BUSINESSMEN who take on non-executive directorships must consider whether they are sufficiently insured to meet their liabilities. Delegates at an insurance seminar learned that the higher number of special-purpose vehicles being formed in Guernsey had increased the need for non-executive directors to be properly covered, particularly in a global environment which had become far more litigious.

Heritage Group Insurance Brokers director Grant Mitchenall said there was a common misconception that if a company had limited-liability status, it might also protect the directors. But it does not.

‘Directors are personally exposed and their entire assets could be on the line. Furthermore, the liabilities of non-executive directors are the same as full-time executives.’

Statistics show the number of registered companies has increased significantly in Guernsey during the last 12 months and funds business is at a record level.

Specialist activity such as the formation of holding companies to enable firms to list on the Alternative Investment Market was also prevalent.

The Heritage-organised seminar was a platform to launch a new insurance product designed specifically for non-executive directors.

Mr Mitchenall said that the days when they did not have to worry about liabilities had long gone.

‘In the past they had relied for protection on the company’s corporate directors’ liability insurance or on the Articles of Association which typically included a certain level of indemnity provision.’

But he said there had been recent examples where this insurance had not been renewed, the limit eroded or it had been simply inadequate to meet the liabilities that might result from a major claim.

He quoted a real case in which an executive director had defrauded a company and the non-executive director was found to be negligent, even though the former had managed to conceal the fraud successfully and the latter had no knowledge of it. The non-executive director was forced to pay from his own assets.

Simon Mepham, from W. R. Berkley Insurance, said that the new scheme provided cover which was owned and controlled by the non-executive director and could be used as a safety net in the event that the company insurance provision was inadequate or exhausted.

The seminar was hosted by Heritage managing director Karl Brady.