Why your business needs Directors’ and Officers’ Insurance
Anybody involved in the management of your organisation may have duties and obligations that arise from a multitude of statutes including:
- Corporations law
- Customs and excise legislation
- Dangerous goods legislation
- Equal employment opportunity and anti-discrimination legislation
- Environmental legislation
- Income Tax Assessment Act
- Occupational health and safety legislation
- Superannuation legislation
- Trade Practices Act and Fair Trading Acts
- Workers’ compensation legislation
Under Australian law, the business is legally able to indemnify its directors and officers, other than in respect of claims:
- Made by the company or a related body corporate, i.e. the company cannot indemnify the director for obligations that they owe to the organisation and other board members
- Involving a lack of good faith
The company may also indemnify a director or officer for the successful costs of defending an action, whether civil or criminal.
Your organisation may choose to do this from its own resources but a more sensible approach is to transfer the risk using Directors’ and Officers’ Insurance.
From an individual director or executives’ perspective, insurance is also a better option. An agreement by the company to provide indemnification may prove to be inadequate:
- Because of insolvency
- The company becomes insolvent and has no resources to fulfil its indemnities
- An action is brought by ASIC or a liquidator acting on behalf of the company
