Insurance ruled out for trio's defence
Lawyers acting for the receivers of financier Bridgecorp said the company's $20 million insurance policy could be split between investors if they are successful in a civil suit taken against three former directors.
A Supreme Court decision overturned an earlier Court of Appeal ruling that directors could access Bridgecorp's directors liability insurance to reimburse them for their defence costs in a $340 million civil suit.Bully Gully partner, lawyer David Friar said receivers PricewaterhouseCoopers (PwC) had, on behalf of investors in the failed finance company, brought a $340m claim against three former directors.
''What the ruling means is that the directors, in defending the claim, can't call on that policy first.
''They can't, for example, get $5m out of that policy to pay for their defence costs instead of the receivers, and therefore the investors, getting that money.
"Christmas came early... for investors in failed finance company Bridgecorp,'' said Friar and Belly Gully partner Murray Tingey.
Bell Gully acted for the receivers of Bridgecorp in the proceedings, and successfully appeared in the Supreme Court on behalf of the receivers.Friar said PwC believed they had a good case against the three directors for breaches of their duties under the Companies Act.
The Bridgecorp trio of Peter Steigrad, Bruce Davidson and Gary Urwin were convicted of Securities Act offences following Bridgecorp's $460m collapse in 2007. Steigrad and Davidson were sentenced to nine months' home detention, 200 hours' community service and ordered to pay reparations of $350,000 and $500,000 respectively. Urwin was sentenced to two years in prison.
Now they face the $340m damages claim.
The Supreme Court judgement ordered Steigrad to pay costs of $25,000 to Bridgecorp's receivers.
The Bridgecorp case was first heard in the High Court which found the trio could not use the group's insurance to defend themselves against a damages claim.
Steigrad went to the Court of Appeal to argue that a "charge" Bridgecorp had over its $20m QBE insurance policy did not prevent the directors from accessing the insurance money to pay for their defence bills.
The Appeal Court agreed, saying the insurance contract provides for the directors' defence costs to be paid and Bridgecorp is not entitled to a statutory charge overriding that.
It is that decision which was overturned yesterday by the Supreme Court.
The judgment also makes a ruling in a case between 3100 Feltex shareholders, led by former shareholder Eric Houghton, and its insurers and directors.
It found similarly that the company's Chartis Insurance (now called AIG Insurance) policy could not be used to pay the directors' defence bills in the shareholders' $150m case against them.
Houghton was awarded costs of $25,000 to be paid by AIG and six former Feltex directors.Because the two cases were so similar, the Supreme Court ruled on them together.