make sure you are covered before you are on ''Board ''

Directors & Officers liability Insurance

In recent years we have witnessed the collapse of huge companies mainly because of personal responsibilities of the Directors and officials. Responsibilities and risks they must face daily that make the likelihood of an error or negligence or even failure too great. It is therefore prudent for directors and officers to anticipate and manage the risks before it is too late.

For this reason, managers and officials in Cyprus deserve what abroad is common practice. A good insurance for the mistakes that they cannot predict and effective protection for the difficult days that might come.

The Directors and Officers Liability Insurance covers directors and officers against claims of third parties to protect them from claims which may arise from the decisions and actions taken within the scope of their regular duties or even from claim made against them by the company. It further covers the remuneration of external consultants for the defence of a director or officer against such claims and for negotiating compensation arrangements, if there is no fraud on their behalf.

1) DAILY MANAGEMENT OF A CYPRUS COMPANY

The management of a company can be exercised by both its members, shareholders and/or the Board of Directors. Indeed, the competent body is established by the statutes of each Company. In most of Cyprus Companies, however, they follow the example set by Article 80 of the First Schedule of Table A of the Companies Act (Cap. 113), which grants the power to manage and conduct the business of the Company in the hands of the members of Board. Specifically, according to the above article:

"The business of the Company shall be managed by the Directors, who ‘’...may exercise all such powers of the Company as are not, by the Law or by these Regulations, required to be exercised by the Company in general meeting, subject, nevertheless to any of these Regulations, to the provisions of the Law".

So one can easily understand that as the powers of the board increase, so does their responsibilities .

However before  we proceed to analyse these responsibilities, we must first define who is considered as a Director of the Company.

2) DEFINITION OF DIRECTOR / MEMBER OF THE BOARD

First, we must mention that the law does not offer a comprehensive definition of the Member of the Board of Directors, but refers to section 2 of the Companies Act to say that the term "director" includes any person occupying the position of director by whatever name called;

Consequently, in the above broad definition all the categories of directors are included, namely: de jure, de facto and shadow directors. Furthermore, Article 2 of the Companies Law, Cap.113 provides that the term "officer", in relation to a legal entity, includes a director, manager or secretary;

(A) The Secretary

Every company must have a secretary. The role of the Secretary was established by Lord Denning in the case of Panorama Developments (Guilford) Ltd v Fidelis Furnishing Fabrics Ltd (1971) as follows:

"But times have changed, a company secretary is a much more important person nowadays than he was... He is an officer of the company with extensive duties and responsibilities. This appears not only in the modern Companies Acts, but also by the role which he plays in the day-to-day business of companies. He is no longer a mere clerk. He regularly... enters into contracts on the company's behalf which come within the day-to-day running of the company's business. So much so that he may be regarded as having authority to do such things on behalf of the company. He is certainly entitled to sign contracts connected with the administrative side of a company's affairs, such as employing staff, and ordering cars, and so forth. All such matters now come within the ostensible authority of a company's secretary..."

The typical duties of the Secretary includes, the following:

? Maintenance of records and books of the company.

? Filing the annual financial statements with the Registrar of Companies.

? Preparation of agendas and taking minutes of meetings and assemblies.

? Informing the Registrar of Companies for any major changes in the Company's structure, e.g. at the structure of the board.

? Safe custody of company documents and files.

In addition, the below additional administrative tasks may be assigned to the Secretary:

? Purchase the correct insurance for the Company and its employees.

? Start a Pension plan.

? VAT registration.

? Managing the company's facilities.

? Managing the office.

? Advise the directors and confirm that they comply with the Companies Law Cap.113 and the Company's Articles of Association.

? In public listed companies the secretary is responsible to be in compliance with the requirements of the Stock Exchange and the Code of Corporate Governance.

(B) The Chief Executive Officer (CEO)

According to Article 107 of Part 1 of Table A of the First Schedule to the Companies Act the directors may appoint one of them to the post of Managing Director/CEO. The directors may entrust to and grant to the Managing Director any of the powers they possess.

