As mentioned in our previous blog posts, directors and officers can be held liable for the losses of a financially distressed company. As such, experts recommend a Directors and Officers Insurance policy in addition to following some guidelines to protect themselves and their company’s future duties.
First and foremost, directors and officers are advised to resist resigning during financially difficult times. Even if a director is to step down, liability for actions taken on their behalf will not dissipate. Further, doing so could be viewed as disloyal to his or her duties. Last, directors and officers are the most likely to be fully informed on the state of the company. In turn, the input of these directors and officers could not only benefit the company’s future, but theirs as well as they are able to drive the influence of the company’s restructure.
Next, experts recommend obtaining directors and officers insurance to protect against the potentially hefty financial obligations of a struggling company. However, these executives should review the coverage carefully as the “fine print” could mean the difference between collecting and not collecting-or at least may mean that there will be a significant delay before being able to collect on the policy, according to Inside Counsel. This policy should ensure the coverage of the appropriate risks and provide adequate coverage for the directors and officers. There are typically three types: Side A, Side B, and Side C.
Side A covers the directors and officers personally as they manage the duties of the company. Side B reimburses the company for payments it makes to directors and officers from legal costs, and Side C reimburses the company for legal claims made directly against them, as reported by Inside Counsel.
Directors and officers should bear in mind that the sooner a distressed company is to request this policy, the more likely the insurance provider is going to be keen on protecting them. However, those companies that specialize in insuring distressed companies are best advised to provide these policies.
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