Furs Ltd v Tomkies: A Case Summary

Case name & citation: Furs Ltd v Tomkies [1936] HCA 3; (1936) 54 CLR 583

The concerned Court: High Court of Australia
Judgment date: 13 February 1936
The bench of judges: Latham C.J., Rich, Starke, Dixon, Evatt and McTiernan JJ.
Area of law: Fiduciary Duty; Company’s director; conflict of interest

What is the case about?

The case involves issues of fiduciary duty, conflict of interest, and the accountability of a company director for profits derived from actions taken in their fiduciary capacity. Here is a breakdown of the key elements of the case.

Facts (Furs Ltd v Tomkies)

T. was the managing director of the appellant company. T. was authorized by the directors to negotiate the sale of the tanning, dressing, and dyeing part of the company’s business. T. arranged to sell the business to a new company promoted by L. for £8,500.

During these negotiations, L. indicated that the new company would need T.’s services, which T. disclosed to the chairman of the appellant company. The chairman advised T. to make the best terms for himself with the purchaser.

Before finalizing the sale, T. subsequently arranged a contract with the new company, which included receiving shares and £4,000 in addition to an annual salary for disclosing all his knowledge and information about the secret processes of the business. This transaction was not disclosed to the appellant company.

The appellant company sued T., claiming that the shares and money received by T. belonged to the company.

Judgment of the Court

Nicholas J. of the Supreme Court of New South Wales initially found that T. was entitled to secure his own advantage as long as he treated the company fairly and no breach of duty was proved.

However, the High Court reversed the decision, holding that T. derived undisclosed benefits for which he was accountable to the appellant company. It was irrelevant whether or not the appellant company suffered any loss corresponding to T.’s benefits.

Legal principles on which the case was based

Fiduciary Duty:

Directors have a fiduciary duty to act in the best interests of the company and must avoid conflicts between their personal interests and their duty to the company.

Full Disclosure:

Any profit derived by a director from their fiduciary position must be fully disclosed to the company. Failure to do so can lead to the director being held accountable for those profits.

Conflict of Interest:

The inflexible rule is that a director should not profit from their position unless the company, through a resolution by shareholders, approves the profit after full disclosure of the material facts.

Conclusion (Furs Ltd v Tomkies)

The High Court’s decision emphasizes the importance of directors adhering to their fiduciary duties and the necessity of full transparency and disclosure when personal interests may conflict with their duty to the company. Directors must not place their interests above those of the company and must ensure that any personal gain from their fiduciary position is fully disclosed and approved by the shareholders.

Quote from the case

“In our opinion the decision of this appeal is governed by the inflexible rule that, except under the authority of a provision in the articles of association, no director shall obtain for himself a profit by means of a transaction in which he is concerned on behalf of the company unless all the material facts are disclosed to the shareholders and by resolution a general meeting approves of his doing so, or all the shareholders acquiesce. An undisclosed profit which a director so derives from the execution of his fiduciary duties belongs in equity to the company. It is no answer to the application of the rule that the profit is of a kind which the company could not itself have obtained, or that no loss is caused to the company by the gain of the director.”

(Rich, Dixon and Evatt JJ. at 592)

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A Case Summary of Williams v Scholz [2008]

A Case Analysis of Walker v Wimborne [1976]

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A Case Summary of Williams v Scholz [2008]

Case name & citation: Williams v Scholz & Anor [2008] QCA 94

Delivered on: 18 April 2008
Court: Supreme Court of Queensland (Court of Appeal)
Judges: Keane and Muir JJA and Mackenzie AJA
Area of law: Duties of directors; insolvent trading; management and administration of companies

Facts of the case (Williams v Scholz)

The case involves a liquidator trying to recover money from the directors of a company called Scholz Motor Group Pty Ltd. The liquidator claims the company incurred debts while it was insolvent and that the directors should have known this.

As per Section 588G of the Corporations Act 2001 (Cth), directors must ensure that their company can pay its debts when due. If the company is insolvent (unable to pay its debts) and the directors know or should know this, it’s illegal for them to let the company take on new debts. If directors break the law by allowing the company to take on debts while insolvent, they can be sued by the liquidator to recover the losses incurred by creditors (Section 588M).

The company was set up in April 2004 and struggled financially from the start. It accumulated significant losses, amounting to over $3 million by October 2005. Despite increasing its overdraft limit multiple times, the company couldn’t manage its financial problems and frequently bounced cheques. By September 2005, the bank terminated its relationship with the company due to its financial troubles.

