Prospectus Liability or IPO insurance offers protection to the corporation and its directors and officers for claims arising from an initial listing on a stock exchange or the issue of a product disclosure statement.

It is common for policies to be arranged for either six or seven years (covering the statute of limitations period) from the date of lodgement of the offer document. Once the premium is paid, the policy cannot be cancelled.

Whilst a Directors & Officers Liability insurance policy can be extended to cover these exposures, obtaining a separate policy “ring fences” this specific exposure and provides a separate limit of indemnity for claims arising from an offer document. This protects the limit of indemnity available to Director’s & Officer’s under the D&O policy.

Because the policy cannot be cancelled, continuous protection is available for the full period of insurance chosen. This eliminates the potential difficulties associated with an annual renewal should cover be effected as an extension of a D&O policy and a claim arises.

Whilst Section 731 of the Corporations Act 2001 addresses a due diligence defence for prospectuses, a party that has been accused still needs to be able to prove their entitlement to the defence, this is where having insurance provides protection against potentially extensive and expensive legal costs.