The recent New South Wales Supreme Court decisions of Smart v AAI Ltd; JRK Realty Pty Ltd v AAI Ltd [2015] NSWSC 392 have highlighted the equal importance of both limbs of the test articulated in Section 601AG of the Corporations Act 2001 (Cth) and clarified the operation of this provision generally.

Section 601AG allows a claim to be made directly against the insurer of a deregistered company where the deregistered company had a liability to the claimant and the insurance contract covered that liability immediately before deregistration of the company.

The Plaintiffs in these cases, Nathan Smart and JRK Realty Pty Ltd, attempted to pursue AAI Limited (formerly Vero Insurance Ltd) as the insurer of a deregistered finance broking company whose general manager misappropriated monies he had encouraged the Plaintiffs to lend to business clients. The Plaintiffs were able to establish the deregistered company’s liability for breach of contract and false and misleading conduct.

The Defendant insurer successfully defended the Plaintiff’s claim on the basis that the liability of the deregistered company to the Plaintiffs was not covered by the policy terms because there was no claim for ‘compensation’ and the activities the subject of the claim did not fall within the definition of the ‘professional business’ under the policy.

To read the full case please click here.