Enterprise Investment Scheme Association Insurance Scheme

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.

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 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.