NSW judgment a ‘playbook’ for liquidators demands during corporate insolvency

In the case, the liquidators failed to include claims beyond insolvent trading in an initial demand, which was sent to the insurer within the insurance policy’s period of coverage. A broader range of director, common law and fiduciary breaches, submitted by the liquidator’s former legal representatives to the insurer outside the policy’s coverage, was declined by the insurer and underwriter.

The NSW Supreme Court upheld the insurer and underwriter’s decision to decline the insurance policy claim.

Hannah Griffiths, an expert in corporate insolvency, said: “While the majority of the judgment focuses on the scope of insurance policy clauses, notification of circumstances and indemnity issues arising throughout this particular case, it also provides a playbook for liquidators on the most advantageous way to issue insolvency demands and maximise access to relevant insurance policies.”

“When a liquidator sends a demand to a director, the director can use the demand to notify their insurer about a potential claim within the insurance policy’s period of coverage. As a result, liquidators should issue demands as early as possible after their appointment,” she said.

“Sometimes a liquidator’s demand is based only on the claim that the company was insolvent or couldn’t pay its debts on time, but if the liquidator has broader grounds for a claim, they should include those details in the same communication. Doing so reduces the risk that the insurer will refuse cover and increases the chances that the insurance policy can be accessible to meet creditors’ claims.”