Do Private Companies Need Directors Insurance?

By Cindy Lau    August 26, 2019

There is a misconception that only directors of publicly listed companies need Directors & Officers (D&O) Liability insurance to cover them against lawsuits brought on by shareholders. The fact is that private company directors have just as much exposure to a management liability claim as a public company director.

All company directors have the same duties and obligations under Australian legislation and regulatory bodies. The demands of statutory compliance, workplace health and safety, anti-discrimination and unfair dismissal laws, financial oversight, IP and data protection has never been greater .

Who can bring a claim against a private company?

Many lawsuits against private companies are brought by employees, customers, regulatory bodies, creditors and shareholders.

Claims by employees:Claims alleging harassment, discrimination, and wrongful termination against the company itself and the directors. In 2018, 13,595 unfair dismissal applications were lodged with the FairWork Commission. Most claims are settled before getting to Court, but if not properly managed, legal costs of an employment dispute can quickly outstrip the claim value.

Claims by shareholders:claims by shareholders alleging mismanagement or breach of director’s duties.

Claims by customers and clients:Common allegations include harassment, discrimination, contract disputes, misleading statements and false advertising.

Claims by competitors, suppliers, and other contractors:common allegations include anti-competitive behaviour, unfair competition or misappropriation of trade secrets resulting in lost business by the competitor, and infringement of trademarks, and intellectual property. Suppliers and Contractors can also become claimants in the event of the insolvency of a company.

Claims by regulators:claims from regulatory bodies such as ASIC for a breach of directors duties, Australian Taxation Office, Environmental Protection Agency for contamination or state bodies governing work health& safety for serious injuries or fatalities within the work place.

How can directors insurance help my business?

A claim against the business and its directors is expensive, time consuming and stressful. D&O Liability insurance(or Management Liability insurance)covers the significant legal cost of defending the claim and compensation payable.In other words, the policy provides financial protection for the company and protections the director’s personal assets.Speak to a Cindy Lau at CMX risk specialist to learn more about the risks facing directors and how you can protect your business with management liability insurance.

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