Issue that arose

Were the directors responsible for the debts incurred due to the company’s insolvent trading?

Trial’s decision and Appeal court

The trial judge agreed with the liquidator and decided the directors should pay $3,101,145.78. This amount represented the debts incurred after the company was insolvent (i.e., from 1^st July 2005).

The judge concluded that there were clear signs of insolvency that the directors should have noticed. This included frequent overdraft limit breaches and dishonoured cheques. The directors were informed of these issues through bank statements and communications, making it unreasonable for them to claim they were unaware of the company’s financial troubles.

On 4 October 2007, it was ordered that the directors pay to the respondent (the liquidator) $3,422,900.27, including interest of $321,754.49.

The appeal court confirmed that the trial judge’s decision was well-founded based on the evidence of insolvency. The directors should have wound up the company instead of allowing it to incur the debts, while it was insolvent.

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A Case Analysis of Walker v Wimborne [1976]

Case name & citation: Walker v Wimborne [1976] HCA 7; (1976) 137 CLR 1

Court: High Court of Australia
The bench of judges: Barwick C.J., Mason and Jacobs JJ.
Decision date: 03 March 1976
Area of law: Company Liquidation; Duties of directors; General policy for movement of funds between companies

Facts of the case

The case involves an appeal by the liquidator of Asiatic Electric Co. Pty. Ltd. against the dismissal of a misfeasance summons. The summons was filed under Section 367B of the Companies Act, 1961 (N.S.W.) against former directors of the company. They were also directors of other companies administered as a group with Asiatic.

The company’s financial troubles stemmed from a contract with Chevron Sydney Ltd. for some work related to a hotel. Asiatic was owed over $100,000 by Chevron and it could not pay most of this debt. This caused a cash shortage within the group of companies, leading to a practice to transfer funds between the companies to address immediate financial needs.

The liquidator’s case included four separate claims:

$10,000 paid by Asiatic to Australian Sound and Communications Pty. Ltd. on December 14, 1967.

$40,523.82 paid to Starkstrom Control Gear (Australia) Pty. Ltd. in March 1967.

$17,960.93 paid as salaries and wages between March 18, 1967, and January 2, 1968.

$15,400 paid to A.B. Wimborne between 1961 and 1966, either as wages or pension.

The liquidator argued that these payments were not made bona fide in the company’s interest and represented a misapplication of funds.

Court’s Findings

Asiatic did not receive any benefit or advantage from the $10,000 payment to Australian Sound. The only consideration was the implied promise of repayment on demand. No security or promise of interest was obtained from Australian Sound. The directors likely failed to recognize that each company was a separate legal entity and that each transaction needed to be evaluated based on the interests of the individual companies involved. The transaction was not only disadvantageous to Asiatic but also likely to result in loss. Australian Sound was in financial trouble at the time and lacked the funds to repay the loan. Further, at the time of the $10,000 payment to Australian Sound, Asiatic was itself insolvent. Thus, it was deemed a misapplication of Asiatic’s funds, thereby constituting misfeasance.

The Court emphasized the essential legal principle that each company within a group is a separate and independent legal entity. It said:

“………the fundamental principles that each of the companies was a separate and independent legal entity, and that it was the duty of the directors of Asiatic to consult its interests and its interests alone in deciding whether payments should be made to other companies. In this respect it should be emphasized that the directors of a company in discharging their duty to the company must take account of the interest of its shareholders and its creditors. Any failure by the directors to take into account the interests of creditors will have adverse consequences for the company as well as for them.”

The remaining payments also followed the same layout. They suggested a misapplication of company funds, driven by the directors’ neglect and disregard for their duty to act in the best interests of Asiatic.

Decision in Walker v Wimborne

Chief Justice Barwick concurred with Justice Mason’s reasons. Barwick agreed that the payments of $10,000, $40,523.82, and $17,960.93 were unjustifiable from the company’s funds. The directors were ordered to compensate the liquidator for the loss suffered by Asiatic due to these transactions. However, though with some doubt, he concluded that the appellant should not succeed in respect of the payment of $15,400.

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A Case Summary of Cook v Deeks [1916]

Cook v Deeks [1916] is a Canadian case that raised ethical and legal concerns over the actions taken by directors in a company.

