A 4% jump in the number of disqualified directors of insolvent companies has highlighted the importance of holding adequate Directors and Officers insurance, according to a leading City law firm.
Reynolds Porter Chamberlain LLP (RPC) said Insolvency Service figures show that disqualification orders were up 4% to 1,437 in 2010-11 from 1,388 in the previous year.
The latest figure is up 23% compared to five years ago, when there were 1,173 such orders. A total of 6,422 directors have been disqualified in the last five years.
Disqualification orders ban directors of insolvent companies from being directors of or taking part in the creation or promotion of a limited company for up to 15 years. They are applied for by the Government’s Insolvency Service and approved by the courts if sufficient grounds can be established- such as theft, fraud, continuing to trade while the company is insolvent, or failure to keep proper accounting records.
The number of company insolvencies peaked in the third quarter of 2009.
RPC partner Jonathan Davies said: “With so many insolvencies during the recession, the government has been very busy in applying to the courts this year for disqualification orders.”
He said that the widespread clampdown on corporate governance issues since the credit crunch made it doubly important for company directors to protect themselves with D&O insurance.
“A lot of non-quoted, small businesses decide to forego D&O insurance because it is seen as an unnecessary cost, but this clampdown demonstrates the importance for company directors of taking out cover.”
“Legal costs for company directors defending themselves against an investigation can increase rapidly, so very few company directors would want to fund their defence out of their own pocket.”
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