SA business to guard against increasing liability risks

The new Companies Act has resulted in decision makers having their every action closely scrutinised, and directors – both within the corporate and small and medium enterprise (SME) environment – are increasingly being held personally liable for the consequences of negligent decision.

One lawsuit stemming from a negligent decision could result in a business, especially a SME, losing everything they have worked so hard to create over the years.

The growing global trend towards liability and accountability of company directors is increasingly resulting in directors being held accountable when the company sustains a loss. The new Companies Act of 2008 has also placed increasingly complex responsibilities on companies and the individuals in charge of these companies. This coupled with the codification on common law fiduciary duties and responsibilities in terms of the Act, means that no organisation is safe from a law suit – no matter how big or small.

To meet the growing need in the marketplace, RBS recently launched its Directors and Officers (D&O) Liability insurance product, which aims to safeguard directors against potentially damaging consequences of legal action by providing extensive legal defence and damages cover for allegations of breach of duty.

D&O Liability will protect directors of a company against potential lawsuits. She points to a local construction firm currently facing a collusion case, and explains that the business could possibly face a maximum penalty of 10% of annual company turnover. Whilst the D&O policy would not cover fines and penalties, the advancement of legal defence costs to defend the directors could result in the downfall of a company. While larger businesses may have the resources to recover from such an incident, the impact on a smaller business could be detrimental to operations.

A D&O policy in place is no longer a luxury, but rather a necessity, especially for SMEs. No matter the size of the company, the costs of defending legal actions may exceed the worth of the company’s assets. A judgement against a director who does not have protection could also lead to major financial losses in their personal capacity.

The RBS Directors and Officers Liability is also specially customised to suit SMEs, in that it provides assistance in understanding the business’ responsibilities. New laws and guidelines, such as the King III Report on Corporate Governance, as well as the new Companies Act, resulted in onerous responsibilities for company decision makers and representatives. Even routine transactions are becoming increasingly vulnerable to risk. A specialist team will therefore guide the business’ decision makers through this legislative minefield.

Gillian Wolman, Head of Litigation at Risk Benefit Solutions

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