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TalkingPoint: Implications Of Recent Legal Decisions On Director Duties In Australia « Back
July 2012
Page 4 of 4
FW: What steps should directors take to protect themselves in the current legal environment, where heightened scrutiny and enforcement activity is likely to continue?

Miller: Directors should do the following. As always, seek advice from suitably qualified advisers, but avoid falling into the trap of blind reliance. Become familiar with the corporation – its business, its activities and corporate affairs. Keep up to date with the financial status of the corporation by regularly reviewing and understanding financial data. Apply a critical and questioning mind, make inquiries of management, of relevant committees and of other directors. Be sure to focus on and consider the content of materials provided during the decision making process. Consider whether they have the requisite level of financial literacy expected from a director. Ask whether the board is engaging adequately and effectively with shareholders.

Bethlehem: First, directors should ensure the highest standards of corporate governance to reduce the risk of a claim arising in the first place. That is where risk management should be focused. In addition, directors should avail themselves by way of protection from claims should those arise, by way of an appropriate indemnity in their favour from the company. The next step is to ensure that the company has in place a d&o insurance policy which includes both Side A cover – for liability in respect of which the company does not indemnify the director – and Side B cover for liability arising where an indemnity is in place by the company. One important aspect that directors should be alert to, with respect to any such policy, is the inclusion of any Side C cover, which provides cover to the company for shareholder claims. Depending upon policy terms, Side C covered claims have the potential to erode cover which may otherwise be available for Side A or B covered claims. Separate limits of cover may be one way to address this issue. Directors must give careful consideration to each of these issues, including the obtaining of professional advice to ensure that they have in place necessary protections.

Keith Bethlehem is a partner in the Insurance Group of Colin Biggers & Paisley. His focus is in the areas of financial institutions and directors’ and officers’ insurance, as well as professional indemnity insurance. Mr Bethlehem’s practice incorporates both advice to insurers on coverage issues and defending litigated claims on behalf of insured individuals and entities. He has worked internationally gaining extensive experience in the Lloyd’s market, with a particular specialisation in defending claims against financial institutions and investment professionals. He can be contacted on +61 2 8281 4421 or by email:

David Miller is a partner in both the Insurance and the Commercial Dispute Resolution Groups at Colin Biggers & Paisley. Mr Miller is also experienced in corporate governance and risk management (including regulator actions and Special Commissions of Inquiry), Australian Consumer Law issues, and commercial disputes. He can be contacted on +61 2 8281 4419 or by email:
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