ML Covered - March 2025

As we welcome the New Year, we are pleased to share our latest version of ML Covered, our monthly round-up of key events relevant to those dealing with Management Liability Policies covering D&O, EPL and PTL-type risks.

European D&O claims in the spotlight

Alta Signa, a Managing General Agent in the European Economic Area, has released its latest claims report detailing key trends in D&O liability claims across Europe.

Their report provides that for the past 5 years, regulatory proceedings have accounted for 34% of all notified D&O claims to Alta Signa. This includes claims relating to regulatory breaches, such as health and safety violations, environmental infractions and data protection failures. Alta Signa note that regulatory breaches are by far the most common type of D&O claim and that they often result in significant legal and defence costs.

Bankruptcy-related claims comprise 12% of claims, and often relate to alleged mismanagement. These claims have been exacerbated by recent economic pressures such as the pandemic, rising inflation and interest rate increases, with liquidators and creditors often targeting directors to recover unpaid liabilities.

11% of all notified D&O claims constitute shareholder-initiated litigation. These claims primarily stem from allegations of misleading public statements, undisclosed financial risks and disputes over M&A decisions or conflicts of interest.

A significant number of notifications relate to precautionary claims, making up 43% of the claims portfolio. Many of these do not escalate to formal legal proceedings. However, the large volume of notifications may reflect the cautious approach being taken by companies to mitigate potential coverage issues and/or coverage gaps.

There is also an emerging trend in D&O claims involving professional misconduct, such as fraudulent schemes, abuse of corporate assets and breaches of fiduciary duty, which shows the growing complexity of D&O liability risks and the need for more specialised coverage products.

As a result, the statistics show that it is vital that insureds are made aware of the importance of compliance and their reporting obligations to reduce potential legal exposures and associated costs (particularly given the prevalence of regulatory claims), and that Insurers ensure their policies are regularly reviewed to check  that they align with evolving risks (such as shareholder actions and insolvency-related  litigation).

To read Alta Signa's report, please click here.

Insolvency Service publishes monthly insolvency statistics for January 2025

The Insolvency Service has published its monthly report for insolvencies, which once again shows that insolvencies have continued to rise since pre-pandemic levels.

In particular, the report provides that there were 1,971 company insolvencies in England and Wales during January 2025, which represents a 6% increase from December 2024 and an 11% increase from January 2024.

There were also 9,706 individual insolvencies in January 2025, being a 12% increase from January 2024.

The number of January corporate insolvencies is also the highest in more than five years. Tim Cooper, the President of R3 (the trade association for the UK's insolvency and restructuring professionals) has stated that the rise in corporate insolvencies is due to "an increase in the number of Creditors’ Voluntary Liquidations and Administrations". This suggests that directors may be choosing to close their firms after years of challenging trading conditions (such as rising expenses and reduced consumer spend) and ahead of the increase in the National Minimum Wage and Employers’ National Insurance Contributions in April.

However, Cooper went on to comment that the increased number of administrations compared with last month suggests that more companies have the potential to be rescued via a sale out of administration.

The increase in corporate insolvencies is also compounded by creditor pressures. Cooper notes that HMRC and creditors are no longer taking the supportive stance that was adopted in the aftermath of Covid and have instead returned to the pre-pandemic approach of pursuing taxes and debt.

As such, the continued rise in company insolvencies, which cuts across all industries, continues to place a focus on the role of directors to manage potentially competing interests of their duties owed to the company and the company's creditors. This is particularly given the growing number of claims being brought against former directors of insolvent companies (see our previous blog here).

To read the Insolvency Service's statistics, please click here.

Court rejects claim that a business partner is entitled to share of an informally run company

In Singh v Bains and another company [2025] EWHC 141 (Ch), the High Court rejected a Claimant's case that he was entitled to a share in the Defendant’s company.

Background

The Defendant owned companies that operated various cash and carry, convenience stores, off-licence and fish and chip shop businesses. The Defendant and Claimant, who were mutual friends, agreed to go into business together.

According to the Claimant, the agreement was on a "50/50" basis, meaning that everything was to be shared equally, including the profits earned and the holding of shares in the companies. The Claimant claimed that there had been a verbal agreement (the Oral Agreement) where the Defendant agreed to be an equal partner in Goldbeach Trading Limited (Goldbeach) and that another company, G B Retail Limited (GBR), would be established in which they would both have equal shareholdings. The Claimant's and Defendant's accountant subsequently updated Companies House to show the one share in Goldbeach and in GBR both being owned jointly by the Claimant and the Defendant.

The Defendant, however, argued that any agreement with the Claimant only applied to the sharing of the profits. He never agreed that the Claimant would be allotted any shares or ownership interest in the businesses. He also asserted that he had no knowledge or role in the shareholding being changed at Companies House.

During the proceedings, the Claimant produced as evidence four 2021 emails between the accountant and the Defendant's wife. A question arose over whether they attracted without prejudice privilege.

Decision

In his decision, the Judge noted that there were various inconsistencies in the Claimant's evidence which cast doubt over its reliability, while the Defendant's evidence was typically straightforward.

