Directors denied access to proceeds of D&O Policy

In July 2007, Bridgecorp Group was placed into receivership owing investors almost $500 million. The company directors faced a number of criminal and civil claims, namely that they made false statements in prospectuses and that they had breached their statutory and common law duties to the companies.

The directors sought to access a $20 million QBE Directors and Officers Policy to fund their defence to the charges against them.

The receivers defended the claim on the basis that the receivers had a charge over the proceeds of the D&O Policy, so, as the potential claim exceeded the total coverage under the policy, QBE was not required to pay the directors’ defence costs to ensure that there were adequate funds to pay the receivers.

The Court agreed with the receivers.  As a result, the directors were personally liable to pay the required costs.

The judge noted that the outcome would seem unfair as it prevented the directors from using the policy for the purposes for which it was originally purchased, but this outcome was partly a consequence of the insurance policy covering both costs and claims for damages and compensation.

Though the matter was decided in New Zealand and based upon specific New Zealand legislation giving rise to a charge in these circumstances, this is a timely reminder for Australian directors to review their D&O Policy to ensure that it adequately covers any potential claims.

If you have any questions regarding the implications of this decision for you as a Director or Board Member, please contact a member of the Board Matters team.

You can read the High Court decision here: Steigrad v BFSL 2007 Limited