D&O

Written by Jessica Pease

Key developments in 2024 

2024 highlighted the importance of a directors' duty to consider or act in the interests of creditors where a company is insolvent or bordering on insolvency. The claim brought by the liquidators of BHS Group against certain of its former directors following the group's collapse into insolvency in 2016 saw the first time where a court held company directors guilty of "misfeasant trading". The directors were held to have not considered the creditors' interests before entering into an onerous and expensive secured loan which would exhaust the group's assets if it could not be repaid. The directors were therefore found to have acted against their statutory duties by entering into the loan instead of the group going into administration. 

Wrongful trading cases are typically difficult to bring successfully. This decision may therefore encourage insolvency practitioners to bring claims for wrongful trading and misfeasance which, when coupled with the rise of litigation funders willing to take on such cases against directors following insolvency events, certainly makes this a development for directors and officers (and D&O insurers) to watch out for. In particular, it will be important for directors to monitor the financial position of the company and to show that they have acted with reasonable care, skill and diligence. This includes ensuring all advisors are provided with the requisite information to assist / provide guidance and that any informed professional advice taken / received is assessed and followed to demonstrate a director has properly discharged their duties rather than being a factor contributing to their potential liability. 

The directors being found personally liable for a significant sum will also likely cause an uptick in D&O insurance to provide cover in similar situations (especially where the court held that the directors' liability could not be capped at the level of D&O insurance cover that each director had or was able to afford).

What to look out for in 2025 

The FCA continues to show an increased focus on non-financial misconduct (including harassment and sexual assault) as being central to diversity and inclusion. The results of the FCA's survey of over 1,000 investment banks, brokers and wholesale insurance firms were published in October 2024. It was found that the number of reported allegations increased between 2021 and 2023. The most recorded concerns included bullying and harassment and discrimination identified mostly via reactive routes (grievances, formal processes or whistleblowing). The survey demonstrated how broadly "non-financial misconduct" is interpreted with the most common incident type in the responses being "other". This included the misuse of alcohol within the workplace, inappropriate or offensive language and employees acting in retaliatory behaviour in response to allegations. 

The FCA considers healthy workplace cultures and "fit and proper" employees and senior managers to be essential and a focus point to limit harm caused to consumers or market integrity. In the absence of such cultures and/or people, company directors and officers can expect to be the subject of increased numbers of investigations and claims, particularly given how broadly non-financial misconduct can be interpreted. Directors and officers (as those responsible for company culture) will therefore need to ensure that reflecting on and monitoring the adequacy and flexibility of their processes for mitigating, reporting and investigating non-financial misconduct remains at the top of their priority lists. The absence of such procedures may imply a toxic environment and wider issues which could also lead to reputational damage and other decision making and risk management procedures being called into question and criticised.

The FCA's "final rules" following the survey are expected to be published by the end of 2024. The FCA has, however, previously confirmed its intention to include the concept of non-financial misconduct in the FCA Handbook and the regulatory framework in the Code of Conduct, the Fitness and Propriety test for employees and senior managers and the suitability threshold conditions that firms must meet to be or remain FCA authorised. These changes will increase the FCA's powers to investigate and take enforcement action in relation to non-financial misconduct, which reinforces the FCA's clear intention to be more active in preventing and tackling instances of non-financial misconduct in 2025.

Explore Annual Insurance Review 2025