Directors & Officers Liability During a Pandemic

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When this article was written, according to the World Health Organisation, there are almost 2.000.000 confirmed cases of COVID-19 around the world. Further, according to Oxford Economics the coronavirus could cost the global economy more than $1tn.

Pandemics do not happen all the time. As such, it is uncommon to consider such risk at a normal “Risk Management Assessment”. However, either they consider it or not, directors are now facing a serious challenge. Directors’ fiduciary duties dictate that, a Director must act in the company’s best care and in good and faithful way. According to the laws of the Republic of Cyprus, directors hold personal liability for any wrongful or aligned wrongful act against the company.

Taking into consideration all the above, directors should expect an increase in claims against them, especially regarding COVID-19 allegations.

For example, Directors of a listed company, had not take in time all necessary measures to mitigate the risk of company’s devaluation due to the virus, as a result, the company’s value drops dramatically. Shareholders are now suing the company’s directors for not acting properly and on time.

Another case might be the Company’s inability to pay its creditors on time. In a large extend, financial activities have been frozen due to the virus. Not the company’s financial obligations towards creditors, thought. Creditors might want to proceed with claims against the company – consequently towards directors for not meeting contractual obligations.

Another risk that immerged is Work from Home! Taking into consideration that today, most of the company’s employees are working from home, the risk of cyber attacks is even greater. Besides, the cyber-attacks related costs, directors might find again themselves liable for not taking the appropriate measures to mitigate or dismiss such a risk.

On the other hand, what if company did not take adequate measures to protect its employees from the exposure to the virus and as a result, employees got sick with COVID-19. The chances are high that, affected employees might sue the company for not protecting them.

Supply chain or construction companies are forced to seize or reduce operations due to the pandemic. This will have as an immediate impact the missing of production and financial targets, as cash flow will have drastic negative effect on the company’s financials.

Lawsuits – in the form of class actions – have already been filed in USA. Even though, the USA is far away from us and the easiness of American people and companies to file claims is not the same as in our island, what this virus has proven to the world is that the globe is just a very small space. And even if, no wrongful act can be proven against a company’s directors, still legal and PR expenses will need to be paid. If adequate Directors & Officers Insurance is in place, directors will have an extra layer of protection against the new health Armageddon that we are facing right now.

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