UK D&O claims to rise following spike in insolvencies, warns RPC

Law firm RPC expects D&O insurance claims to rise in line with an increase in insolvencies and alleged misconduct against directors in the UK.

RPC said the UK’s Insolvency Service recorded a 36% increase in the number of investigations launched into directors of insolvent companies for suspected misconduct.

James Wickes, partner in the RPC professional and financial risks team, said: “With insolvencies on the rise, we can expect to see more instances of fraud and other types of misconduct coming to light. As directors of insolvent companies come under heightened scrutiny, D&O insurers will be anticipating an uptick in claims to cover the cost of investigations or penalties.”

Wickes added that insolvency is a major trigger of D&O claims. “Post-insolvency actions against directors have historically been one of the main sources of claims on D&O policies,” he said.

Insolvency practitioners are identifying more cases of fraud, or suspected fraud, among directors of insolvent businesses, RPC said.

The average number of fraud investigations increased from 142 per month in 2021/22 to 193 per month between April and December 2022, said the law firm. The number of cases referred to the Insolvency Service’s companies and targeting department, which investigates corporate abuse, more than doubled from an average of 528 to 1,077 during 2022.

RPC said insolvency practitioners have been asked to look for any misuse of Covid-19 support schemes that were offered by the government as business interruption loans and bounce back loans during the pandemic. Some 459 directors were been disqualified for abuse of Covid-19 support scheme in 2022/23.

RPC said higher interest rates have increased insolvencies in the UK.

“Directors of insolvent businesses are likely to come under scrutiny for suspected wrongdoing. This may include behaviour such as continuing to trade while being insolvent (wrongful trading) and carrying on the business with the intent to defraud creditors (fraudulent trading),” said RPC.