Taylor (liquidator), in the matter of Heading Contractors Pty Ltd (in liq) v Heading

Counsel for the First and Third Defendants: Mr D Blight QC with Mr S Evans

Solicitor for the First and Third Defendants: Moray & Agnew

Counsel for the Second Defendant: The Second Defendant excused from attending

Solicitor for the Second Defendant: Cowell Clarke

ORDERS SAD 132 of 2020 IN THE MATTER OF HEADING CONTRACTORS PTY LTD (IN LIQUIDATION) ACN 067 151 688 BETWEEN: AUSTIN ROBERT MEERTEN TAYLOR AS LIQUIDATOR OF HEADING CONTRACTORS PTY LTD (IN LIQUIDATION) ACN 067 151 688 First Plaintiff

HEADING CONTRACTORS PTY LTD (IN LIQUIDATION) ACN 067 151 688 Second Plaintiff

AND: PETER JOHN HEADING First Defendant

STEPHEN JAMES DUNCAN, TRUSTEE OF THE PROPERTY OF PETER JOHN HEADING, A BANKRUPT Second Defendant

MARKEL SYNDICATE MANAGEMENT LIMITED Third Defendant

order made by: CHARLESWORTH J DATE OF ORDER: 8 JULY 2021

1. On or before 15 July 2021 the parties are to propose such consequential orders (if any) as may be appropriate following the publication of reasons for judgment today.
2. There be a further case management hearing at 9.45 am (ACST) on 29 July 2021. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

CHARLESWORTH J 1 The first defendant, Mr Peter Heading, was the sole director of the second plaintiff, Heading Contractors Pty Ltd (the Company) at relevant times. The Company went into voluntary liquidation on 15 September 2014. Mr Heading was declared bankrupt on his own petition on 15 April 2015. The first plaintiff and second defendant are respectively the Liquidator of the Company and the Trustee of Mr Heading's bankrupt estate. 2 The plaintiffs allege that between 3 February 2014 and 15 September 2014, Mr Heading contravened s 588G(2) of the Corporations Act 2001 (Cth) by failing to prevent the Company from incurring debts whilst it was insolvent. The plaintiffs allege that some of the Company's creditors have suffered losses exceeding $4 million in relation to the debts. The Liquidator brings this application pursuant to s 588M of the Corporations Act to recover an amount equal to the loss or damage as a debt due to the Company. 3 By orders made on 9 October 2020 in separate proceedings, the plaintiffs were granted leave pursuant to s 58(3) of the Bankruptcy Act 1966 (Cth) to commence and continue this action, such leave operating nunc pro tunc to the day that the originating application was filed: Taylor (liquidator) v Trustee, bankrupt estate of Heading, in the matter of Heading [2020] FCA 1450 (Taylor v Heading). 4 On 16 April 2018, Mr Heading was discharged from bankruptcy by the operation of s 149 of the Bankruptcy Act. Prior to his discharge, no liability of Mr Heading to the plaintiffs under s 588M of the Corporations Act had been established by a court order, an arbitral award or a settlement. At the time of his discharge, these proceedings had not been commenced. 5 Issues arise as to the effect of Mr Heading's discharge from bankruptcy on the plaintiffs' claims, particularly as to whether a Policy of insurance responds to them. 6 Leave to commence this action was conditional upon the claim for relief being limited to the extent of the cover provided for under the Policy. In granting leave, I determined that arguments advanced by Mr Heading to the effect that the claims against him were untenable were more appropriately heard within the substantive action rather than at the leave stage. As was anticipated, the underwriter of the Policy (the Insurer) has since been joined as the third defendant. 7 With the consent of the parties, on 25 February 2021, orders were made for the hearing and determination of a separate question pursuant to r 30.01 of the Federal Court Rules 2011 (Cth) so as to determine whether, if the contravention alleged against Mr Heading were to be established, there would exist a liability to which the Policy responds that would sound in the relief sought on the originating process. The question encompasses an issue as to whether the Court may make a declaration in terms sought by the plaintiffs relating to a liability "pursuant to s 588M(2)" of the Corporations Act incurred by Mr Heading prior to his discharge from bankruptcy. 8 To make sense of the separate question it is necessary to first refer to some parts of the Bankruptcy Act, the Policy, the originating application and the pleadings.

THE BANKRUPTCY ACT 9 Subject to exceptions that do not presently apply, upon Mr Heading's bankruptcy s 58(1) of the Bankruptcy Act operated to vest his property in the Trustee. 10 Section 82(1) of the Bankruptcy Act provides: Subject to this Division, all debts and liabilities, present and future, certain or contingent, to which a bankrupt was subject at the date of the bankruptcy, or to which he or she may become subject before his or her discharge by reason of an obligation incurred before the date of the bankruptcy, are provable in his or her bankruptcy. 11 Section 153(1) of the Bankruptcy Act provides: Subject to this section, where a bankrupt is discharged from a bankruptcy, the discharge operates to release him or her from all debts (including secured debts) provable in the bankruptcy, whether or not, in the case of a secured debt, the secured creditor has surrendered his or her security for the benefit of creditors generally. 12 Section 117 of the Bankruptcy Act provides: (1) Where: (a) a bankrupt is or was insured under a contract of insurance against liabilities to third parties; and (b) a liability against which he or she is or was so insured has been incurred (whether before or after he or she became a bankrupt); the right of the bankrupt to indemnity under the policy vests in the trustee and any amount received by the trustee from the insurer under the policy in respect of the liability shall, if the liability has not already been satisfied, be paid in full forthwith to the third party to whom it has been incurred. (2) Subsection (1) does not limit the rights of the third party in respect of any balance due to him or her after the payment referred to in that subsection has been made. (3) This section applies notwithstanding any agreement to the contrary, whether entered into before or after the commencement of this Act. 13 The plaintiffs advise (and plead) that on 25 November 2020, the Trustee assigned his statutory right of indemnity under s 117 of the Bankruptcy Act to the Liquidator and the Company. It is presently unnecessary to decide whether that assignment was legally effective.

