Monday, 20 August 2007

Lawyers advice to directors

Company directors whose role involves giving professional advice should not assume their company will carry the can if they make a mistake

Stuart Haynes, of Martin-Kaye Solicitors, in Euston Way, Telford, said: “Many directors believe they are protected from legal action directed at them as individuals, and indeed, this can be one of the main benefits of forming a company rather than acting independently.

“This is all well and good, and for the majority of incidents, it is usually the company, and not the individual who would face the consequences.”

But Stuart said there were circumstances where a director could find they were facing direct personal action.

“You could find yourself personally at risk if you’ve effectively created a one-to-one relationship with your client, and led them to believe that you’ve taken personal responsibility for their case.

“To avoid this happening, make it clear to all clients that you are acting on behalf of the company. You should sign your letters ‘for and on behalf of the company’, and avoid giving the impression that you’re acting in person on the project.”

Stuart said an added precaution was to take out Directors and Officers insurance, to cover individuals for any direct claims made against them.

“If you work for the company, it’s likely you’ll be an employee as well as a director, so make sure there’s a professional indemnity policy in place which covers you, and that it includes ‘run off’ cover.

“Then even if a claim is made after the policy has ended, there’s a period of additional time, usually up to several years, that the policy will still cover you for.”

Stuart said directors advising other businesses rather than private individuals could also limit their risk by having a written contract drawn up that contained an exclusion clause.

“As long as the clause is within reason, it could be an excellent way to protect yourself against the risks you may face.”