Directors' and Officers' liability insurance has been around for several decades now but has not always attracted the interest of local buyers in the Middle East in comparison with other parts of the world. We are however seeing a shift in the previous trend.
In this editorial piece, we explore why directors, officers and senior managers (D&Os) of companies would be well advised to take out D&O insurance, some of the key considerations that apply and why we are seeing a gradual shift in the attitude towards taking the insurance for protection.
Directors' duties from a Qatari perspective
The two most common types of corporate vehicles in Qatar are the Qatar shareholding company (QSC) and a limited liability company (LLC).
The main source of legislation which sets out the duties owed by Directors and liabilities which could be imposed upon them is the Commercial Companies Law (Law No 5 of 2002 as amended) (Companies Law). The Companies Law is due to be revised but as yet the 2002 version of the Companies law applies.
As all laws and regulations in Qatar are published in Arabic, it is important to note that the terms "director" and "manager" are used interchangeably.
In the case of LLCs, the term General Manager is used in practice for someone who is appointed to run the company. In the case of QSCs, the term Director is used. The Companies Law sets out that the General Manager of an LLC has the same duties and responsibilities as a Director of a QSC and we therefore deal with both, together.
The main duties on directors
- The duty to act in the best interest of the company;
- The duty to avoid conflicts of interest and transactions with directors;
- The duty to exercise reasonable care, skill and diligence.
These are broad ranging duties which pervade each aspect of management.
Further duties exist under the Corporate Governance Regulations, which includes ensuring the company's compliance with the laws and regulations and its Articles of Association and drafting a corporate governance code.
Liabilities and Penalties
All directors are jointly responsible for compensating the company, its shareholders and third parties for damages resulting from any fraudulent act, abuse of power, breaches of the Companies Law and company articles and error of management. Those liabilities are those of the directors and the company cannot give an indemnity to the directors.
Directors may also be subject to penalties under the Companies Law, which for breaches of certain provisions, provides for imprisonment up to a period of not more than two years and a fine of no less than QAR 5,000 and no more than QAR 100,000
Why is there an increased exposure to D&Os in this region and specifically in Qatar?
We have seen, over the last few years, an increased amount of litigious activity, against Directors and Officers. This is in part due to an increasingly globalised world, with awareness of rights and remedies by Claimants.
Additionally, there has been a rise in the number and complexity of regulatory investigations around the Middle Eastern region. Financial institutions and financial services firms operating in the Qatar Financial Centre now face regulators who routinely take enforcement action where material breaches of rules are identified. There is a trend for more enforcement action are these markets develop.
Whereas in the past, many companies owned by Middle Eastern wealthy families or the state did not envisage shareholder claims and litigation, following the impact of the global downturn, high profile government companies and large family-owned businesses found themselves embroiled in high profile disputes and investigations, often blaming management for losses. As a result, those companies are looking at more advanced models of corporate governance and accountability.
Additionally, companies based in this region, and specifically in Qatar are looking to do more business internationally and often in more developed markets and jurisdictions. There is therefore an increased risk of exposure and the need to have appropriate protection in place.
There has been an increased awareness of the risk of exposure. That, together with the heightened activity of the regulator has led to an increased take-up of D&O insurance in Qatar and across the Middle East.
D&O policies routinely provide cover, by way of large policy limits for the defence costs in defending and fighting off civil actions, regulatory and criminal complaints. It is particularly important for D&Os to ensure that they have such protection, where in this region, defence costs are rarely recoverable in litigation, even if a claim is successfully defended.
In summary, D&O Insurance provides peace or mind for D&Os of companies, protecting them in their capacity as individual D&Os from potentially significant liability and legal costs that they may have to fact in defending their livelihood and reputations.
D&O policies may also offer a whole range of additional protection, such as bail and extradition costs, in the event that an unexpected event occurs.