THE POLICY 14 The Policy consists of a number of documents described in the parties' agreed statement of facts. 15 Clause 1(a) of the Policy provides that the Insurer "agree[s], subject to the terms, conditions, limitations and exclusions of the Policy, to pay on behalf of any Director or Officer Loss arising from any Claim first made against them during the Period of Insurance". 16 For the purposes of that clause, Mr Heading is defined as "the Insured": cl 3(h). 17 Notification of the claim the subject of these proceedings was given within the period of insurance. 18 The word "Claim" is defined in cl 3(a)(i) relevantly to mean: (a) 'Claim' shall mean: (i) any written demand or claim form, writ, summons, arbitration proceeding or other civil application of any description whatsoever for a Wrongful Act including any cross-claim or counter claim against a Director or Officer, … 19 The expression "Wrongful Act" is defined in sub-cl 3(u) in a way that encompasses a contravention of s 588G of the Corporations Act. 20 Clause 2 is headed "Extensions". Clause 2(g) (hereafter, Extension 2(g)) states: (g) Spousal / Legal Representatives Cover This Policy shall apply in the event the lawful spouse of any Director or Officer is the subject of enforcement proceedings in respect of a judgment against such Director or Officer for a Wrongful Act of that Director or Officer for which he would have received cover under this Policy and at his request. This Policy shall apply in the event of the death or incompetency or bankruptcy of a Director or Officer to their estate, heirs, legal representatives or assigns, for Loss incurred due to any Wrongful Act of such Director or Officer for which he would have received cover under this Policy. 21 The word "Loss" is exhaustively defined in cl 3(i) as follows: … loss by reason of the legal liability of the Insureds to pay: (i) damages or costs awarded against the Insureds, including punitive or exemplary damages where insurance against liability to pay such punitive or exemplary damages is lawful under the laws of the territory in which the Claim is made; (ii) settlements entered into by the Insureds with Underwriters' prior written consent (such consent not to be unreasonably withheld or delayed); and … 22 For the purposes of Extension 2(g), the word "estate" is not defined, nor is the expression "legal representative".

ISSUES ARISING ON THE PLEADINGS 23 The allegations of contraventions of s 588G of the Corporations Act are contained at [4] - [10] of the plaintiffs' fourth amended statement of claim (4SOC). 24 By [5] of the 4SOC, the plaintiffs allege that between 3 February 2014 and 15 September 2014 the Company incurred unsecured debts totalling more than $4 million (Company debts) which remain unpaid. By [6] it is alleged that at the time when the Company debts were incurred the Company was insolvent or that it became insolvent by incurring the Company debts (or debts including them). By [7] it is alleged that at the time that the Company debts were incurred, there were reasonable grounds for Mr Heading (or a reasonable person in his circumstances) to suspect that the Company was insolvent. It is alleged (at [8]) that Mr Heading contravened s 588G of the Corporations Act by failing to prevent the Company from incurring the Company debts and (at [9]) that the creditors of the Company have suffered loss or damage by reason of the Company's insolvency. At [10] is it alleged that the debts were wholly or partly unsecured at the time that the creditors suffered loss and damage within the meaning of s 588M(1)(c) of the Corporations Act. 25 Mr Heading's bankruptcy and the appointment of the Trustee is pleaded at [2.10] of the 4SOC. 26 At [2A] of the 4SOC, the plaintiffs allege that the Trustee is continuing to administer Mr Heading's bankrupt estate and: (1) has vested in him the property of Mr Heading pursuant to s 58(1) of the Bankruptcy Act; (2) had vested in him the right of Mr Heading to indemnity under the Policy ([2A.4]); and (3) is entitled to the benefit of the Policy under Extension 2(g) ([2A.5]). 27 At [11] of the 4SOC it is alleged that Extension 2(g) operates so that the Policy applies in the event of Mr Heading's bankruptcy to his bankrupt estate, legal representatives and assigns for any indemnity he would otherwise have received under the Policy. The plaintiffs allege (at [12]) that upon Mr Heading's bankruptcy, pursuant to s 117 of the Bankruptcy Act, the right of Mr Heading to indemnity under the Policy vested in the Trustee and that the proceeds payable pursuant to the right of indemnity in consequence of the claims in the proceedings are payable to the plaintiffs. 28 The plaintiffs allege that notwithstanding Mr Heading's discharge, his liability under s 588M of the Corporations Act was, and remains, a provable debt in his bankrupt estate by virtue of s 82 of the Bankruptcy Act and is a liability against which Mr Heading was insured within the meaning of s 117 of the Bankruptcy Act. 29 Paragraphs 13 to 15 of the 4SOC allege: 13. Pursuant to section 588M(2) of the Act, and by reason of the matters pleaded in paragraphs 5 to 10 above, the First Defendant is liable, as a debt due to the Company, in respect of the loss and damage in the amount of $4,105,953.07. 14. On or about 16 April 2018 the First Defendant was discharged from bankruptcy and by the operation of section 153 of the Bankruptcy Act the First Defendant was personally released from the monetary claim arising from his liability pursuant to section 588M(2) of the Act: 15. The liability of the First Defendant referred to in paragraph 13: 15.1 was, and remains, a provable debt in his bankrupt estate by virtue of section 82 of the Act, and notwithstanding the First Defendant's release from bankruptcy; and 15.2 is a liability incurred by the First Defendant and against which the First Defendant was insured within the meaning of section 117 of the Bankruptcy Act; and 15.3 a liability for which the First Defendant remains entitled to coverage under the Policy, subject to the operation of s 117 of the Bankruptcy Act as referred to in paragraph 12 above; 15.4 alternatively, a liability for which the First Defendant would have received Cover under the Policy apart from his bankruptcy, in respect of which the Second Defendant is instead entitled to receive the benefit thereof pursuant to Extension 2(g) thereof. 30 As can be seen, the plaintiffs' case proceeds in the alternative. It is alleged that Mr Heading has a right to indemnity under the Policy, which right vested in the Trustee under s 117 of the Bankruptcy Act, as pleaded in the 4SOC at [2A.4] and [15.2] - [15.3]. The alternate plea is that the Trustee is directly entitled to receive the benefit of the Policy pursuant to Extension 2(g) as reflected in the 4SOC at [2A.5] and [15.4]. 31 In either case, it is alleged that the Insurer is liable to pay the Trustee in respect of any award of damages pursuant to s 588M(2) of the Corporations Act (or award of costs) that may be awarded against the estate through the Trustee on account of Mr Heading's contravention of s 588G.

