Invest in Credit Risk Mutual Fund or not?
What are Credit Risk Funds? Why investors stay away from this investment? How do these funds work? How much is the risk in this investment?
Directors and Officers (D&O) liability cover, which compensates key administrative executives of a company against legal action due to their negligence, has become costlier in India due to the rising number of bankruptcy and financial irregularities cases. According to a report in the Economic Times, the premium rates have gone up by fifth and can go up further as the impact of the pandemic gets assessed.
D&O policies cover legal costs along with regulatory fines and penalties which are civil in nature. It has been seen that stakeholders can face regulatory actions if any negligences are found during the insolvency process. D&O coverage in such cases extended not only for current actions but also for past actions of directors and key officials provided it has been purchased in advance.
Anup Dhingra, managing director, Marsh India Insurance Brokers Pvt Ltd, was quoted as saying in The Economic Times, “Premium tariffs have already climbed up to a fifth for large D&O buyers having tie-ups with global reinsurers and could rise further as the financial ecosystem assesses the impact of the pandemic.
In the wake of the increased liabilities of directors during bankruptcy cases, the demand for D&O cover has risen leading to rising in premium rates. The recent bankruptcy cases such as of Videocon and Dewan Housing Finance (DHFL) has shown how directors can face significantly increased liabilities.
The Insolvency and Bankruptcy Board of India has resolved big cases like Essar Steel, Jaypee Infratech, Bhushan Steel and Alok Industries. Statistics reveal, as of 31 December out of the 2,422 cases, while 1,126 were settled through liquidation, only 317 underwent a successful resolution plan. Experts say a number of cases are might go up as the country comes out of the Covid-19 pandemic.
Another reason for the rise in demand has been the modification of the Companies Law, say experts. Under the new provisions, key officials can be held accountable without any liability limit.
D&O covers are designed to cover defence, including extrajudicial settlements. However, experts say, most companies prefer to settle them out of court because of the time involved while going through the court route.