Directors found guilty, but D&O dilemma remains

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23 April 2012

The New Zealand High Court has found three directors of failed finance company Bridgecorp guilty of making false statements in a prospectus, but uncertainty over directors’ and officers’ (D&O) cover sparked by the case remains.

Rod Petricevic and Robert Roest have been remanded after being found guilty on 10 counts. Peter Steigrad was found guilty on six counts and granted bail. The men will be sentenced in coming weeks.

Two other directors, Bruce Davidson and Gary Urwin, pleaded guilty last year to making false statements in a prospectus.

Davidson was sentenced to home detention and last week Gary Urwin was sentenced to two years’ jail.

The Bridgecorp collapse has led to an upheaval in D&O cover in Australia and New Zealand after Bridgecorp’s receiver, which is suing the directors for about $NZ450 million ($356 million), asserted a charge over the D&O policy, preventing the insurer from paying the directors’ defence costs.

Peter Steigrad and Bruce Davidson took Bridgecorp and QBE, the D&O insurer, to the High Court, which ruled in the receiver’s favour. The decision is being appealed.

A source close to the matter told insuranceNEWS.com.au that the conviction of Petricevic, Roest and Steigrad will not relieve the uncertainty the D&O ruling created, as the decision regarding the insurer’s inability to advance defence costs was irrespective of the directors’ guilt. Defence costs have not been advanced under the policy.

A D&O policy will typically not respond to claims against directors found guilty of fraud, so it is not known whether the receiver will be able to get any payment under the QBE policy.

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