Directors and Officers and Company Securities
ASIC investigation, receiver/liquidator examinations, and a class action
As a result of short selling, a number of the insured’s debt covenants were triggered. The insured was unable to refinance their debt, and as a result an administrator and a receiver were appointed. Subsequently the company was placed into liquidation.
An aggressive and wide-ranging ASIC investigation was undertaken, and public examinations of the former directors and officers of the insured were conducted by both the receiver and the liquidators. This led to two criminal prosecutions (both successfully defended), a class action brought on behalf of the shareholders (subsequently withdrawn), a claim brought by an investment bank in respect of their off-market purchase of company shares, and most recently, a further criminal prosecution by the former CFO. The insurer assisted the directors and paid almost $15 million in defence costs.
The insured created a special purpose vehicle (SPV) to house a controlling interest in a listed mining company (target). The multi-million-dollar purchase price for the shareholding was agreed. At the time of the purchase, the directors verbally agreed in principle with a third party for the financing of the acquisition.
The third party failed to follow through with its agreement to provide financing and the purchase did not proceed. The SPV was wound up and a liquidator was appointed.
The liquidator initially conducted public examinations of the directors and company secretary of the SPV and then consequently commenced proceedings against the directors and company secretary of the SPV alleging they had traded whilst insolvent and failed to act with the requisite degree of care and diligence.
The quantum of the claim was almost AU$30 million plus interest and costs, however the claim was settled by the insurer for a significantly smaller sum. Approximately $500 thousand in defence costs were incurred in dealing with the public examinations, and in defending the claim against the directors and company secretary of the insured and SPV.
The insured made an Australian Stock Exchange announcement downgrading earnings expectations on a major construction project. Subsequently, the insured announced estimated losses on the project in excess of $100 million.
ASIC commenced an investigation into market disclosure. A class action was commenced on behalf of shareholders who traded in shares for the period at question.
The D&O policy limit was eroded by defence costs and compensation payments.