Directors and officers at greater risk of being sued

As more businesses face liquidation, directors and officers are at greater risk of being sued, says Aviva.

The Insolvency Service statistics released for the first quarter of 2009 show that in total, there were 4,941 compulsory liquidations and creditors' voluntary liquidations, an increase of 7.1% on the previous quarter and an increase of 56% compared to last year.

Robin Farquhar, head of specialist lines for Aviva, said: "As we become a more litigious society, directors and officers are facing additional pressures as more businesses face closure.

"When a firm faces insolvency, a director's duty to creditors intensifies. In all types of winding-up, the official receivers can examine the conduct of a firm's past and present directors and officers. Insolvency practitioners will often try to recover money for a company's creditors by bringing a claim against a director for either a breach of their duties, or fraudulent or wrongful trading.

"The Companies Act 2006 sets out the duties and obligations of company directors, making them liable not just for the long-term success of the business, but also for the supplier and customer relationships, the interests of employees, fairness towards shareholders and environmental impacts.

"As directors are automatically exposed to unlimited liability, allegations made against them, whether they are guilty or not can be costly. And not knowing the ins-and-outs of the law is no defence."

Aviva has structured its Management Liability policy to provide protection against the exposures that private companies face. Along with its Directors and Officers Liability policy, Aviva can also incorporate additional protection for companies with two new cover options:

Corporate Legal Liability protects companies against the financial consequences of a wide range of claims made against them. Policy cover includes the cost of defence, and in some cases the amount of awards and damages, as a result of claims and prosecutions made against the company in a wide range of situations.

Employment Practices Liability protects companies against financial loss from claims made by employees for a wide range of employment practice violations including unfair dismissal, discrimination and harassment.