Gallagher Issues Warning on Directors' Liability Risks Post COVID-19 Relief

The Australian government helped businesses during the COVID-19 pandemic last year by temporarily suspending some business directors' duties relating to insolvency risks. However, directors' obligations have reverted to the standard insolvency liability regulations this year, Insurance Business Magazine reported. The government's 2020 insolvency relief, a part of the Australian Coronavirus Economic Response Package Omnibus Bill, aimed to prevent insolvent trading and any associated personal liability for directors if the relevant debt was incurred “in the ordinary course of business” (section 588GAAA), according to legal firm Clyde & Co. However, Gallagher warned that the government JobKeeper wage subsidy supporting businesses and employment last year ceased in March 2021, leaving businesses to face financial challenges that could lead to closures and insolvencies. The brokerage reminded businesses, directors, business owners, and senior executives to consider the drivers of potential insolvency liability and address the increased risks of insolvency liability claims under the businesses' directors and officers' (D&O) liability insurance. “Insolvency is a business risk stemming from debts or liabilities owed and an inability to service them according to agreed terms,” said Robert McCabe, the NSW manager for financial lines, professional, and financial risks at Gallagher. Read more.