A growing number of UK companies are operating in a prolonged state of financial strain rather than failing outright, a shift that is quietly reshaping directors’ and officers’ liability risk long before formal insolvency is triggered.
For insurers, this means risk is increasingly crystallising during the life of a business, not at the point of failure.
The trend has sharpened as pressure mounts across multiple fronts. In the utilities sector, creditors of Thames Water are braced for losses of around 30% as a £16bn rescue package edges closer, underlining how large corporates are increasingly being kept afloat through restructuring rather than collapse . At the other end of the market, The Original Factory Shop recently entered administration, putting around 1,200 jobs at risk and reinforcing the fragility of the UK high street .
At the same time, a Bloomberg analysis highlighted how the UK tax authority is stepping up efforts to recover unpaid liabilities, adding pressure to already-strained businesses and their creditors, and increasing the likelihood that distress plays out over extended periods rather than through immediate failure .
For D&O underwriters, that distinction matters.
“If there’s an insolvency event or something similar, there’s usually a notification under a D&O policy that this event has occurred,” said Jimmy Heaton (pictured), head of international D&O and financial institutions at Rokstone Underwriting. “What that claim looks like usually depends on the size of the company and, critically, how long they’ve been in that situation.”
Heaton said the most acute exposure often sits in the grey zone before directors formally acknowledge insolvency, particularly when companies continue trading in the hope that external conditions will improve.
“Political uncertainty equals economic uncertainty,” he said, pointing to shifting policy signals that can cause investors, buyers and lenders to pause. “They just drag on this process longer than they should have done.”
That period of prolonged strain, he warned, can heighten directors’ exposure, especially in smaller private companies where ownership and management are closely aligned.
“If they keep this quiet distress going, there’s a temptation where fiduciary duty as a director gets blurred with what they’ll see as personal duty to themselves,” he said. “They don’t want to see it go into administration, whereas legally and as a fiduciary director, they should be saying: we’re unable to trade, we can’t pay invoices, we can’t pay staff, we’ve got to stop now.”
The consequences can extend well beyond the distressed company itself. Heaton pointed to knock-on effects across supply chains, particularly in construction and consumer-facing sectors, where delayed failures can quietly destabilise counterparties.
Recent hospitality failures illustrate that dynamic. Earlier this year, the administration of Revolution Bars exposed suppliers to crystallised trade credit losses after months of financial strain, highlighting how risk can accumulate well before insolvency formally arrives.
On the publicly listed side, Heaton said prolonged distress creates a different set of D&O exposures, particularly around disclosure obligations and market communications.
“If you’re a listed company and there’s a material risk to your business, you have a duty to share that with the shareholders,” he said. “Then the decision becomes: how quietly distressed can we be? Can we be so quiet we don’t announce it – knowing that’s going to impact the share price?”
That tension, he added, increases the likelihood of allegations ranging from misfeasance to wrongful trading, particularly if warning signs were visible well before action was taken.
Heaton also flagged the growing role of insolvency-focused litigation funding, where specialist firms acquire claims against directors following corporate failures.
“That generally translates into: if that company had D&O cover, to some extent it’s very likely to be paying out for those claims,” he said, describing it as a useful barometer of how insolvency-related risk is evolving.
When asked where prolonged financial distress is most likely to translate into claims, Heaton pointed to two pressure points: impairment of investments once distressed positions are finally recognised in accounts, and heightened scrutiny of directors’ decisions when companies ultimately enter administration.
“The longer those warning signs are there and no action is taken, in my opinion, the more likely it is that a claim will occur,” he said.
While D&O uptake in the UK is increasing, Heaton warned that cover is still frequently bought too late or misunderstood, particularly where restructurings alter corporate structures and inadvertently create gaps.
“It’s like buying house insurance while your home’s on fire,” he said. “It’s a little bit too late.”
For brokers, the challenge is that many of these exposures emerge while a client still appears to be trading normally.
As restructurings, creditor pressure and delayed failures become more common across the UK economy, insurers and brokers may need to look beyond headline insolvency figures. Increasingly, it is the period of quiet distress, not the moment of collapse, where D&O risk is now taking shape.
