Risks rising for directors?

Recent legislative changes mean that directors are under more pressure than ever before to perform within strict new guidelines, or face the consequences.

The Companies Act of 2006 overhauled the regime which governs companies and their directors, making directors' duties clearer, but arguably more onerous, than previously. By requiring directors to promote the success of the company for the benefit of the members, the Act heightens the need for directors to pay closer attention to the long-term consequences and environmental impact of any decisions. It also paves the way for shareholders to bring a derivative action against directors as a remedy.

The Extradition Act of 2003, under which UK directors can be extradited to the US and most EU member states, also remains a significant concern. As almost all UK financial crimes can be considered extradition offences, businesses with US links must be aware of the need to comply with US law. This was a lesson which the 'NatWest Three' overlooked to their cost, probably because all business was conducted in the UK, barring one meeting in Houston and communication over US computer networks.

These developments - along with heightened interest in the actions of directors from regulators, shareholders and the media - mean that directors and officers must have comprehensive knowledge of their responsibilities and potential liabilities. They must also have the right D&O cover in place to make sure that they are receiving the highest level of guidance and protection available.

Andre Basile, vice president, financial lines, AIG Europe (UK) Limited