Remedies sought 32 By [1] of their third amended originating process (3AOP), the plaintiffs seek a declaration in the following terms: A declaration that: 1.1 the First Defendant incurred, prior to the date of his discharge from bankruptcy, a liability pursuant to section 588M(2) of the Act to the First Plaintiff in the sum of $4,105,953.07; 1.2 further or alternatively, the Policy is to apply to the estate of the First Defendant in respect of such liability pursuant to extension 2(g) thereof, being a liability for which the First Defendant would have received cover under the Policy other than in the event of his bankruptcy. 33 The plaintiffs seek a further declaration (at [5]) that the Insurer: … is liable and obliged under the Policy to indemnify [Mr Heading] and/or the [Trustee] in respect of their liability to the [Company] and/or the [Liquidator]. 34 By [2] of the 3AOP, the plaintiffs seek an award of damages against the Trustee (in that capacity) in favour of the Company, as a debt due to the Company, together with interest. By [5], it is alleged that the Insurer is liable and obliged under the Policy to indemnify Mr Heading "and/or" the Trustee in respect of their liability to Mr Heading "and/or" the Trustee. By [6] of the 3AOP, the plaintiffs seek an order that the award of damages against the Trustee (together with interest on the award) be paid by the Insurer. 35 The alternate expressions in the claims for relief fairly reflect the alternate legal relations as between the Trustee and the Insurer alleged in the 4SOC. 36 In accordance with the condition on the grant of leave to commence the proceedings, the claim for damages against the Trustee is limited (at [4] of the 3AOP) in the following terms: The award of damages in paragraph 2, and any interest awarded pursuant to paragraph 3, be limited to such amount as may be payable pursuant to the right of indemnity under the Policy, which vested in the Second Defendant upon his appointment as trustee in bankruptcy of the First Respondent by operation of s 117 of the Bankruptcy Act and was assigned to the Plaintiffs on 25 November 2020. 37 The purpose of that condition is explained in Taylor v Heading at [29] - [30]. At the time that the relevant order was made, a declaration in terms now sought at [1.2] of the 3AOP and the allegation at [2A.5] of the 4SOC was not made. The limitation is not expressed in terms that encapsulate an outcome in which the plea at [2A.5] is established but the plea at [2A.4] is not. 38 The separate question presently before me does not refer to the condition on the quantum of the award. Following a determination of the question, the parties should be heard on a form of words that properly reflect the intent of the parties (and the Court) that any award of damages against the Trustee be limited to such amounts that the Insurer is liable to pay under the Policy, by the alternate contractual route.

Defences 39 For reasons explained in Taylor v Heading, Mr Heading is presently excused from filing a defence. It remains open to him to argue that he is not a necessary party to the proceedings. 40 The Trustee refers to the deed by which he assigned his right to indemnity under s 117 of the Bankruptcy Act to the plaintiffs and otherwise has not sought to be heard on the separate question. He has not contested the proposition that the liability alleged against Mr Heading remains a debt provable in the bankruptcy notwithstanding Mr Heading's discharge. Nor has he suggested that orders could not be directed against him should the contraventions alleged against Mr Heading be established. 41 The Insurer has notified the plaintiffs of its determination that the relief claimed in the proceedings does not and could not result in any relevant "Loss" for the purposes of the Policy. The Insurer determined that in the event that orders were made in the Liquidator's favour against Mr Heading or the Trustee, the orders would not trigger any payment obligation under the Policy. That determination is fairly reflected in [2A(b)] and [2A(c)] of the Insurer's defence filed on 25 January 2021 (defence). 42 The Insurer pleads in the alternative (at [11] of the defence), that if certain of the plaintiffs' allegations of fact concerning the financial position of the Company are established (and if those facts are shown to have been known by Mr Heading or the Trustee) then they are matters that were required to be disclosed to the Insurer prior to the inception of the Policy by reason of s 21 of the Insurance Contracts Act 1984 (Cth) but were not disclosed (the non-disclosure defence). Alternatively, it is alleged that Mr Heading or the Trustee made material misrepresentations in an insurance proposal form which induced the entry into the policy (the misrepresentation defence). As a consequence, it is alleged that the Insurer's liability should be reduced to zero pursuant to s 28(3) of the Insurance Contracts Act: defence, [11(b)(iii)] and [11(b)(ix)].

