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Editorial

Company Directors - Insuring Against Risk Update

February 2005 - Corporate & Commercial. Legal Developments by Landwell.

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Section 56 of the Companies (Auditing and Accounting) Act 2003 ("Section 56") amends existing legislation so as to clearly facilitate for the first time in Ireland, Directors and Officers ("D & O") Insurance.

Previous legislative position

As pointed out in our Autumn 2003 Bulletin, Section 200 of the Companies Act 1963 had provided (inter alia) that any provisions in the articles of association of a company or in any contract with a company exempting any officer from liability in respect of any negligence, default, breach of duty or breach of trust in relation to the company would be void. The effect of this section was to prevent companies from putting in place D & O Insurance, as such a contract fell foul of Section 200. The equivalent UK legislation specifically exempted from their equivalent rule, as such contracts of Insurance for Directors and Officers.

New Legislative Position

This new Section 56 now allows companies to acquire this insurance and the following are the key points as a result of the amendments to the existing legislation: -

  • A company may now purchase and maintain D & O insurance for any of its officers (whether former or current) in respect of any liability which by virtue of any rule of law would attach to the officer in respect of any negligence, default, breach of duty or breach of trust of which the officer may be guilty in relation to the company.
  • Notwithstanding any provision contained in existing legislation, the articles of association of the company or otherwise, a director may be counted in the quorum and vote on any resolution to purchase or maintain any insurance under which the director might benefit. However, (pursuant to section 194 of the Companies Act 1963) a director of a company must declare his or her interest in any such contract of insurance at that meeting of the board of directors of the company.
  • Any D & O insurance policies purchased or maintained by a company prior to the commencement of Section 56 will be treated as valid and effective.

Gavin O'Flaherty
Associate
Corporate Restructuring Department
Landwell

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