Directors Liability ?

Sakinah

If a company did not have Product Liability insurance on a product they manufactured, and someone was injured from the product, could the director of the manufacturing company potentially be personally sued? How far does Limited Liability on a company extend??

NoQuarter

Sakinah wrote: »

If a company did not have Product Liability insurance on a product they manufactured, and someone was injured from the product, could the director of the manufacturing company potentially be personally sued? How far does Limited Liability on a company extend??

Right up to the point where the directors acted either fraudulently or recklessly.

Sakinah

NoQuarter wrote: »

Right up to the point where the directors acted either fraudulently or recklessly.

So if the director was, for example, personally manufacturing the items (lets say its a small company!) as the director made the item and the item injured someone, could the director be deemed to have been 'reckless' in making the product??

ResearchWill

Sakinah wrote: »

So if the director was, for example, personally manufacturing the items (lets say its a small company!) as the director made the item and the item injured someone, could the director be deemed to have been 'reckless' in making the product??

OP this can be a pretty complex area of law the general principle is that a Director is not liable for actions of the company but of course like any area of law there are exceptions to that general rule. Also with out exact specifics no one could give you total comfort on a forum such as this.

I note you said you had difficulty getting insurance on another thread please see here http://m.allianz.ie/Other_Products/SME_Liability/Products_Liability/

Or for non mobile

http://www.allianz.ie/Other_Products/SME_Liability/Products_Liability/?mobiRef=1

Any good broker should be able to arrange insurance. At the end of the day insurance will give you better protection than any poster on here.

Sakinah

ResearchWill wrote: »

OP this can be a pretty complex area of law the general principle is that a Director is not liable for actions of the company but of course like any area of law there are exceptions to that general rule. Also with out exact specifics no one could give you total comfort on a forum such as this.

I note you said you had difficulty getting insurance on another thread please see here http://m.allianz.ie/Other_Products/SME_Liability/Products_Liability/

Or for non mobile

http://www.allianz.ie/Other_Products/SME_Liability/Products_Liability/?mobiRef=1

Any good broker should be able to arrange insurance. At the end of the day insurance will give you better protection than any poster on here.

Insurance is definitely ideal, but 3 brokers in, none have been able to turn up insurance Thanks a mil anyway

ResearchWill

Sakinah wrote: »

Insurance is definitely ideal, but 3 brokers in, none have been able to turn up insurance Thanks a mil anyway

Here is a broker who arranges it http://www.burkeins.ie/liability_insurance.htm

If your brokers are unable to arrange then there are two possible reasons 1 they do not deal in that area normally or 2 there is a high risk associated with your product, if it is 2 then you have a serious problem and maybe should reconsider.

NoQuarter

Sakinah wrote: »

So if the director was, for example, personally manufacturing the items (lets say its a small company!) as the director made the item and the item injured someone, could the director be deemed to have been 'reckless' in making the product??

A decent lawyer acting for any injured party would find a way to get compensated from either the company or the director. Insurance is essential.

Reloc8

NoQuarter wrote: »

Right up to the point where the directors acted either fraudulently or recklessly.

Sorry - where are you getting that from ?

ResearchWill

Reloc8 wrote: »

Sorry - where are you getting that from ?

Well the correct terms are fraudlent or reckless trading, the first has been a principle of company law since at least the Companies Act 1963 can't remember when the latter came in.

Fraudulent trading

Where a person such as a director is knowingly a party to the carrying on of a business with intent to defraud creditors of the company or for any fraudulent purpose, he can be found guilty of fraudulent trading. This can result in personal liability for all or any part of the debts of the company, amongst other penalties.

The test of intent to defraud requires actual knowledge that there was no reasonable chance that the creditors of the company would be paid. Essentially, this means that if company directors continue to incur debts or credit when they know that there is no prospect of the creditors ever receiving payment, this conduct constitutes fraudulent trading.

Reckless trading

A director can be held personally liable for a company’s debts if he is knowingly a party to any business undertaken by the company in a reckless manner. Even if a person is not found to have been knowingly a party to the carrying on of business in a reckless manner, he can be deemed in law to have been reckless in certain circumstances where he:

• Ought to have known that his actions or those of the company would cause loss to the creditors of the company or any of them.

• Did not honestly believe on reasonable grounds that the company would be able to pay its debts as they fell due.

From http://www.mbaassociation.ie/pages/printarticle.asp?idIssue=19&idSection=4&idStory=311

The above is the reason no one can give the OP a real answer, there is such little case law on the matter of reckless trading. Is it reckless to trade without the proper insurance. Maybe someone who knows company law can answer that.

NoQuarter

Reloc8 wrote: »

Sorry - where are you getting that from ?

Yeah - What he said! ^


edit - I anwered the OP's latter question on how far does company liability extend. I woulodnt touch his first question with yours! (Your PII that is).

Reloc8

Lads...that provision of the Companies Acts (S. 297A as inserted by the 1990 CA) is only operative where the company goes into liquidation, first.

Secondly its necessary to show that the company was indeed trading on a fraudulent or reckless basis. Its not enough that the company was negligent or liable say under the Defective Products legislation, which is what we're talking about here, to make the Directors of a limited liability company personally liable for the negligence.

ResearchWill

Reloc8 wrote: »

Lads...that provision of the Companies Acts (S. 297A as inserted by the 1990 CA) is only operative where the company goes into liquidation, first.

Secondly its necessary to show that the company was indeed trading on a fraudulent or reckless basis. Its not enough that the company was negligent or liable say under the Defective Products legislation, which is what we're talking about here, to make the Directors of a limited liability company personally liable for the negligence.

