Most countries impose personal liabilities on Directors for their acts or omissions as Directors. The extent of the liability naturally varies by country but at all times it is likely that the Directors' personal assets are at risk. We will work with you to help you to minimize this risk to enable employees or others to act in this capacity with peace of mind.
This varies by country but common liabilities are for unpaid witholdings on employees' payroll, social security payments, unpaid payments into employee pension schemes, VAT or sales taxes and even company debts.
The first step is to make sure that Bylaws are properly drafted from the beginning to assure Directors as much protection as possible. Most countries permit Directors to be indemnified for legal acts against claims brought for their acts as Directors. This is important because the company will only be able to indemnify its Directors to the extent that the Bylaws allow. So it is important that the Bylaws take advantage of the fullest extent of indemnification allowed by law.
If a company runs into financial difficulties, it may well be unable to honor its indemnities to its Directors. This is when the value of Directors and Officers insurance becomes self-evident.
The details and extent of cover of Directors and Officers insurance vary widely by country. It is, therefore, essential to work with professionals familiar with the country in which the Director will act. We work with the relevant insurance companies, review recommendations and obtain the best insurance for your circumstances.
The Director is likely to want a formal agreement from the company to indemnify him/her drafted in the broadest manner to allow the fullest indemnification allowed by local law. The Director is likely to want this as shareholders can alter Bylaws but a contract between parties cannot be altered without the consent of both parties. In other words, even if shareholders were to alter the Bylaws to reduce the protection afforded to Directors, the contract would still protect the Director.
A parent company often wishes to restrict powers of local Directors where possible for the protection of the parent company. Sometimes this causes resentment in the local Director. However, these restrictions are also of benefit to the local Director since he/she cannot very well be held responsible for what they had no power to do. This, therefore, offers a defense to the Director concerned and may also reduce the cost of the Directors and Officers cover.
In many countries, a proper defense is to show that the Director carried out due diligence before an action. Such a defense may also be accepted by tax and VAT or equivalent authorities. However, to assert such a defense there must be written evidence of the due diligence and evidence that the company operates with proper controls and procedures in place.
These are general guidelines, for more information on your specific country or situation, please connect with us.