Directors with D&O insurance should check whether it covers their defence costs if their company becomes insolvent – and its liquidators and administrators exercise new powers to sell the right to bring legal claims against them to third parties – following new liabilities for directors.
From 1 October, both liquidators and administrators of insolvent UK companies can transfer (‘assign’) the right to bring claims for wrongful or fraudulent trading (and certain other claims against directors) to third parties. Such claims will effectively become assets of the insolvent company which the liquidator or administrator can sell – probably to businesses which make a living pursuing such claims – to raise immediate cash for creditors.
D&O liability insurance usually covers the legal costs of successfully defending such claims if brought by a liquidator or administrator. However, they may not protect the director if a claim is sold to a third party who then brings the claim instead.
• Directors with D&O insurance covering their defence costs if they successfully defend claims by a liquidator or administrator should check whether such costs are also covered if they successfully defend a claim brought against them by a third party.
26 November 2015
Alex Cook initially trained as a Barrister (non-practicing) before cross-qualifying as a specialist commercial and property litigation solicitor. Prior to becoming joint owner of Helix Law in 2013, he was Head of Litigation and one of the youngest partners in the region in a large firm based in Eastbourne. Comfortable and experienced litigating against large international City firms, he has successfully resolved complex commercial and property disputes for clients ranging from large international businesses and property investors to individual business people. Alex is an accredited commercial mediator and he is increasingly asked to advise on contracts, risk, dispute avoidance and exit strategies. He also continues to develop and innovate our products, services and funding arrangements with the aim of making specialist litigation services more transparent and accessible.
This article is written to raise awareness of the issues it discusses and it may not be updated after it is first written, even if the law changes. It is not intended to be legal advice and cannot be relied on as such. Helix Law is not responsible or liable for any action taken or not taken as a result of this article. If you think the matters set out affect you and you wish to apply them to your particular circumstances then we are happy to give you free initial telephone advice.