Assigning your rights under a directors' and officers'
policy is a vexed issue, and this morning the High Court gave some
welcome guidance on the issue (CGU Insurance Limited v One.Tel
Limited (In Liquidation)  HCA 26 - Clayton Utz acted for
the successful respondent).
The director, the D&O policy, and the $20 million
Mr Greaves had a problem - a $20 million-sized problem, to be
precise. That was the size of the compensation order that had been
made against him in favour of One.Tel, the company of which
he'd been a director. He also was required to pay $350,000 to
He then entered into a Deed of Arrangement under Part X of the
Bankruptcy Act 1966, assigning to his Trustee, amongst
other things, his rights in a D&O policy with CGU. There were
three particularly important clauses in the Deed:
clause 9, which said that once the Trustee realised any assets
under the policy he would issue a certificate to Mr Greaves;
clause 10, which said that once he had the certificate Mr
Greaves would "be absolutely released and discharged from all
liability in respect of the compensation and costs order";
clause 11, which said that neither the Trustee nor any creditor
would take any steps to enforce the compensation and costs order
against Mr Greaves before the certificate was executed.
Proceedings were commenced but unfortunately the Deed expired
before the Trustee realised the assets from the policy. So now
CGU to insured and creditors: Not our problem
CGU argued that the Trustee couldn't continue trying to
recover assets under the policy once the Deed has expired.
Even if he had the power, said CGU, the Trustee would still be
disappointed because there was no "loss" to which the
policy responded. This turned on clause 11 of the Deed - if no-one
is going to enforce an order against Mr Greaves, what has he
High Court to CGU: Yes it is
The Trustee did have the right to continue the action against
CGU - he had taken the right to recover under the Deed, and that
survived the end of the Deed. In fact, the Deed gave the Trustee
the duty to vindicate any rights Mr Greaves held
under the Policy. Once the Deed expired, the Trustee remained a
bare trustee, and still had that duty.
As for the second argument, CGU again received bad news from the
High Court. Clause 11 expired at the same time the Deed did - and
even if it didn't:
clause 11 doesn't release Mr Greaves from the obligation of
paying the compensation order - only a certificate under clause 9
would do that
a "loss" under the policy includes judgments and
settlements, and the compensation order is in that category
even if the Trustee and creditors can't enforce the
compensation order against Mr Greaves, that doesn't mean he
still doesn't have to pay it
clause 11 can't extinguish Mr Greaves' obligation to
pay because that would make clause 9 meaningless.
What does this mean for directors, officers and creditors?
For directors, officers, and their creditors, this is a good
decision. Although the High Court did not expressly decide the
assignment was valid at law, it accepted that it was valid in
equity, which was good enough in this case.
It also accepted that the Trustee retains some rights and
duties, even after the Deed has expired, which means that any
recovery under a policy like this in the future is less likely to
be bogged down or halted if the Deed expires.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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This was an interlocutory decision about the appointment of a tutor for the child appellant, to carry on his proceedings.
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