One.Tel Ltd., the bankrupt Australian phone company, may pursue a claim against CGU Insurance Ltd. for A$20 million ($18.3 million) that a former director was ordered to pay, the country’s top court ruled.
The High Court of Australia today partly overturned an appeals court ruling, which said a bankruptcy trustee’s time limit to pursue the claim had expired.
“The effect of these arguments, if sound, would have been to give CGU an adventitious windfall,” the five-member court wrote in today’s judgment.
One.Tel collapsed in 2001 owing more than A$1 billion after the board canceled a A$132 million stock offer to shareholders. Publishing & Broadcasting Ltd., which had been controlled by Kerry Packer, then Australia’s richest man, and Rupert Murdoch’s News Corp. were the biggest shareholders in the company and lost a combined A$1 billion on their investment.
The High Court ruling didn’t deal with the merits of the case and CGU maintains the directors’ policy wasn’t valid, Iwona Polski, a spokeswoman at the insurer, said in a phone interview. One.Tel failed to meet disclosure requirements, which invalidated the policy, she said.
John Greaves, a former director, was ordered by the Australian Securities and Investments Commission in September 2004 to pay A$20 million in compensation to One.Tel and A$350,000 to ASIC for having breached the Corporations Act.
Greaves turned over his property and his rights under the company’s liability insurance for directors to a trustee. According to the agreement, the trustee was to sell the property and apply for payments under the insurance to settle Greaves’s debts, today’s ruling said.
The agreement stipulated the arrangement was to expire in three years. The trustee sued CGU in October 2006 for the A$20 million and the agreement with Greaves expired in November of the following year. CGU argued that once it expired, the trustee could no longer pursue the claim.
Greaves remains liable for the A$20 million, the court also ruled today.
“That debt remains an ‘amount payable,’” the court said, and as a result the policy must also remain in force. “If by some happy chance Mr. Greaves became sufficiently wealthy to pay the A$20 million, and chose to do so, it could not validly be contended that the policy did not respond.”
The case is Between CGU Insurance Ltd. and One.Tel Ltd. 2010 HCA26. High Court of Australia (Canberra).