South Africa’s high unemployment rate has resulted in a new generation of entrepreneurs determined to create their own successful destiny. Our traditional educational system fails to adequately equip individuals with the critical skills and know-how needed to become successful business owners and many promising businesses fail because of a lack of knowledge. This includes knowledge around the duties and responsibilities of company directors.
Company directors have a fiduciary duty to act in good faith and for a proper purpose in the best interests of the company and to act with due care, skill and diligence. Directors could be subject to criminal sanctions like fines, jail time, and even disqualification from serving as a director in future, if they have failed to perform their duties.
Due to the nature of business, bold decisions and calculated risks are often required to drive growth and success and sometimes decisions made with the best of intentions can turn out to be wrong.
The purpose of Director’s Liability Insurance is to protect individuals from personal losses if they are sued as a result of serving as a director or an officer of a company. It can also cover the legal fees and other costs the company may incur as a result of legal action against its directors.
Here are a few reasons why Director’s Liability Insurance is important:
- In private companies the directors often invest their own personal wealth in the business, which means that their net worth is directly tied to the financial health of the company.
- Unexpected investigations by the government and regulatory agencies can generate enormous defense costs.
- Director’s Liability Insurance can provide protection and cover against a range of employment related matters involving allegations of wrongful acts such as wrongful dismissal, harassment and unlawful discrimination.
- Cyber breaches are a growing risk. Directors could be held liable for such a breach by shareholders or a third party who feel that the directors did not have the necessary security in place to protect their information.
If your company has no Director’s Liability Insurance product in place, this risk should be treated as a matter of urgency. Speak to your APBCO Broker today!