DIRECTOR PENALTIES – ADDRESSING THE COMPLIANCE BLINDSPOT
It is essential for a director to be aware of the legal compliance required by a Company to ensure that the Company is compliant with applicable laws and is not subject to fines or penalties. In order to ensure compliance, several laws have made Directors personally liable for contraventions of the Company. Directors need to be proactive about the compliance requirements as such personal liability can be in the form of monetary fines and/or imprisonment.
Recent times have highlighted the repercussions that can be faced by a Director against liability from claims pertaining to bankruptcy, fraud, security lapses, breach of fiduciary duties. These effects are visible from the fact that Indian companies are now paying upto five times more on average costs towards Director and Officer’s Liability insurance covers for their directors. D&O insurance is payable to the Directors and Officers of a Company as compensation for losses if an insured officer suffers a loss as a result of a legal action brought for alleged wrongful acts in their capacity as Directors.[1]
In this article we have highlighted few acts, which attract heavy fines or imprisonment on the Directors of a defaulting Company. The list is not meant to be exhaustive and only seeks to provide a brief overview of the contraventions attracting penalties on directors.
In addition to the few acts mentioned above, depending on the nature of business, a Company is also required to comply with sectoral laws. These laws, more often than not, impose penalties on directors and it is essential that a Director is aware of such laws and the compliance required under them.
For compliance solutions for your organization, please reach out to us at solutions@bridgeheadlaw.com.
- Karan Narvekar | Partner
- Pritha Bhangale | Intern
