Directors and Officers Insurance.

Directors and Officers Insurance.

In the wake of recent unprecedented corporate scandals, clearly the trend of corporate accountability applies to large corporations. But smaller privately held companies, including not-for-profits, are not exempt from litigation arising out of the management decisions of their boards. They, too, are at risk.

Regardless of your company’s size, the legal cost to defend a director is substantial, as are the potential penalties that can be personally incurred. Due to liability risks, protecting boardroom talent can be a challenge. To help ensure both your officers’ and company’s well-being, a directors and officers insurance (D&O) policy is part of a comprehensive risk financing strategy.

 

THE LEGAL POSITION IN BRITAIN

Although this research report is about the law in other countries, it is important to be able to compare the legal situation in these countries with the situation in Britain. Understanding British law is also particularly useful when considering the law in certain Australian and Canadian states and provinces which is based on Britain’s Health and Safety at Work Act 1974 (1974 Act).

The main

source of health and safety law in Britain is the 1974 Act itself and its associated regulations. The principle obligations are imposed upon “employers”

though they are also imposed upon other actors including manufacturers, suppliers and employees.

When businesses, or other organisations, establish themselves as companies, a new legal entity iscreated distinct from the natural persons who either own the company (the ‘shareholders’) or who are appointed by the shareholders to manage the company (the ‘directors’). The company will be a legal ‘person’

capable, just like a human person, of having duties, and civil and criminal

liabilities. It is this distinct legal entity, ‘the company’, which will be the ‘employer’, ‘manufacturer’ etc.

upon whom the Act imposes obligations. Sections 2

of the 1974 Act therefore do not impose duties upon company directors. In the context of incorporated businesses, they impose duties upon the legal entity of the company.

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