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"An increase in the awareness of compliance issues due to the King II report, has highlighted the onerous liability placed on directors and officers of companies," said Catherine Ferreira, a director of specialist services at Alexander Forbes Risk Service

"What is often overlooked is that directors and officers exist in all sizes of companies.  Directors, officers and management can be held personally liable for actions and decisions they make on behalf of the company, putting their personal assets at risk."
 
Although existing Directors and Officers (D & O) insurance policies cover individual directors in their personal capacity, it does not cover the company for its own defence costs and any reward made against it. 

These costs could deplete the company’s reserves and even threaten its future viability.  
 
"Clearly, this of utmost concern for the small-to-medium size business where the financial success of the company and its directors are interlinked," Ferreira said.
 
"The management of small-to-medium sized companies need to be aware of their potential risk exposure and be prepared.  Particularly since South Africans are becoming increasingly aware of their legal rights and consequently more litigious," she added.
 
Although, generally, in the event of bankruptcy directors and officers are not personally liable for corporate debt, they may owe fiduciary duties to creditors if they acted fraudulently or negligently in the management of the company. 

The recent report of 12 former Leisurenet directors who were issued with summonses earlier this year, in their personal capacities, for the group's R12 billion debts, attests to this.

Marketing note:
In a move to alleviate increasing concerns of directors, officers and managers of non-listed and small-to-medium size companies of their personal and company liability exposure for actions and decisions made on behalf of their company, Alexander Forbes Risk Services, have introduced an insurance policy to cover management liability exposure.