The OP stated what if a claim puts the company in liquidation. I Said if the OP is not getting quotes for insurance then there are two possible reasons 1 the brokers used don't have a clue or 2 there is a serious uninsurable risk. If it is the second then the OP in my opinion would be reckless to put the product on the market.

Reloc8

ResearchWill wrote: »

The OP stated what if a claim puts the company in liquidation. I Said if the OP is not getting quotes for insurance then there are two possible reasons 1 the brokers used don't have a clue or 2 there is a serious uninsurable risk. If it is the second then the OP in my opinion would be reckless to put the product on the market.

I didn't see anything about a liquidation in the OP which is why I was trying to get a bit of clarity on the idea that fraudulent/reckless trading was of any relevance...

Sakinah wrote: »

If a company did not have Product Liability insurance on a product they manufactured, and someone was injured from the product, could the director of the manufacturing company potentially be personally sued? How far does Limited Liability on a company extend??

? Am I missing something ^

ResearchWill wrote: »

If it is the second then the OP in my opinion would be reckless to put the product on the market.

I don't think that would fly at all. Generally the issue is how the business of the company has been managed as regards ability to meet trading debt obligations...I can't think of a case where failure to make provision for a potential claim in negligence has been found to be fraudulent/reckless trading behaviour. Actually Fay v Tegral Pipes is close to an authority for the contrary proposition albeit relating to S. 310 & S. 256.

Sakinah wrote: »

So if the director was, for example, personally manufacturing the items (lets say its a small company!) as the director made the item and the item injured someone, could the director be deemed to have been 'reckless' in making the product??

See...not that the OP should be relying on internet nonsense etc. but this is the sort of confusion that's been caused.

NoQuarter

Reloc8 wrote: »

Lads...that provision of the Companies Acts (S. 297A as inserted by the 1990 CA) is only operative where the company goes into liquidation, first.

Secondly its necessary to show that the company was indeed trading on a fraudulent or reckless basis. Its not enough that the company was negligent or liable say under the Defective Products legislation, which is what we're talking about here, to make the Directors of a limited liability company personally liable for the negligence.

The question asked if there is potential for a director in that situation to be held personally liable. My answer certainly wasnt fulll but then again the OP isnt paying me.

The answer, in my opinion, is still yes.

Reloc8

NoQuarter wrote: »

The answer, in my opinion, is still yes.

Inasmuch as the issue is whether a director can be found personally liable for negligence of a company incorporated with limited liability, absent any of the normal criteria for disregarding legal identity, then your opinion is incorrect.

NoQuarter

Reloc8 wrote: »

Inasmuch as the issue is whether a director can be found personally liable for negligence of a company incorporated with limited liability, absent any of the normal criteria for disregarding legal identity, then your opinion is incorrect.

I'll make sure to write that down.

Reloc8

Ah sure, ignore it - its nonsense written on an internet forum - who cares if its right or wrong if it sounds all legally :rolleyes:

ResearchWill

Reloc8 wrote: »

I didn't see anything about a liquidation in the OP which is why I was trying to get a bit of clarity on the idea that fraudulent/reckless trading was of any relevance...



? Am I missing something ^



I don't think that would fly at all. Generally the issue is how the business of the company has been managed as regards ability to meet trading debt obligations...I can't think of a case where failure to make provision for a potential claim in negligence has been found to be fraudulent/reckless trading behaviour. Actually Fay v Tegral Pipes is close to an authority for the contrary proposition albeit relating to S. 310 & S. 256.




See...not that the OP should be relying on internet nonsense etc. but this is the sort of confusion that's been caused.

Sorry I based my earlier answer on other posts by the OP. an interesting quote from Fay

"6. That a director or employee of a company would not have a personal liability for wrongful acts of the company merely because he was a director or employee. To incur liability there must be a duty of care owed by the individual in his own right and such duty will only arise if, as an individual, he was in a position of proximity sufficient to give rise to personal liability."

If you read my posts you will see I said the OP's question could not in all fairness be answered on an Internet forum. Any statements I have made have been of the what if variety. What if he can't get insurance because of a serious risk of a claim, what if a child gets seriously hurt or worse, what if the limited liability company is insolvent, what if the OP was aware no insurance company would touch the product.

But in reality what I was saying to the OP was insurance must be available get it.

Reloc8

ResearchWill wrote: »

Sorry I based my earlier answer on other posts by the OP. an interesting quote from Fay

"6. That a director or employee of a company would not have a personal liability for wrongful acts of the company merely because he was a director or employee. To incur liability there must be a duty of care owed by the individual in his own right and such duty will only arise if, as an individual, he was in a position of proximity sufficient to give rise to personal liability."

Fair enough - I didn't see his other posts. I thought he edited or I missed something in this thread.

Fay is interesting but in fairness that post states the position exactly - a director is not going to be personally liable for negligence of the company in the absence of very striking if not extraordinary circumstances or, in the event that he in fact owes a distinct duty of care in his individual capacity, i.e. external to his relationship with the company, to the plaintiff. That's the whole point of incorporating in limited liability form.

ResearchWill wrote: »

If you read my posts you will see I said the OP's question could not in all fairness be answered on an Internet forum.

I know - I wasn't suggesting the contrary at all sorry if it came across like that.

ResearchWill wrote: »

But in reality what I was saying to the OP was insurance must be available get it.

Ah yeah there's no doubting the common sense of that. It would be mad - and irresponsible - not to carry insurance for something like this :cool: