Commentary on Sections Part 1:  Auditors, Accounts, Directors' Liabilities and Investigations The Department’s consultation on directors’ liability
103.The Department of Trade and Industry published a consultative document in December 2003 in response to business concerns that suitably qualified individuals may be deterred from accepting positions as company directors.  The consultation exercise built on the work of the independent Company Law Review and of the subsequent review of the role and effectiveness of non-executive directors undertaken by Sir Derek Higgs.
104.The consultation identified two particular concerns:
	exposure to liabilities arising from legal action against directors by third parties. The sharp rise in the number of class actions by groups of shareholders in the US has made this a particular concern for directors of British companies with a US listing;
	the cost of lengthy Court proceedings. Companies are currently permitted to indemnify a director against the cost of defending legal proceedings, but only when judgment has been given in the director’s favour or he has been acquitted.
105.The consultation provided strong evidence that these issues are affecting the recruitment and behaviour of directors.   Sections 1 9 and 20 have therefore been included in the Act to address these concerns.