(C) Employees

Regarding the company's employees it seems that Cyprus as well as English case law adopt a more restrictive interpretation. In the English case Registrar of Restrictive Trade Agreements Act the W Smith & Sons Ltd (1969) two branch managers were not considered officials of the Company and Lord Denning held that the official within the meaning of the law must be a person who manages the affairs of the whole company. Unlike in the case Re Vic Groves & Co Ltd (1964) a department head (divisional manager) was held to be an Officer of the Company.

(D) Professionals

Even various professionals such as auditors, administrators, receivers and liquidators may be regarded as officers of the company, depending on the nature and extent of tasks and actions.

3) DIRECTORS / OFFICERS LIABILITY

A) Liability for breach of the duty to act in good faith

A breach of the duty to act in good faith in the best interest of the company (fiduciary duty) and of the duty of due diligence and care renders a director personally liable towards the company, which can claim compensation or take other measures. Note that the above obligations are due towards the company and not to individual shareholders. Indeed, in the recent case of Queens Moat Houses v. Bairstow and others [2000] 1B.C.L.C. 549, the directors were found to have breached the duty of loyalty to the Company, when they proceed to the payment of interim dividends to the Shareholders without the Company having sufficient distributable reserves. The Court ordered the directors to pay themselves the amount of unlawfully paid dividends, an amount that surpassed 40 million.

B) Violation of obligations arising by statute

The violation of the provisions of law by the Company may result in criminal, civil or administrative liability or all the above. Related worth mentioning the word many similar laws:

"When an offense under this Act is committed by a legal person or a person acting on behalf of the legal person and it is proved that such offence has been committed with the consent, connivance or approval or that it has been facilitated by the exercise of malpractice by a consultant, manager, secretary or any other officer of the legal person or any other individual who seems to be acting in such capacity, the natural person is also guilty of that offense." (No. 52 of the Consumer Credit Act, 39 (1) / 2001)

In other cases such as the VAT legislation, the liability of directors is rigorous / objective, i.e. not requiring any proof of fault. In fact, the Law provides even for criminal responsibility every time it is proven with relevant evidence that the defendant violated the law irrespective of any fault (mens rea). Relatively, section 54 of the Value Added Tax Law 1990 (246/1990) provides:

"In the event that any of the offences provided for by the present Act is committed by a legal person apart from the very legal person, the following persons will be deemed responsible for this offense:

(A) All members of the board or management board or committee that manages the affairs of the entity

(B) the Director-General or Director or the CEO of the entity, and the prosecution for the offense may be turned against the company and against all or any of the above persons. "

Furthermore, a director can also be prosecuted under Article 20 (c) of the Penal Code which provides:

When an offense is committed each of the following persons each of the following persons is deemed to have taken part in committing the offence and to be guilty of the offence, and may be charged with committing it, that is to say:

(C) every person who aids or abets another person in committing the offence;

A conviction of counselling or procuring the commission of an offence entails the same consequences in all respects as a conviction of committing the offence.

Any person who procures another to do or omit to do any act of such a nature that, if he had himself done the act or made the omission, the act or omission would have coin-instituted an offence on his part, is guilty of an offence of the same kind, and is liable to the same punishment as if he had himself done the act or made the omission; and lie may be charged with himself doing the act or making the omission.

4) Other common legal actions against the Directors include:

? Mismanagement of the business affairs or assets of the company

? Own interests and conflicts of interest

? Misleading conduct in the sale of the company's assets

? Misleading statements in a statement in lieu of prospectus or prospectus

? Because he engaged in actions / transactions outside his authority

? Violation of legislation (e.g. labour laws)

? Violation of the fiduciary duties

5) Common Errors on Directors & Officers Liability Insurance

a. You do not need Directors' and Officers' liability insurance because the company you work is small and private.

Directors' and Officers' liability insurance is not only for the protection from shareholder lawsuits. Most claims are brought from suppliers, customers, creditors and competitors, while the directors' duties are also due to the respective government authorities.

b. Covered by the general insurance policy of the

Companies generally do indemnify their directors and officers. However, sometimes companies are financially unable to provide this monetary protection or are unwilling to do so for economic or political reasons. Without corporate indemnity or insurance, directors and officers would be reduced to relying on their own personal assets to pay for the costs of defence and any resulting settlement or judgment against them.

For more information please contact me at 22 26 7733 or fill out the contact form below and we will be very pleased to answer your questions and give you my offer this type of insurance if you are interested.