December 17, 2018

Spate of corporate insolvencies will put directors and officers under scrutiny in 2019

Greatest focus will be on retail and outsourcing sectors.

The retail sector has suffered significantly in recent times and a number of well-known and long-established retailers have collapsed during 2018 (House of Fraser, Toys R Us, Maplin, Poundworld and Orla Keily to name but a few). Reasons cited for the difficulties experienced in this sector include weakening consumer demand, high rents and occupancy costs for bricks-and-mortar retailers, a move towards online retailing and heightened price competition. The UK insolvency regime requires insolvency professionals to consider the conduct of all of the insolvent company's directors. The reason for this is two-fold.

Firstly, they must consider whether there are grounds to take action against any of the directors on behalf of the company (for example, for wrongful trading, fraudulent trading, misfeasance or breach of fiduciary duty).

Secondly, they must submit reports to the Secretary of State on the conduct of every director (including shadow directors) who acted in that capacity in the three years prior to insolvency regardless of their conduct. These reports are then considered by the Insolvency Service and, where the conduct suggests that they may be unfit to be concerned in the management of a company, investigation, enforcement and disqualification may follow.

For these reasons, an increase in corporate insolvencies invariably means closer scrutiny of director conduct and additional exposures for D&O insurers. In addition to the retail sector, and following the collapse of Carillion in early 2018, the outsourcing sector is under increasing pressure and scrutiny.

You can read the rest of our insurance predictions here.