Manager liability insurance between minority shareholder

 

Manager liability insurance between minority shareholder

MANAGER LIABILITY INSURANCE

Disagreements between minority shareholders and business leaders are becoming common in the stock market. The fact that corporate leaders are brought to court by shareholders will no longer be a strange thing in the context that the massization of shareholders in enterprises is becoming a trend.

Therefore, in the financial market, a very “trendy” product has appeared in the current trend, which is manager liability insurance (D and O – Directors and Officers). According to the provisions of Article 116 of the Enterprise Law, the director or general director must run the daily business of the company in accordance with the provisions of law, the company’s charter, the labor contract signed with the company, and the labor contract signed with the company.

Decision of the board of directors, in case the management and administration are contrary to this regulation and cause damage to the company, the director or general director shall be responsible before law and must compensate for the damage to the company.

Therefore, shareholders have the right to sue the director of the enterprise in court if it is proved that the wrong decision of the director of the enterprise has harmed the interests of shareholders and in this case, the director the company will have to pay compensation to shareholders.

Ms. Le Thi Ngoc Huong, Head of Original Insurance Brokerage of AON Vietnam, said: “D and O is a rather complex and special type of insurance, so a D and O policy will be analyzed and designed based on on the specific organizational model and operation of each company”.

Typically, those insured under a D and O policy have legal liabilities to shareholders, investors, employees, and other stakeholders. In addition, they are also personally responsible for investment decisions, personnel-related issues as well as issues of conflicts of interest occurring within the company.

In addition, for enterprises that issue securities and are listed on the stock market, the lawsuits between shareholders and company leaders are much more complicated. The process of making an IPO or listing shares on the stock market is the stage where the CEOs are most exposed to the risk of lawsuits.

The reason is, when a company prepares to conduct an IPO and list shares, it means that it has to prepare a prospectus, which includes all information about its current business as well as its development strategy in the future, the future of that company.

This information must be fully and accurately disclosed to serve as a basis for investors to make investment decisions. Usually, the general director will be the one to sign and directly responsible for the content of the prospectus, so they will be the one to face the risk of being sued by shareholders for personal liability.

Because of some negligence or accident, they have provided false information or omitted important information that affects investment decisions and causes financial loss to shareholders later. Those are the risks that may arise that managers in the issue and listing of securities will have to face.

Around the world, D and O is a popular type of insurance for executives in large companies. According to the statistics of Watson Wyatt Worldwide Consulting Company (USA), 95% of companies in the Fortune list (top 500 US companies) have D and O insurance.

Also according to this company’s statistics, at least 31% of companies encounter D and O-related lawsuits, of which financial institutions, media companies, science and technology companies are common companies must sue the most D and O.