortcomings rather than those of the company itself, it is their own personal assets which are at risk. Even if you have done nothing wrong, it can be expensive proving this as costs for legal representation, barristers, expert witnesses and forensic accountants can soon run into tens of thousands of pounds.<\/p>\n
Where to look for claims<\/b><\/p>\n
It is sensible to make yourself aware of just where and who claims can come from so that you are more prepared when one arises. Some potential sources of claims include:<\/p>\n
Employees<\/b> – Staff are more aware than ever of the ways in which they can exercise their rights, and if they want to find someone accountable if they\u2019ve been wronged by the company or an individual, that person could be you by default as the director. Management Liability claims commonly arise from staff in the case of unfair dismissals, harassment and discrimination.<\/p>\n
Regulators<\/b> – The Health & Safety Executive comes down heavily on those who are lax with safety, and the Environment Agency holds no punches in its mission to maintain the quality of our natural surroundings. That\u2019s why these two Government bodies, amongst a whole host of others (the RSPCA, HMRC and DVSA, to name a few), are becoming increasingly active in their duties, which means more opportunity for claims.<\/p>\n
Shareholders<\/b> – With an emphasis on company transparency, directors\u2019 decisions are viewed with more scrutiny, providing shareholders with more opportunities to raise a claim.<\/p>\n
Creditors and liquidators<\/b> – Creditors will look for who\u2019s to blame if their investment has gone the same way as a company in trouble, and more often than not it\u2019s the director who\u2019s singled out.<\/p>\n
Competitors<\/b> – The Competition Act of 1988 prohibits price fixing, abuse of a dominant market position, and discriminating against customers. Any hint of these practices can result in stiff penalties, including disqualification of the director, an unlimited fine, and in some cases, a prison sentence.<\/p>\n
Suppliers<\/b> – Contract disputes between suppliers and their business clients can escalate from a minor concern to major problem, one which could threaten the survival of your business.<\/p>\n
Customers<\/b> – Just as with suppliers, customer contracts can cause problems if breached, especially if they suffer personal injustice, financial loss or hardship as a result.<\/p>\n
What can you do about it?<\/b><\/p>\n
Be aware<\/b> – First and foremost, you need to recognise that the risk is there and that it affects you personally. Even a simple investigation can run into thousands of pounds, and despite these scenarios becoming more common, many company officers still don\u2019t have the insurance to protect against it.<\/p>\n
Make sure you\u2019re covered<\/b> – A Management Liability Insurance policy complements a Commercial Liability policy; it is separate protection designed to cover company directors and officers against legal action \u2013 helping to protect their own assets.<\/p>\n