Directors & Officers Claim Scenarios

These following claims examples were obtained from various insurers for the general information of their clients. While these examples may direct attention to, and comment upon aspects of law, they are not intended to provide legal advice in this area. Independent legal advice should be sought before acting upon the information conveyed in these examples.

Shareholder Claims 

 Directors of a Company sued for wrongful issue of shares

Scenario: The insured directors were sued by a dissatisfied minority shareholder, who alleged that he did not participate in the share allocation and purchase any shares on offer, because he was given some misleading information about the future of the company.

The writ sought orders against the Directors of the company, alleging that they had breached their duty to the shareholders, contravened Section 52 of the Trade Practices Act and claimed damages and costs 

Claims against Directors for Insolvent Trading

Insolvent trading claim

Scenario: The Insured was appointment a director of a company. The company went into liquidation, after trading for six months. It was held that if the Insured has been more diligent in carrying out his duties as a director he would have appreciated that the company was continuing to trade whilst insolvent.

The Insured was held to have contravened Section 588G of the Corporations Law, by allowing the company to trade whilst it was insolvent and therefore liable for its debts.

Official Investigations Claims

Investigation by the ACCC- Alleged 'Wrongful Act' - Anti-competitive behaviour in breach of the Trade Practices Act

Scenario: The insured, a director of a local hospital., received an application from a cosmetic surgeon seeking admitting rights for his patients to the hospital.

The application was refused because the hospital did not want topractice in the area of cosmetic surgery. However, the doctor claimed that his application had been refused because the other surgeons using the hospital felt that they would face competition from the cosmetic surgeon. He claimed that the director of the hospital and the other surgeons had engaged in anti-competitive behaviour in breach of the Trade Practices Act.

The doctor lodged a complaint with the ACCC. The Commission commenced an official investigation into the allegations. The Commission's investigation established that the hospital and its director had not breached the Trade Practices Act. The policy responded picking up the insured’s legal costs of $60,000, which included costs for four witnesses and counsel fees for attending the hearing.

Investigation by the ACCC. Alleged 'Wrongful Act' - Restrictive trade practice in breach of the Trade Practices Act

Scenario: The insured was a director of a small private hospital. As the hospital did not have any doctors on its staff, the insured decided to leave a sign at the hospital's entrance door advertising an “after hours” number to ring in case of any medical emergency. The Hospital's answering machine had a rotation list of General Practitioners within the community to ring.

One General Practitioner not listed with the other doctors alleged that the hospital and its director were practicing, with the other doctors listed, some form of restrictive trade practice in breach of the Trade Practices Act. He threatened to go to the ACCC with his complaint. The matter was resolved before the complaint was taken any further, but costs were incurred in investigating and resolving the matter. 

Unfair Competition Claims

Scenario: Smith, the former CEO of XYZ Pty Limited, left the company to start up a new software firm, New Co. Soon afterwards, XYZ sued Smith individually as an officer of New Co, alleging that Smith had taken with him a corporate license to market certain software. XYZ's allegations included trademark infringement and unfair competition. In its claim, XYZ demanded $2million in damages.

It was resolved with Smith settling with New Co. for a payment of $250,000. Additionally, Smith accumulated $130,000 in legal expenses. 

Misrepresentation Claims

Scenario Certain shareholders purchased a shareholding in ABC Pty Ltd for $850,000. The shareholders sued certain directors and officers for allegedly making untrue statements of fact and omitting material facts in connection with the shareholding, including information relating to claimed patents, products, experience, prior ownership, employment history, and promises of grants from government agencies. The shareholders claimed damages when they lost most of their investment in the company.

ABC Pty Ltd negotiated a settlement of $740,000 and paid an additional $120,000 in defence costs. 

Theft of trade secrets Claims

Scenario: ABC Company sued directors and officers of competitor XYZ after three employees of ABC left to join XYZ. ABC alleged that the three were still employed by ABC when they began sharing proprietary information with XYZ. In the proceedings, ABC alleged theft of trade secrets. After more than a year of legal wrangling, the case settled.

XYZ agreed to pay ABC $160,000 as a settlement, but not before incurring $82,000 in defence costs. 

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