Reply 43 The reply to the Insurer's defence joins issue with the construction of the Policy. The arguments contained in it will be addressed below.

THE SEPARATE QUESTION 44 The separate question is: In the event that the allegations pleaded at [4] - [10] of the Fourth Amended Statement of Claim (4ASOC) are established, subject to the alternative argument pleaded at [11] of the third defendant's Defence and any affirmative defence which might be raised to liability under s 588M(2) of the Corporations Act 2001 (Cth) (which remain to be determined), having regard to the matters pleaded at: (a) [2.10], [2A], and [11] - [18] of the 4ASOC; (b) [2], [2A], the denial in [11], [12] - [16] and [17A] - [18] of the Defence of the third defendant filed on 25 January 2021; and (c) [1], [2], [3] and [6] of the Reply to the Defence of the third defendant filed on 9 February 2021, will the first or second plaintiff obtain the relief sought under: (d) any or all of [1.1], [1.2], [2] or [3] of the Third Amended Originating Process referred to in order 3 below; and (e) consequently, either or both of [5] and [6] of the Third Amended Originating Process (repeated at [18.3], [18.4] and the prayers for relief at [4A] and [4B] of the 4ASOC)? 45 As has been mentioned, the parties have fashioned the question to resolve the issue concerning the construction of the Policy upon which the plaintiffs' success in the proceedings depends. The question proceeds from an assumption that the plaintiffs will otherwise be successful in establishing the alleged contravention by Mr Heading of s 588G of the Corporations Act and that the Insurer will be unsuccessful in the non-disclosure and misrepresentation defences. The trial of all of the remaining issues has been deferred. The separate question is contingent in the sense that it only has significance if other aspects of the controversy before the Court are decided in a particular way. However, I am satisfied that it also has immediate utility in that there is a real issue as to the Insurer's contractual obligations, though termination of which will affect the future conduct of the whole of the action.

