When a company enters insolvency, attention naturally turns to the obvious assets such as cash, property, stock and potential claims. However, one asset is frequently overlooked: Directors' and Officers' (D&O) insurance.

For insolvency practitioners, a D&O policy can be the difference between a claim that is commercially viable and one that is not. As I discuss in my recent podcast for the R3 Training Academy, understanding the existence, scope and status of D&O cover at an early stage can unlock recovery opportunities that might otherwise be lost.

Key takeaways for insolvency practitioners

1. Investigate D&O insurance early

D&O insurance should form part of the initial asset investigation. Potential claims against directors and officers may be supported by insurance cover, providing a realistic route to recovery where personal assets are limited.

2. Don't assume cover is limited to directors

Many D&O policies extend beyond formally appointed directors. Cover may include former directors, shadow directors, de facto directors, senior managers and other individuals involved in the management of the business. Understanding who is insured is often a critical first step when assessing potential claims.

3. The policy wording matters

D&O policies are highly bespoke. Definitions of key terms such as "claim", "loss" and "wrongful act" can significantly impact available cover. Insolvency practitioners should avoid assumptions and review the specific policy wording carefully.

4. Timing can be crucial

Most D&O policies operate on a claims-made basis, meaning cover is often triggered by when a claim or circumstance is notified, rather than when the underlying conduct occurred. Delayed notification can jeopardise cover and reduce recovery prospects.

5. Understand run-off and extended reporting options

Opportunities to preserve cover following insolvency, restructuring or corporate transactions can be time-sensitive. Failure to secure an extended reporting period or appropriate run-off cover may result in valuable protection being lost.

6. Notification issues regularly determine outcomes

Notification requirements are often prescriptive and can dictate whether cover is available. Questions such as who must provide notice, where notice must be sent and what information must be included should be reviewed alongside any investigation into potential claims.

7. Review exclusions carefully

Common exclusions, including insured versus insured, fraud and prior litigation exclusions, can have significant implications in an insolvency scenario. However, carve-outs may preserve cover in circumstances where it first appears unavailable.

Practical steps

As a starting point, insolvency practitioners should:

• Locate all D&O policies and supporting documentation.
• Establish who is insured and what cover is available.
• Check policy periods, limits and erosion of available cover.
• Investigate whether claims or circumstances have already been notified.
• Consider whether new notifications should be made.
• Review exclusions and seek specialist advice where appropriate.

A strong claim against directors may have limited value if there is no realistic recovery route. Conversely, responsive D&O insurance can transform that same claim into a meaningful asset for creditors. For that reason, D&O cover should be viewed not simply as an insurance policy, but as a potentially valuable insolvency asset that warrants early investigation and careful management.

For more information, please get in touch with Nicola Maher, Partner, Insurance Disputes.