Legal and insurance experts warn boards: don’t delay in financial distress

As insolvency levels rise, legal, insurance, and restructuring experts warned directors of distressed companies to act quickly or risk personal liability during a high-impact session titled “When D&O and Distressed Organizations Collide (D&O²)”, hosted by Cox Yeats and the Insurance Institute of Gauteng (IIG) in Parktown.

The event highlighted the increasing risks facing directors and officers (D&Os), including personal accountability, regulatory scrutiny, and gaps in insurance coverage, particularly for Business Rescue Practitioners (BRPs). Speakers emphasised early intervention, statutory duties, and proper governance as essential tools for directors navigating financial distress.

Wilmine Prinsloo, President of the IIG and Manager: Partner Operations at King Price, opened the session: “We're proud to convene these conversations. The insurance industry must lead with integrity, insight, and accountability especially in times of distress.”

Mongezi Mpahlwa, Partner at Cox Yeats and session moderator, introduced the theme: “D&O liability is no longer theoretical. It's real, rising, and reshaping how boards must respond to financial distress. Today's session is about equipping leaders with the tools to act responsibly, decisively, and transparently.”

The first segment explored informal workouts and corporate governance. Jo Mitchel-Marais, Partner at Deloitte, emphasised the importance of proper governance: “Corporate governance is not just a compliance exercise, it's a shield. Directors who document decisions, follow sound processes, and act transparently are far better positioned to defend against liability.”

Gareth Cremen, Partner at Cox Yeats, cautioned against delaying action: “Informal workouts are not a free pass. If directors pursue them for too long as insolvency deepens, they risk being held personally liable for reckless trading. Commercially sensible conduct is not optional; it's the legal standard. Directors must continuously assess solvency and liquidity, act in the best interests of the company, and take appropriate steps without delay where rescue is viable—or pivot responsibly when it is not.”

The second segment addressed insurance coverage for business rescue. Cremen said: “Business rescue is a powerful tool, but it's not a magic wand. Directors must act early, support the practitioner, and ensure that D&O and PI coverages are aligned to protect all parties.”

Mukondeleli Masiza, Complex Claims Handler at Allianz Commercial, explained: “BRPs operate as independent statutory officers with a mandate that extends beyond internal corporate governance. Given this professional, rather than managerial, scope of work, PI insurance remains the most appropriate form of cover ensuring BRPs are protected without compromising the intent of D&O policies.”

Cremen added: “BRPs face similar risks to directors: negligence, mismanagement, breach of duty. However, most D&O policies narrowly define 'insured persons,' leaving BRPs exposed. Hybrid coverages and broader definitions are essential.”

The final segment addressed situations where business rescue fails. Zeenath Kajee, Specialist Liquidator at GCW Administrators, said: “In seeking to maximise a recovery for creditors, a liquidator can hold directors financially accountable for any missteps that contributed to the failure of the company.”

Cremen reinforced this point: “Liquidation is not a punishment. Properly used, it stabilises the estate, enables forensic investigation and clawbacks, and holds wrongdoers to account—often delivering the most equitable path for creditors when rescue is no longer achievable.”

With global insolvency expected to rise by 11% in 2025, the session also highlighted the need for broader D&O definitions, hybrid insurance policies bridging PI and D&O gaps, stronger governance frameworks, and early intervention by boards, insurers, and regulators.

The panel included Zeenath Kajee (GWC Administrators), Mukondeleli Masiza (Allianz Commercial), Gareth Cremen and Mongezi Mpahlwa (Cox Yeats), and Jo Mitchel-Marais (Deloitte).