PRINCIPLES AND COMMON GROUND 46 There is considerable common ground as to the proper construction of the Bankruptcy Act, and as to background facts. The following legal principles are not disputed. 47 In Tarea Management (North Shore) Pty Ltd (In liq) v Glass (1991) 28 FCR 94 at 99 (Hill J, Lockhart and Einfeld JJ agreeing): The mere fact that the debtor is released from a debt does not mean that the debt did not remain a provable debt in the bankruptcy which has been discharged. A debt to be provable need only be one to which the bankrupt was subject at the date of the bankruptcy: s 82(1). No time limit is imposed by s 82(1) or s 84(4) upon a creditor lodging a proof of debt and there would seem to be no reason in principle why a creditor might to lodge a proof of debt after discharge. … The true principle is that a creditor, whether secured or unsecured, may prove at any time during the administration (provided that he may not interfere with the prior distribution, subject, in a case where leave of the court is required, to such terms as the court may impose): see Re McMurdo, Penfield v McMurdo [1902] 2 Ch 684 and 699, per Vaughan-Williams LJ; Re Hertzberg; Ex parte Protestant Alliance Friendly Society of Australia (1933) 6 ABC 257 at 262. The administration of the bankrupt estate may not have come to an end on discharge, particularly where the discharge arises by operation of the statute at the expiration of three years. 48 On the facts in Tarea Management the discharged bankrupt was not released from the relevant liability under s 153 of the Bankruptcy Act because it was a liability of a kind that fell within a fraud exception in 153(2)(b), namely a breach of a fiduciary duty owed to a company committed prior the bankruptcy. Accordingly, the reasons for judgment proceeded from the premise that orders could be made against him in proceedings subsequent to his discharge. Neither party in this proceeding has asserted that Mr Heading's liability is of a kind that falls within any of the exceptions in s 153(2). 49 I have not been taken to any authority in which the principles stated in Tarea Management were applied in a case in which the liability under consideration was one that did not fall within the exceptions in s 153(2). 50 It is common ground that any liability of Mr Heading pursuant to s 588M(2) of the Corporations Act to the Company was, and remains, a debt provable in Mr Heading's bankrupt estate by virtue of s 82 of the Bankruptcy Act: 4SOC [15.1]; defence, [15(b)]. As explained in Taylor v Heading, these proceedings are proceedings in respect of that provable debt, hence the occasion for granting leave. Leave cannot be and has not been granted to enforce any remedy against Mr Heading personally: Taylor v Heading at [27]; Bankruptcy Act, s 58(3)(a). 51 In Re Kavich v Official Trustee in Bankruptcy (1995) 58 FCR 82, Hill J identified (at 85) that the policy of bankruptcy law is twofold: to enable the insolvent debtor to be freed from all liabilities so that he or she may start again unburdened by them, and to enable the debtor's assets to be collected and distributed rateably among his or her creditors. Hill J continued (at 86): Consistent with this broad policy it might be expected that, at least to the extent that the bankrupt estate is inadequate to meet it, additional tax for non-payment of income tax in respect of income derived during the period before bankruptcy but remaining unpaid as at the date of payment would, like the income tax itself, cease to be a debt of a bankrupt and be discharged, at the latest by the discharge of the bankrupt from his or her debts. 52 Accordingly, a liability of a bankrupt incurred prior to the date of bankruptcy is converted into a claim for proof: Kavich at 86. To the extent that the bankrupt estate is unable to meet all creditors' claims, the bankrupt is released from the debt upon his or her discharge: Bankruptcy Act, s 153. The discharge operates to release the former bankrupt but not to release the estate: Tarea Management at 99. If additional assets come into the hands of the Trustee in bankruptcy, the discharged debt is to be treated as a liability of the estate: Kavich at 86. 53 Section 117 of the Bankruptcy Act may be seen as an exception to the usual requirement that the property of a bankrupt is to be rateably distributed among his or her creditors. Its effect is helpfully summarised by Rares J in Tapp v LawCover Insurance Pty Ltd [2013] FCA 35: 12 In general terms, s 58(1) of the Act vests the property of the bankrupt forthwith, at the time the debtor becomes bankrupt, in the Official Trustee or, if applicable, the registered trustee (I will refer to these as simply as the trustee). That provision also vests in the trustee after-acquired property of the bankrupt as soon as it is acquired by, or devolves on, the bankrupt. Ordinarily, the right of a bankrupt to make claims upon, and to receive, indemnity from a liability insurer could be expected to vest in the trustee under s 58(1). But, the Act makes specific provision in s 117 for what is to happen to a particular right of a bankrupt to indemnity under a contract of insurance against liabilities to third parties where the bankrupt incurred such a liability either before or after becoming bankrupt. Relevantly, s 117 provides that the bankrupt's right of indemnity for such a liability vests in the trustee and creates a duty of the trustee to use any amount the trustee receives from the insurer to pay the claim of the particular creditor in respect of which the liability policy responds. … 13 Thus, s 117 creates a preferential treatment for the third party creditor over all other creditors. The section segregates the proceeds of the policy from amenability to distribution among the general body of the bankrupt's creditors and obliges the trustee to pay those proceeds to the creditor whose claim against the bankrupt was insured: cf as to the analogous provisions of s 562 of the Corporations Act 2001 (Cth), AssetInsure Pty Limited v New Cap Reinsurance Corporation Limited (In liq) (2006) 225 CLR 331 at 358-359 [78]-[80] per Kirby and Hayne JJ with whom on this point, Gleeson CJ, Heydon and Crennan JJ agreed at 343 [28]. 54 In Tapp, the bankrupt had not been discharged at the time that the application of s 117 of the Bankruptcy Act arose for consideration. Rares J referred (at [19]) to the principle in Tarea Management that the discharge of a debtor does not mean that the administration of the estate has come to an end. His Honour continued (at [20]): Moreover, if, after the discharge of the bankrupt, additional assets that vested in the trustee by force of a provision of the Act, such as ss 58 or 117, came into the trustee's hands, a discharged debt is treated as a liability of the estate that is payable out of it. …

