Resolving D&O liability proceedings

This claims example involves multiple proceedings pursuant to a Second Excess Directors' & Officers' Liability Policy.

ABC Pty Ltd (ABC) was a publicly listed company. ABC entered an agreement to buy 100% of the issued share capital of Sam's Space Rangers (SSR). SSR's main assets were Project 1 (P1) and Project 2 (P2).

In late 2013, ABC's Board met to discuss concerns about forecast losses from P1 and P2. The Board proceeded to hold meetings to discuss a potential capital raising and to receive updates on P1 and P2.

Two months later, the Board published a corrective market disclosure of the P1 and P2 loss forecasts.

ABC's major creditors refused to extend its finance facility and withdrew financial support. Consequently, ABC was placed into voluntary administration, and was ultimately wound up.

Subsequently, four court proceedings were commenced: 

1. Litigation against former directors and officers of ABC by two of its major creditors alleging that the market disclosures were misleading or deceptive.
2. A class action commenced by shareholders alleging breaches of continuous disclosure obligations and seeking compensation for the drop in share price value.
3. A claim by ABC's liquidators against 13 former ABC directors and officers. The liquidators alleged that they failed to exercise a reasonable degree of care and diligence in the discharge of their directors' duties in breach of section 180 of the Corporations Act 2001 (Cth).

Third Party Notices issued to former ABC directors and officers by the Australian Tax Office Commissioner for alleged unpaid tax.

The fact that there were numerous proceedings contributed to an additional layer of complexity. One of the challenges was to minimise competing interests between the directors and "finger pointing" amongst the directors. 

The directors were concerned about their reputations and the extent to which the proceedings would impact their livelihood moving forward. At one point, there was a concern that the Limit of Liability was insufficient to cover all defence costs and settlement amounts of all the claims made against the directors. This caused additional stress to the directors and officers.

We partnered with the primary and first excess insurers and attended numerous meetings with the defence counsel to strategise and coordinate resolution of the claims. Our good relationships with other claims handlers in the market enabled us to collaborate for the benefit of the Insureds.

The claims proceedings spanned across several years. At the outset, the insurance market appointed one firm of lawyers to represent the directors who had little or no involvement in the decisions which were the subject of the allegations. Separate law firms were appointed to represent each of the directors who were actively involved in the decisions which were the subject of the alleged conduct.

We attended multiple mediations and proactively contributed to proposals as to how to best resolve the matters at hand and ensuring that there was market consensus.

Two of four proceedings ran to trial. One of the disputes was settled during the hearing, whilst the other concluded by way of judgment wherein the Court found no negligence on the part of the directors.  The other two proceedings were resolved by negotiated settlements.

Ultimately, we were able to resolve all four proceedings within the Limit of Liability. This was a relief to each of the directors and was pleasing to the broker.