The Judge ruled that the privileged email exchanges did not contain any suggestion that a dispute had arisen, or that litigation was in prospect so that they could consider them. On reviewing the emails, the Judge ruled that they did not conclusively establish that the Defendant was obliged to split his assets with the Claimant. The Judge concluded that the most likely explanation was that the Claimant alone instructed the accountant to register the share in Goldbeach and GBR at Companies House and that the Defendant was probably not involved.

The Judge ruled that the Claimant had failed, on a balance of probabilities, to establish the existence of the Oral Agreement. The Claimant's evidence in this regard was "unreliable, uncertain and contradictory". Moreover, the accountant's evidence suffered from similar inconsistencies and did not go far enough to corroborate that an oral agreement existed. The Judge added that had the Claimant's evidence been deemed reliable, he would still have preferred the Defendant's version of events. The Judge accepted that the Defendant never intended to offer the Claimant a shareholding in GBR and that what was agreed was an equal share of the profits.

For these reasons, the Judge rejected the Claimant's case that he was entitled to a share in the Defendant’s company.

Key Takeaways

The judgment offers a stark reminder for directors and officers of informally run companies that their shareholding arrangements and terms of business should be clearly set out to protect themselves against any potential claim that another party is entitled to a share of the company.

To read the case, please click here.

Pensions Regulator to focus on "long term outcomes for savers over tick-box regulation" in 2025

In November 2024, the Pensions Regulator (TPR) indicated that it would be shifting to a more "prudential" style of regulation and supervision, a theme which will be continuing into 2025. 

According to TPR's Chief Executive, Nausicaa Delfas, 2025 may well see regulatory intervention, should intra-industry collaboration fail to address concerns. The focus will be on driving better data and raising standards. Its approach is likely to include reducing the regulatory burden relating to how schemes share information with TPR. It will also be revising its approach to supervision of the most strategically significant schemes, including master trusts.

The shift in TPR's approach comes as pension schemes become consolidated into larger megafunds. The Government is hopeful that pension megafunds will improve flexibility so that retirement funds can invest in illiquid assets, for example national infrastructure projects and businesses. However, it will also be necessary to mitigate against risks that may arise.

In other updates, TPR has heralded the introduction of its innovation hub in 2025, which will allow for early consideration of ideas from within the industry, combined with a proactive approach to guidance. It has also indicated that it will proceed with plans to drive value for money and provide protection from climate-related risks.

TPR seeks engagement from schemes, advisors and administrators to take a pre-emptive, rather than a reactive, approach to issues and challenges. Overall, TPR's message is that 2025 will bring a focus on long-term outcomes and collaboration, over tick-box regulation in the pensions' space. 

TPR's approach to regulation will be of interest to ML/PTL insurers given it is usual to offer regulatory cover – what TPR is saying does not herald a sea change in approach but is an indication of its intention to get more heavily involved with schemes as the pension sector consolidates around larger schemes.

TPR to enhance supervision of DC master trusts

TPR has confirmed that it will supervise the switch from defined contribution schemes (DC) to master trusts to identify risks sooner and improve the pensions system. Currently, 90% of trust-based DC schemes are in master trusts. TPR plans to categorise DC schemes with similar risk profiles into the following four categories of supervision:

• monoline master trusts;
• commercial master trusts;
• non-commercial master trusts and collective DC schemes; and
• single and connected employer DC schemes. 

It is hoped that this more strategic approach to supervision means that risks will be spotted more efficiently. This development will be relevant to PTL insurers given the potential focus on this area and potential for regulatory costs.

DB schemes saw improved funding and will run on longer following LDI crisis

The "mini budget" of September 2022 significantly affected defined benefit (DB) pension schemes forcing many to sell gilts to raise cash given the use of liability driven investment products. However, the rise in gilt yields partly driven by the sell-off in gilts has had other longer term positive effects for DB schemes. Research undertaken by Censuswide has shown that the majority of DB schemes have seen improved funding since the crisis. The following results were found in the research:

Funding Impact

• 61% reported increased funding in the short term (immediately after the crisis).
• 58% saw funding improvements in the medium term (2 months to 1 year).
• 56% experienced funding improvements in the long term (over a year after the crisis).
• 17% reported worsened funding in the short term.
• 15% noted worsened funding in the medium and long term.

Changes in Scheme Approach

• 52% said their schemes are now likely to run-on for longer.
• 35% feel their schemes are more likely to run-on for good.
• 9% believe their schemes are more likely to reopen.
• 3% feel the crisis has accelerated the move to buy-out.

The results show that for most schemes, the rise in gilt yields has led to stronger funding positions and shifted how financial decision-makers are handling their pension schemes moving forward. The improved funding of DB schemes is a positive development for ML/PTL insurers of DB schemes.

Merger of pension schemes to utilise surplus: High Court judgment

On 3 February 2025, the High Court delivered its judgment in Arcadia Group Pension Trust Ltd v Smith [2025] EWHC 11 (Ch), addressing the proposed merger of two pension schemes amidst their wind-up process.