Case name & citation: A. B. Cook v George S. Deeks and others [1916] 1 AC 554; [1916] UKPC 10

The concerned Court: Judicial Committee of the Privy Council
Decided on: 23 February 1916
Area of law: Duties of directors; Corporate opportunity

What happened in Cook v Deeks?

Given below is a summary of the case in points.

1. Formation of new company

There were four directors each holding a 25% share in Toronto Construction Co. Three of them wanted to part ways with the fourth director. The three directors made arrangements in their own name to procure a lucrative contract with Canadian Pacific Railway Company that was similar to the ones previously executed by the jointly owned company. They then formed a new company to divert this opportunity and carry out the contract.

2. Ratification

The three directors, by using their majority votes in a general meeting, passed a resolution to approve the sale of part of the assets belonging to their jointly owned company to the newly formed company. In addition, they also obtained a declaration that the jointly owned company had no interest in the contract procured by the directors.

3. Claim

The fourth director (i.e., the minority shareholder) claimed that the ratification was invalid and that the contract belonged to Toronto Construction Co.

4. Duties of directors

The three directors were found to have breached their fiduciary duties to the original company. Through the exercise of their controlling power, they procured the ratification at the general meeting of their breach of duty. They diverted to themselves property transactions and assets of the company.

5. Lack of transparency

Hence, it was noticed that there was a lack of honesty and transparency both in the transaction as well as the subsequent process of ratification.

6. Invalidation

The directors had misused their voting powers. The contract should have belonged to the company. Effectively, they misappropriated a business opportunity that was available to the company.

The Privy Council declared the ratification invalid and held that the three directors were liable as constructive trustees of the company for the profits they had improperly gained through these actions. They were liable to surrender the profits to the company.

7. Fraud

The misappropriation was considered a fraud on the minority.

8. Key Takeaway

The above case of Cook v Deeks suggests a fair view. To authorize a director to take a corporate opportunity, it must only be the disinterested shareholders who must take the decision. The director who is seeking authorization must not be allowed to vote his or her own shares in this context.

Quotes from the case

Lord Buckmaster said as under:

“The three directors had deliberately designed to exclude and used their influence and position to exclude, the company whose interest it was their first duty to protect.

It appears quite certain that directors holding a majority of votes would not be permitted to make a present to themselves. This would be to allow a majority to oppress the minority …. If the directors have acquired for themselves property or rights which they must be regarded as holding on behalf of the company, a resolution that the rights of the company should be disregarded in the matter would amount to forfeiting the interest and property of the minority of shareholders in favour of the majority, and that by the votes of those who are interested in securing the property for themselves. Such use of voting power has never been sanctioned by the Courts.”

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A Case Study of ASIC v Vizard [2005]

The case of ASIC v Vizard concerns a corporate offense committed by a director of a company.

Case name & citation:	Australian Securities and Investments Commission v Vizard [2005] FCA 1037; (2005) 145 FCR 57
Court:	Federal Court of Australia
Decided on:	28 July 2005
The learned judge:	Finkelstein J
Area of law:	Director’s duty; Misuse of information

Facts of the case (ASIC v Vizard)

In the given case, Stephen William Vizard who was a director of Telstra at the time, admitted to engaging in share dealings for his own gain.

Vizard was appointed as a non-executive director of Telstra Corporation in 1996. As part of his role on the management board, he had access to market-sensitive information about the company before that information was made public. He took advantage of his position to access confidential information, which he then used to make decisions about the purchase and sale of shares for his own gain and/or others.

Matters of breach of director’s duty

On three different occasions, Vizard was found to misuse the information that he obtained as a director of Telstra. These were:

1. He used his information of a potential merger between Telstra and a company named Sausage Software to acquire Sausage Software’s shares just before the merger news was made public to benefit from the rise in the value of those shares post-merger.

2. Secondly, he became aware that Telstra was going to sell a significant shareholding in a company named Computershare Limited. Based on this confidential information, he sold his own Computershare shares before the divestment news of Telstra became public and dropped the value of those shares.

3. He utilized his knowledge of an impending merger between Telstra and a company named Keycorp to purchase Keycorp shares before the merger was officially announced. This allowed him to benefit from the subsequent rise in Keycorp’s share price.

When these matters of corporate misconduct came to the attention of ASIC (Australian Securities and Investments Commission), they undertook an investigation into the matter. On July 4, 2005, ASIC announced that they had commenced civil penalty proceedings against Mr. Vizard under s183(1) of the Corporations Act.

Judgment of the Court

Finkelstein J of the Federal Court of Australia delivered the judgment on July 28, 2005.

