Full amount of directors' insurance policy available to satisfy any settlement of claim, decides Supreme Court.
A Supreme Court decision on directors' insurance is "good news" for out-of-pocket Bridgecorp investors, says a lawyer from the case who is also acting in a $340 million claim against three of the failed finance company's board members.
The decision, released from the country's highest court yesterday, also has ramifications for Feltex investors, who are bringing a $180 million claim against the carpet-maker's former directors and sellers of its shares.
The case concerned corporate insurance policies and payouts to directors to fund the defence of claims being brought against them.
In 2011, three former Bridgecorp directors - Bruce Davidson, Peter Steigrad and Gary Urwin - went to the High Court in a dispute with the failed firm's receivers over access to a directors and officers' insurance policy that had a limit of $20 million.
The policy, taken out with QBE Insurance, indemnifies them against liability they might incur as a result of their actions as directors. It also provides cover for costs they might incur in defending certain proceedings.
But the receivers, from PwC, claimed they had a "charge" over the money payable and were concerned that if the directors could access the funds for defence costs, less insurance money would be there for investors under the policy if the claim against the board members succeeded.
PwC is taking a $340 million case against Davidson, Steigrad and Urwin for alleged breach of duties to try to recover funds for investors.
The trio have all been convicted for misleading investors of the company, which collapsed in 2007 owing 14,500 investors $459 million.
After hearing the case over the insurance policy, Justice Graham Lang declared the charge applied, which prevented the directors from having access to the funds.
Steigrad went on to fight that decision in the Court of Appeal last year which quashed the High Court's declaration.
The case was then heard in October by the Supreme Court and in a three-judge-to-two majority yesterday it ruled the charge over the insurance funds secured the full amount of whatever the Bridgecorp directors could have to pay investors, subject to the policy's $20 million limit.
The lawyer representing the receivers from PwC, Bell Gully partner Murray Tingey, said this meant if QBE paid out $5 million for defence costs, the investors would still be entitled to $20 million (rather than $15 million) if they won their claim against the directors and damages were awarded for more than that amount. Tingey said the decision was "good news for investors" because previously a lot of the insurance money could have been used to meet defence costs.
Feltex investor Eric Houghton, who is bringing representative action on behalf of 3600 investors, was also involved in the Supreme Court case over how a charge applied to a Feltex insurance policy with a limit understood to be $50 million.
Feltex collapsed in 2006, causing 8000 investors to lose millions. Investors, represented in court by Houghton, are seeking a refund of the purchase price of their shares, plus associated interest and costs.
Houghton's lawyer, Austin Forbes, QC, said yesterday: "It's good news in the sense that the full amount of the policy's available to satisfy the [Feltex investors'] claim. It's not good news for the directors who don't have access to the policy but one side had to lose."