CONSIDERATION 55 The proper approach to construing the Policy is that stated by Gleeson CJ in McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579 (at [22]), namely: A policy of insurance, even one required by statute, is a commercial contract and should be given a businesslike interpretation. Interpreting a commercial document requires attention to the language used by the parties, the commercial circumstances which the document addresses, and the objects which it is intended to secure. (footnotes omitted) 56 The opposing positions on the separate question have been broadly outlined in the course of summarising the pleadings. The Court has the benefit of detailed written and oral submissions. The principal focus of the submissions is the proper construction of Extension 2(g) (extracted at [20] above) having regard to its text and commercial purpose. 57 As articulated at [35] of their written submissions, the plaintiffs' position is that Extension 2(g), properly construed operates so as to: … confer a right of indemnity on the estate, heirs, legal representatives or assigns, of a director or officer, where the death, incompetency, or bankruptcy of the director or officer precludes the operation of insurance clause 1(a), and operates in respect of any damages or costs for which the director or officer would have received cover under the Policy but for his or her death, incompetency or bankruptcy. 58 As explained below I have accepted that submission. However, I should not be understood to say that insuring cl 1(a) is irrelevant in determining whether the Policy responds to the plaintiffs' claims. It is necessary to pass through cl 1(a) to identify the extent of protection afforded to the estate by virtue of Extension 2(g) on the facts of the case. I have otherwise rejected the plaintiffs' alternate argument that Mr Heading personally and presently has a right of indemnity under insuring cl 1(a) that is capable of vesting in the Trustee under s 117 of the Bankruptcy Act. 59 Extension 2(g) contains some words that are to be understood as having established legal meanings. There is no reason to suppose that the word "bankruptcy" encapsulates anything more or less than bankruptcy under Australian law, with all of the legal consequences that follow from that event. 60 The heading "Extensions" suggests that the clauses thereunder (including Extension 2(g)) are intended to extend the Policy so as to provide for its application in a factual or legal circumstance in which it would not otherwise apply. 61 On its terms, Extension 2(g) is directed to four events. 62 The circumstance addressed in the first paragraph is the event of the lawful spouse of any director or officer becoming the subject of enforcement proceedings in respect of a judgment against such director or officer for a wrongful act (as defined) of that director "for which he would have received cover under this Policy" at his request. 63 The second paragraph of Extension 2(g) is directed to three events affecting the insured director: death, incompetency and bankruptcy. The language that follows from the identification of those events is the same. As the plaintiffs correctly submitted, the words of the clause are to be interpreted consistently in relation to each event and in a way that gives the clause commercial utility in each scenario. 64 Upon any one of the events occurring, the Policy "shall apply to" the director's: (1) estate, (2) heirs, (3) legal representatives or (4) assigns "for any Loss (as defined) incurred" due to any wrongful act by the director "for which he would have received cover" under the Policy. Relevantly, the text of the clause is that the Policy "shall apply in the event of … bankruptcy of a Director or Officer to their estate". 65 Read in its proper context, the word "estate" may be understood as including the director's estate vested, by virtue of his or her bankruptcy, in the person who is appointed as the trustee of the estate under s 157 of the Bankruptcy Act. In the event of death, the word "estate" may refer to the estate as vested in the trustee of a testamentary trust or otherwise in the administrator of the deceased estate or in the executor of a will. In the event of incompetency, the estate is that vested in the director's legal guardian. 66 The words "apply to" suggest that the Policy is intended to protect the estate (as vested) from something. The words presuppose that the estate of the bankrupt may be subject to claims (provable debts), including claims giving rise to remedies that cannot be enforced against the bankrupt personally. Likewise, in the event of death, Extension 2(g) presupposes (correctly) that no claim can be pursued and no remedy personally enforced against a dead director. 67 Against those preliminary observations, two questions arise: (1) how does the language of the contractual definition of the word Loss interrelate with the language in Extension 2(g) and insuring cl 1(a)?; and, relatedly (2) what is meant by the phrase "for which he would have received cover under this policy"? 68 To answer those questions it is helpful to first identify how insuring cl 1(a) operates in a scenario in which Mr Heading has not been made bankrupt, and in which an alleged contravention of s 588G of the Corporations Act (notified in the period of insurance) has been established and an award of damages has been made against him under s 588M of that Act. 69 In that scenario, the Bankruptcy Act has no operation. In particular, neither s 58 nor s 153 would apply. The obligation of the Insurer would be to pay to the Company (or the Liquidator as the case may be), on Mr Heading's behalf, "Loss" arising from their claim. Applying the definition of "Loss" (extracted at [21] above), the relevant obligation would be to pay damages or costs awarded against Mr Heading (or settlements entered into by him with the Insurer's consent) under s 588M of the Act, which Mr Heading would have a legal liability to pay. 70 The phrase "legal liability … to pay" and associated phrases in the Loss definition reflect a commercially conventional approach to the allocation of risk in insurance contracts of this kind, as discussed by Fraser JA in Delta Pty Ltd v Mechanical and Construction Insurance Pty Ltd [2019] 3 Qd R 438 at [18]: (c) In Corti v Rodwell, Tadgell J discussed a policy providing an indemnity 'in respect of all sums which the said Associations … might become legally liable to pay for compensation in respect of bodily injury': 'There is certainly authority for the view, which cannot now be doubted, that under a policy of insurance providing indemnity to the insured in respect of all sums for which the insured becomes legally liable by way of compensation (or damages) no obligation can arise before a legal liability of the insured is established. The expression 'legally liable' in this context means, in broad terms, 'held liable'. Such a legal liability might be established by judgment, arbitral award or agreement, including an agreement of compromise. Counsel for the company relied on The Distillers Company Bio-Chemicals (Australia)Pty Ltd v Ajax Insurance Co Ltd (1974) 130 CLR 1, esp at pp 25-6, in the judgment of Stephen J, and cases there cited; and Cacciola v Fire & All Risks Insurance Co Ltd [1971] 1 NSWLR 691, at p 695.' (footnote omitted) 71 To similar effect, in Post Office v Norwich Union Fire Insurance Society Ltd [1967] 2 QB 363, Lord Denning MR said at 373 - 374: The policy says that 'the company will indemnify the insured against all sums which the insured shall become legally liable to pay as compensation in respect of loss of or damage to property.' It seems to me that the insured only acquires a right to sue for the money when his liability to the injured person has been established so as to give rise to a right of indemnity. His liability to the injured person must be ascertained and determined to exist, either by judgment of the court or by an award in arbitration or by agreement. Until that is done, the right to an indemnity does not arise. 72 And see the summary of authorities in Commonwealth of Australia v Vero Insurance Limited [2012] FCA 826; 291 ALR 563 at [84]. 73 Whilst it is not presently necessary to decide the point, it appears that the bankruptcy itself had the effect that Mr Heading could have no personal legal liability to pay damages upon proof of the contravention even before his discharge. As Gibbs CJ, Murphy, Brennan and Dawson JJ observed in Clyne v Deputy Commissioner of Taxation (1984) 154 CLR 589 at 594 - 595: Although, as was rightly observed in the Federal Court, one dictionary meaning of 'owing' is 'that is yet to be paid', the word connotes a sense of obligation to make the payment. The effect of the bankruptcy however is that the debtor is no longer obliged to pay his creditors; indeed he is disabled from doing so. If he offered payment they could not safely accept it; their right is a right of proof against the estate. 