More directors could go for legal aid

Bruce Davidson. Photo / Sarah Ivey

It is likely more company directors facing criminal charges will apply for legal aid following a High Court ruling blocking Bridgecorp bosses from accessing insurance, say legal experts.

Former Bridgecorp director Peter Steigrad and chairman Bruce Davidson sought a court declaration in August saying they were allowed to tap into insurance funds that receivers put a hold over in 2009.

The insurance policy has a limit of $20 million and was taken out in 1996 to cover the directors' defence costs if criminal or civil proceedings were brought against them.

The hold - formally known as a "charge" - was put over the insurance policy to try to prevent the directors accessing it.

Receivers put it in place because they could be entitled to the funds if they were successful in a civil claim they hope to bring against the directors. They estimated this claim could be more than $450 million. While they have not formally brought any action, receivers argued if the directors were to use the funds it would "significantly reduce" the amount civil claimants could be awarded.

In reviewing the hold, Justice Graham Lang said the directors were not allowed to access the insurance, even though this might seem unfair.

"In reaching that view, I am conscious that it produces some unsatisfactory consequences ... the charge prevents the directors from being able to resort to [the insurance] policy to meet their defence costs ... that result may seem unfair given the fact that Bridgecorp companies took the policy out, at least in part, for that specific purpose," he said in his September ruling.

Two legal experts said the judgment could have vast implications for the directors of other failed finance companies facing criminal and civil charges.

A respected Auckland lawyer, who did not want to be named because of his involvement in some cases, said the decision may see more directors applying for legal aid.

"The obvious consequence [of the ruling] is that directors are going to be struggling. They won't have the usual access to funds for their defence. That may result in them seeking legal aid, [depending] on their personal circumstances," he said.

The judgment may also mean directors do not have the means to employ Queen's Counsel to represent them in court, he said.

"Inevitably if there are no funds from the insurer and no private funds ... they're not going to get the representation they otherwise would have."

He expected Justice Lang's ruling would be appealed.

Four former Bridgecorp directors - Rod Petricevic, Rob Roest, Gary Urwin and Steigrad - face Securities Commission (now the Financial Market Authority) allegations they made untrue statements in Bridgecorp's investment statements and registered prospectuses.

Davidson, who was involved in the insurance dispute, changed his plea to guilty and was sentenced last Friday to nine months' home detention and 200 hours of community service. He was also ordered to pay $500,000 in reparations to out-of-pocket investors. The other directors have pleaded not guilty.

Their trial is due to begin on October 25 and is likely to stretch on into March.

Court documents reveal the directors have already spent at least $2 million from a separate insurance fund on their defence. It is estimated the directors' costs for the trial will amount to a further $3 million, not including any possible appeals.

Since exhausting the $2 million fund, both Urwin and Roest have been granted legal aid.

Petricevic's attempts to secure legal aid were declined because despite being bankrupt, he is a trustee of the R.M. Petricevic Trust, which has considerable assets.