D&O warning as Covid crisis hinders global economic recovery

As more countries across Europe impose tougher lockdown measures in an effort to combat the spread of COVID-19 a leading lawyer has warned the market to brace itself for a rise in D&O liability claims.

Simon Konsta, Partner at Clyde & Co, in London warned the emergence of a new, more infectious, Covid-19 variant and the imposition of ever more severe lockdowns extends the downside risk on the IMF’s recent outlook for the global economy and its warning of a “long, uneven road to recovery”.

“The view from specialists across our network is that whilst legislative measures such as the UK’s Corporate Insolvency and Governance Act 2020 have offered some protection to directors of companies facing financial difficulties, insolvency claims will be a strong driver of D&O risk in 2021,” he explained. “These will occur not just in the UK, but also Germany, Singapore, the US, Australia, Spain and UAE.”

Mr Konsta added as the tide of Covid-related insolvency rises, the next 12-18 months will also see more claims against solicitors, accountants, auditors and property professionals.

“Will anything be different to the last global financial crisis of 2008? After all, Covid-19 began at least, as a medical, rather than an economic crisis,” he added.  “Companies and the professionals that advise them are definitely better run as a result of tougher regulator regimes. But while this may mean businesses are better prepared, they also face raised expectations – and a public clamour to find someone to blame, often a professional adviser, when those expectations are not met.

“Fuelling stakeholder expectations that ‘someone’ must be made to pay for corporate failure are the litigation funders who are increasingly ‘baked in’ to the claims lawyers’ business model and therefore much more likely to be a driver of liquidator and third-party claims against professionals in 2021.”

Mr Konsta concluded: “We cannot say with certainty that litigation funding will be a ‘game changer’ as many cases would have been anticipated anyway. However, we can expect that a higher volume of funded insolvency claims will have important practical and strategic implications for businesses, their advisers and ultimately their insurers.”