74 The phrase "legal liability … to pay" as employed in the Policy is not to be confused with the phrase "debts and liabilities" or the phrase "provable debt" as employed in the Bankruptcy Act. The grant of leave under s 58(3)(b) to commence or continue a proceeding "in relation to a provable debt" does not overcome the effect of s 58(3)(a) which renders it incompetent for a creditor "to enforce any remedy against the person or the property of the bankrupt in respect of a provable debt". Subject to provisions such as s 117 of the Bankruptcy Act, if there be a judgment debt against a bankrupt, it is a debt that is to be proved in the administration of his or her bankruptcy. The discharge of Mr Heading from bankruptcy (and his release from liability under s 153) does not change the circumstance that the debt arising from the plaintiffs' claims remains a provable debt in the administration of the bankrupt estate, as agreed on the pleadings, at least as between the plaintiffs and the Insurer. For the purposes of s 58(3)(b) of the Bankruptcy Act these are proceedings are "in respect of" that provable debt. 75 The Insurer submits that by reason of Mr Heading's bankruptcy and subsequent discharge under s 149 of the Bankruptcy Act, no damages or costs can be awarded against him personally within the meaning of the "Loss" definition in connection with the alleged s 588G contravention (even if the contravention is established). Section 153 of the Bankruptcy Act puts the correctness of that proposition beyond doubt. The plaintiffs do not suggest otherwise, and their prayer for relief reflects that position. The remedies do not include an award of damages in terms directed at Mr Heading, because Mr Heading has no present legal liability to pay anything to the Company. 76 The claims for relief do, however, seek an award of damages directed toward the Trustee. The separate question presently before me does not take issue with the form of that relief. What is presently disputed is the Insurer's obligation to indemnify the Trustee in respect of it. 77 The Insurer submits that the circumstance that insuring cl 1(a) does not provide cover to Mr Heading as a discharged bankrupt in respect of the relevant wrongful act, provides a complete answer to the claims for relief sought against it in the proceedings. That is said to be because the extended cover for which Extension 2(g) provides cannot confer any entitlement to coverage greater than that presently enjoyed by Mr Heading, which is nought. 78 In my view, that submission proceeds from an erroneous construction of Extension 2(g). The correct construction is as follows. 79 The Policy applies to the estate "for Loss incurred due to any wrongful act" of Mr Heading "for which he would have received cover". The words "would have received" must be read in their context and given meaningful work to do. In their ordinary meaning, they direct attention to the coverage that Mr Heading would have received had the relevant event that has triggered the operation of the clause not occurred. The phrase does not point to Mr Heading's personal and present entitlements to be indemnified against "Loss" under the Policy in his capacity either as a bankrupt or as a discharged bankrupt. If that had been the intention, the phrase for which he "is entitled to receive cover" or something similar would have been employed. Indeed, it is difficult to conceive of any commercial utility in Extension 2(g) if its operation is to provide for the circumstance of the Trustee standing in the shoes of Mr Heading as the Insured under the Policy in a representative capacity affording him no greater claim for coverage than Mr Heading himself. There is no need for a contractual clause to achieve that result. It is the result that flows from the vesting of the bankrupt's property (including the bankrupt's chose in action under cl 1(a) of the Policy) in the Trustee, or (in the case of death) the deceased's chose in action under that clause vesting in (say) an executor of his or her deceased estate. 80 To determine what coverage Mr Heading "would have" received were it not for his bankruptcy, one must of course turn to insuring cl 1(a). But that is not to be done for the purpose of asking what entitlement to indemnity Mr Heading presently has under the Policy as a discharged bankrupt in response to the plaintiffs' claim. Rather, cl 1(a) must be considered for the purpose of ascertaining what coverage Mr Heading would have received had the event of bankruptcy (with all of it legal consequences) not occurred. 81 As explained above, were it not for Mr Heading's bankruptcy, neither s 58 nor s 153 of the Bankruptcy Act would apply. Accordingly, Mr Heading would not be discharged from liability to pay damages for any contravention of s 588G of the Corporations Act under s 153 of the Bankruptcy Act. Proceedings would be brought against Mr Heading in his own name and right, and (if a contravention was proven) an award of damages would be directed to him personally. The Insurer would be liable to pay that award on his behalf. For the purposes of the closing words of Extension 2(g), that is the cover Mr Heading "would have received" under the Policy. 82 The remaining words of the clause apply in their ordinary meaning. Mr Heading's bankrupt estate is to enjoy the same protection in response to the claim that Mr Heading would have received as identified at [68] - [69] and [81] above, as that is the cover he would have received had he not become a bankrupt (and later a discharged bankrupt). 83 The Insurer submitted that the plaintiffs' construction should be rejected as lacking commercial utility because Mr Heading is the contracting party and because upon his bankruptcy he is not personally in need of protection from his creditors' claims. I do not accept that submission. As identified above, the Insurer has not proposed an alternate interpretation that has utility over and above what is provided for at general law. In addition, the source of the Insurer's obligation to pay is not insuring cl 1(a). As explained above, the contractual source of the Insurer's obligation is in Extension 2(g). The obligation is to the ultimate benefit of non-parties to the contract, who are not to be equated with a person who is defined as "the Insured". The inclusion of Extension 2(g) has commercial utility for the Insured in any event in that it protects his estate from claims in the bankruptcy that would diminish the property that is available for rateable division among his creditors. The insured director has an interest in the estate being unaffected by the claim, not least of all because he is entitled to a surplus from the estate and because the bankruptcy may be annulled upon the payment of his debts in full: Bankruptcy Act, s 153A. Similarly, in providing for the circumstance of death, the parties may be understood as intending that the estate of the Insured be protected from the claim, to the ultimate benefit of the beneficiaries of the estate. By the wording of Extension 2(g) the parties may be understood to have apprehended the detrimental risk to the estate under bankruptcy law and to have made provision for that to be re-allocated (and hence ameliorated). 84 Accordingly, assuming that there can be an award of damages against or affecting the estate under s 588M of the Corporations Act arising from the wrongful act (as sought in [2] of the 3AOP), the Insurer has an obligation to pay the award to the plaintiffs on the estate's behalf (as sought by [6] of the 3AOP). On the proper construction of Extension 2(g), it appears unnecessary to resort to s 117 of the Bankruptcy Act to support the claims for relief. The plaintiffs do not need to rely on the allegation at [2A.4] of the 4SOC to succeed in their action. As pleaded at [2A.5] of the 4SOC, the estate (as represented by the Trustee) is entitled to the benefit of the Policy under Extension 2(g), properly construed. To the extent that the Insurer's payment obligation under Extension 2(g) is one that could in the ordinary course only be enforced by the Insured as the relevant contracting party, Mr Heading's chose in action under Extension 2(g) (that is, his right to sue for specific performance of the term as construed above) vested in the Trustee under s 58(1) in any event. It is in that sense that the Trustee may enforce the contract for the benefit of the estate, standing in the shoes of Mr Heading, whether or not Mr Heading presently has a right of indemnity capable of vesting in the Trustee under s 117 of the Bankruptcy Act. 85 The plaintiffs did not forcefully advance written or oral submissions to the effect that their claims for relief against the Insurer could be supported without reference to Extension 2(g) (although that remains an alternate basis on their pleaded case). For completeness, I am not satisfied that such a case can be sustained. Without the inclusion of Extension 2(g), insuring cl 1(a) operates in the manner discussed earlier in these reasons. As I have said, that is not fatal to the plaintiffs' claim, as the pleas at [2A.4] and [2A.5] are expressed in the alternative. The relief sought on the 3AOP is capable of responding to the case as founded on the legal relationships asserted at [2A.5] and [15.4] of the 4SOC.

