Enterprise Investment Scheme Association Insurance Scheme
EISA Members: The Need For Advice
Private equity investment through the EIS and SEIS schemes has become increasingly popular in recent years and a vital boost to the British economy. However, in the eyes of the law and the Financial Conduct Authority such investment remains a “high risk” activity.
In an increasingly litigious age dominated by a culture of blame and tight regulation, professional advisers, managers and executives are vulnerable to claims by aggrieved investors who have allegedly suffered financial losses through the negligent selection, management and governance of their EIS and SEIS investments.
EISA members are therefore in need of effective insurance cover to protect them against such claims. In some cases, this will also be a regulatory requirement. However, the private equity sector remains a mystery to many insurance professionals.
This is where MFL can help.
What we do
MFL is a specialist Insurance Broker to the private equity sector. Using our extensive knowledge and understanding of the professional, managerial and financial risks associated with the various stages of the private equity investment process, we have designed exclusive and innovative insurance solutions, in conjunction with our panel of insurers, to cover EISA members against the principal risks of:
- Professional Indemnity (PI) and,
- Directors’ & Officers’ Liability (D&O).
We also offer a suite of other commercial insurances to protect the other liabilities, assets and earnings of EISA members, including our:
- Office Insurance Scheme,
- Crime Insurance and,
- Cyber Insurances.
Our services don’t stop there: we also run a special D&O insurance scheme for the directors and officers of investee companies under EIS and SEIS funds, and offer our services to the investee companies in connection with their commercial insurance requirements.
How we do it
Our clients’ requirements are managed by an Account Director, who will visit you in person to identify your exposures, gathering the underwriting information necessary to enable us to present your proposal to insurers, and to report back to you with suitable quotations and recommendations. The Account Director acts as your adviser and relationship manager at all times.
Our Account Directors are supported by an experienced and knowledgeable team of brokers with strong negotiating skills and
relationships in this rather specialist insurance market. When claims arise, our team of internal specialist claims handlers are also on hand to guide you through the often complex and sensitive claims process, seeking to protect your interests vis-à-vis both claimants and insurers alike.
We would very much welcome the opportunity to talk to you about how we might work together. Should you wish to explore your own individual insurance needs and requirements, please contact one of our specialists for an initial discussion.
EISA Members Insurance Claims Scenarios
The process of arranging a single EIS investment, or establishing an EIS or SEIS scheme, creates a number of potential claims scenarios based on professional negligence in the event of financial losses incurred by the investors:
- Investors will rely on an Information Memorandum or an Investment Teaser as the basis of their decision to invest (plus their own due diligence). If the information contained within such documents is held to be misleading or inaccurate, claims may be made against those responsible for their content.
- Claims may arise if investments in an EIS or SEIS fund are allegedly made outside the stated parameters in the IM and subsequently perform poorly.
- Claims for professional negligence may be made for mismanagement of an EIS or SEIS fund, including inadequate due diligence of potential investment targets and/or inappropriate or unsuitable investment recommendations or decisions by the Advisory Committee or the Fund Manager.
- Claims may also arise further down the line from disputes regarding the valuation of investments, exit strategies or potential conflicts of interest.
Corporate Governance Exposures
Personal liabilities for breaches of managerial or fiduciary responsibilities may also be incurred by the directors and officers of EISA member firms, either in their primary roles on the board of their own companies, or in their roles as directors of fund entities or investee companies. For example:
- Liability for breach of fiduciary duty in their role as directors and officers, including responsibility for “wrongful trading”, company mismanagement or claims by creditors for the debts of the company in the event of insolvency.
- Allegedly negligent consultancy or advice provided to the management team of the investee companies (such claims are often based on both professional and managerial liability).
- Individual responsibility for the content of an IM, including the documentation prepared for the purposes of an exit via an Initial Public Offering (IPO).
- Personal liabilities arising from claims for breach of trust against trustees of funds established on such a basis.
Crime & Financial Exposures
Crime & Financial Exposures The management and administration of private equity investments also carries with it exposure to potential fraudulent activity, either by the parties involved in the process or by external fraud, particularly through computer systems and the internet.
In addition, cyber activity can give rise to exposure to third party liability to others as well as significant costs arising from interruptions to businesses.