In brief - Receiver accesses PI policies to determine if
consultant advisor is worth suing
The Supreme Court of Victoria has granted the receiver and
manager access to the PI policies of an external advisor of a
company in receivership to determine whether it was worth pursuing
the advisor in the event that the receiver's investigation
uncovered some fault.
Court grants receiver access to more than just directors'
and officers' (D&O) policies
It is now well established that as part of an examination
process, an external administrator can get access to certain
insurance policies of a company and its directors to work out
whether it is worth suing.
Receivers investigate potential claims against advisors of
company in receivership
On 25 June 2013, on application by the receivers and managers of
Banksia Securities Limited, the Victorian Supreme Court ordered
that a summons for examination of Michael Hall of MB+M Business
Solutions ("MB+M") be issued. MB+M was previously a
consultant advisor to Banksia Securities Limited
("Banksia"), which was placed in receivership in October
Receivers and managers were appointed in the normal course to
conduct their examination of the company and its affairs. As part
of this process, receivers were investigating potential claims
against MB+M in respect of possible understatement of Banksia's
financial position in 2008. Moreover, receivers were investigating
whether MB+M failed to identify a possible breach by Banksia of the
borrowing limitations placed on it by its trust deed.
Court orders advisors to produce all relevant insurance
Receivers sought, as part of their investigation, a copy of
MB+M's professional indemnity insurance policy. The rationale
for this request was to enable the receiver to determine whether it
was worthwhile pursing MB+M in the event that the receiver's
investigations uncovered some fault.
The court made orders requiring Mr Hall (vis-a-vis MB+M) to
produce, amongst other things, "all documents relating to the
existence and terms of any insurance policy providing MB+M and its
partners with cover in respect of any potential liability arising
out of the affairs of Banksia".
Mr Hall sought to challenge this order and was unsuccessful.
Existence and level of insurance cover held to be relevant
The court found in favour of the receiver and ordered production
of the PI insurance policy.
In coming to its decision, the court relied on the oft-traversed
authority of Re Interchase Corporation (No 2) (1993) 120
ALR 143 to conclude that a chose in action (that is, a right to
bring a lawsuit) is property of the corporation and the existence
and availability of insurance cover is relevant to the value of the
chose in action.
The court reiterated that the purpose of the examination
provisions in the Corporations Act 2001 (Cth) is to allow investigations
about, inter alia, a company's property - including its choses
Production of insurance policies to test likelihood of
creditors receiving tangible benefit
The court expressed the opinion that the summons did not require
an actual claim to be described and articulated. The production of
insurance policies sought was specifically in regard to
ascertaining the existence and level of insurance cover.
This conclusion rests on a broad interpretation of the power of
the court to order the production of documents to test the
likelihood of creditors in winding up proceedings receiving
tangible benefit from a judgment.
Distinction between production of documents in examinations and
in civil proceedings
Even though the court favoured a broad interpretation of the
examination powers in this context, it is important to remember the
distinction between production in examinations and production in
ordinary civil proceedings.
In most jurisdictions, the test for production in civil claims
requires that documents sought are "relevant to an issue in
dispute". Examinations, on the other hand, can go beyond this
test and seek documents regarding a company's asset position
and, as demonstrated in Banksia, which show the potential utility
of running an action against a company's external advisors.
Contractors and principals should ensure they have appropriate insurance coverage instead of relying on indemnity clauses.
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