DECLARATORY RELIEF 86 The separate question also asks whether, if the alleged contravention of s 588G may be established, a declaration in terms sought at [1] of the 3AOP (extracted at [32] above) can be made. 87 The declaration comprises two sub-paragraphs. The first is to the effect that Mr Heading incurred, prior to the date of his discharge from bankruptcy, a liability pursuant to s 588M(2) of the Corporations Act to the Company in the sum of $4,105,953.07. 88 Given Mr Heading's discharge from bankruptcy, the Insurer submits that the declaration is entirely theoretical in that it cannot resolve any existing rights or obligations as between Mr Heading and the plaintiffs. Accordingly, it was submitted the declaration cannot be determinative of any "matter" the existence of which is necessary for the Court's declaratory powers to be invoked, there being no "right, duty or liability" to be established: Australian Institute of Private Detectives Ltd v Privacy Commissioner (2004) 139 FCR 394 at [32]; IMF (Australia) Ltd v Sons of Gwalia Ltd (admin apptd) (ACN 008 994 287) (2004) 211 ALR 231 at [43]; Ainsworth v Criminal Justice Commission (1992) 175 CLR 564 at 582 (Mason CJ, Dawson, Toohey and Gaudron JJ). 89 The liability to which [1.1] of the declaration is concerned is not to be confused with the "legal liability" of the Insured to pay an award of damages as that concept is utilised in the definition of "Loss" under the Policy. Rather, the declaration is directed to the question of whether Mr Heading is to be regarded as having incurred the liability prior to his bankruptcy so as to bring it within the concept of a "debt or liability" to which Mr Heading is subject at the date of the bankruptcy for the purposes of s 82. The effect of the declaration in those terms is to identify the liability as one that affects the estate in accordance with the principles stated in Tarea Management and Tapp. It also has some utility in specifying the wrongful act and the extent of coverage (expressed in dollar terms) Mr Heading would have received were it not for his bankruptcy and subsequent discharge. When [1.1] and [1.2] of the 3AOP are read together as a composite declaration, they may be seen as declaratory of the operation of Extension 2(g), properly construed, and so determinative of the "matter" between the Trustee (in the shoes of Mr Heading), the estate and the Insurer. The "matter" to which the whole of the declaration is addressed is the contractual matter arising under the Policy. The declaration, read as a whole, establishes the factual and legal circumstance in which the monetary relief sought in the remainder of the 3AOP may be awarded. It is expressed in a manner that is consistent with the answer given to the separate question as it affects the other claimed forms of relief. 90 It may be that it is unnecessary to make a declaration in terms of [1.1] (or for that matter in the terms of [1] as a whole) in order for the financial remedies to follow. But I do not consider the determination of the separate questions require me to express any concluded view as to the necessity or desirability of granting the relief. The question presently before me goes to whether the Court would have the jurisdiction to make a declaration that includes [1.1] in the event that the past contravention of s 588G of the Corporations Act is proven. I am satisfied that it would.

RESOLUTION OF THE SEPARATE QUESTION 91 The answer to the separate question is "yes". 92 I will hear from the parties as to the appropriate form of any consequential orders, that should follow. 93 It is also appropriate to invite submissions as to any appropriate amendment to the condition in [4] of the 3AOP to ensure that the Trustee's liability is confined to that amount payable by the Insurer under the Policy, as construed in these reasons. I certify that the preceding ninety-three (93) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Charlesworth.