According to a recent study by commercial law firm Reynolds Porter Chamberlain (RPC), the number of investigations into directors of insolvent companies has increased by 36% in 2022 compared to the previous year. With an average of 193 cases per month, this rise in investigations is partly due to the increase in fraud cases identified by insolvency practitioners in their reports to the Insolvency Service.
This trend is expected to result in an increase in claims for director and officer’s (D&O) insurance policies. D&O insurance policies cover the legal costs for directors who face formal investigations or legal actions. As insolvencies continue to increase, directors of insolvent companies are likely to come under greater scrutiny, resulting in more claims against D&O insurance policies to cover the cost of investigations or penalties.
With the world still struggling with the aftermath of the pandemic, insolvency practitioners are urged to be vigilant for any misuse of COVID support schemes,
he rise in insolvency investigations is a reflection of the closer scrutiny of fraud and other types of misconduct. In the wake of the pandemic, insolvency practitioners are encouraged to be vigilant for any misuse of COVID support schemes, such as the Coronavirus Business Interruption Loan Scheme (CBILS) and Bounce Back Loan Scheme (BBLS).
The Insolvency Service has already disqualified 459 directors during the 2022-23 period for abuse of the schemes. This is a clear indication that regulatory authorities are taking a firm stance against those who seek to exploit the government’s support programs during the pandemic.
The increase in insolvency investigations also means that D&O insurers need to be prepared for an uptick in claims.
This is especially important given that D&O claims from post-insolvency actions against officers have historically been one of the main sources of claims in this line of business.
economic and cyber risks are the top D&O risks
According to a report by WTW, economic and cyber risks are the top D&O risks that the world is currently facing. In particular, the report highlights the risks associated with mergers and acquisitions, and the need for companies to have robust cybersecurity measures in place to protect themselves from cyber threats.
The rise in insolvency investigations is a clear indication that regulatory authorities are taking a firm stance against fraud and other types of misconduct. Insolvency practitioners need to be vigilant in identifying instances of fraud and other types of misconduct. They should ensure that they are reporting any suspicious activity to the regulatory authorities promptly. This will not only help to combat fraud but will also assist in protecting the reputation of the insolvency profession.
The surge in insolvency investigations reflects regulatory bodies’ determination to combat fraudulent activities and misconduct. As a result, insurers need to brace themselves for a surge in claims on D&O insurance policies. Insolvency practitioners, on the other hand, must stay alert in detecting and promptly reporting any fraudulent activities to the authorities.
