An Australian federal court held that where a director failed to disclose the financial distress of his company to the prejudice of the other contracting party under a constructions contract, the director “gained personal profit or advantage” for the purposes of an exclusion of the Directors and Officers Policy and no claim was payable by the insurers under the policy.

The director and the company had a community of interests in seeing the building contract remained on foot.  The word “personal” in the phrase “personal profit or advantage” is not a word of limitation.  It requires that the advantage that is gained is one that is actually enjoyed by the director or officer concerned.  The word “advantage” is also a word of wide import and encompasses and includes non-pecuniary benefit or a favourable outcome.  The director’s breach of his obligations under the Corporations Act by preferring his personal interest over that of the other contracting party and obtaining improper advantage for himself in having the contract survive was sufficient to be a breach of the exclusion in the policy.  Keeping the contract on foot enabled the company to earn a revenue stream that supplemented funds under the director’s control that could be, and were, used by him to pay, among other things, his personal expenses.

The claim against the D&O insurers therefore failed.

Hakea Holdings (Pty) Ltd v McGrath (No 2) [2022] FCA995 (Federal Court of Australia)