The Court imposed the following penalties on Vizard:

Disqualification for 10 years from managing a corporation.
Ordered to pay a penalty totaling $390,000.

The judge agreed with ASIC’s recommendation to impose a penalty of $130,000 each for all the breaches of the director’s duty (i.e., a total sum of $390,000). However, the judge doubled ASIC’s recommendation regarding the banning order. Instead of a banning order of 5 years as suggested by ASIC, the judge imposed a stricter banning order of 10 years to disqualify Vizard from being involved in the management of any corporation for 10 years.

Finkelstein J expressed the following remarks:

Left uninstructed I would have imposed a higher penalty, but not substantially different from that suggested. …. It is my view that a disqualification for five years is not sufficient …. A message must be sent to the business community that for white collar crime “the game is not worth the candle” ….

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Hickman v Kent or Romney Marsh Sheep-Breeders’ Association [1915]

Case name & citation: Hickman v Kent or Romney Marsh Sheep-Breeders’ Association [1915] 1 Ch 881

Court and jurisdiction: High Court, England and Wales

The learned judge: Astbury J

Area of law: Constitution of a company; Articles of Association

What is the case about?

Hickman v Kent or Romney Marsh Sheep-Breeders’ Association [1915] is a UK company law case that concerns whether a company’s articles bind a member by its terms.

Facts of the case (Hickman v Kent)

Mr. Hickman was a member of the Romney Marsh Sheep-Breeders’ Association.

A provision was contained in the articles of the company stating that any disagreements between the company and its members were to be initially submitted to arbitration.

Mr. Hickman brought a complaint over the refusal to register his sheep in the published flock book, and as a result, he faced the risk of being expelled. He initiated proceedings in the High Court, and the association sought an injunction.

Issue

The issue was whether Mr. Hickman was prevented by the articles to commence court proceedings. Was his action valid or not?

Judgment of the Court in Hickman v Kent

It was decided that the action violated the obligation imposed on the claimant by the company’s articles, which required him to submit his grievance to arbitration before taking it to Court.

As a member, he was bound to comply with the company’s policy regarding the arbitration of disputes and could not resort to Court.

Enforceability of rights

Articles of association are a company’s bye-laws or rules and regulations that govern the management of the company’s internal affairs and the way the company conducts its business. They are also known as charter documents.

The articles of association usually form a statutory contract binding on the company and its members and enforceable by both. Each member is obligated to follow the rules outlined in the Articles. He is obligated to abide by everything that is contained in the Articles of the company.

Astbury J stated as follows:

“Firstly, that no articles can constitute a contract between the company and a third person; secondly, that no right merely purporting to be given by an article to a person, whether a member or not, in a capacity other than that of a member, as for instance, a solicitor, promoter, director, can be enforced against the company; and, thirdly, that articles regulating the rights and obligations of the members generally as such do create rights and obligations between them and the company respectively.”

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Eley v Positive Government Security Life Assurance Co Ltd (1876)

Eley v Positive Government Security Life Assurance Co Ltd (1876) is a UK company law case that dealt with the point that a company, by its articles, is not bound to outsiders.

Case name:	Eley v Positive Government Security Life Assurance Co Ltd
Case citation:	(1876) 1 Ex D 88
Court:	Court of Appeal
Jurisdiction:	England and Wales
Date/year:	1876
The bench of judges:	Lord Cairns LC, Lord Coleridge CJ and Mellish LJ
Area of law:	Constitution of a company; Articles of Association

Facts of the case (Eley v Positive Government Security Life Assurance)

In the given case, there was a provision in the company’s Articles of Association that stated Eley would serve as the company’s solicitor for life and could not be removed from office for any reason other than misconduct. Eley served as the solicitor of the company and also became a member of it over the course of the period. However, his employment with the company was terminated. Following this, he sued the company for damages, claiming that it had violated the terms of the contract.

Issue

Could Eley succeed in his claim? Did he have a contractual right to act as the company’s solicitor?

Judgment of the Court in Eley v Positive Government Security Life Assurance Co Ltd

The Court held that the Articles cannot serve as the basis for a contract between the company and an outsider. Only a member can enforce rights under the Articles.

In this case, it is important to keep in mind that Eley was attempting to exercise his right as an employee of the company, not as a member. He was suing the company in his capacity as a solicitor. A person can be both a member of the company and a creditor or employee of the company at the same time.

When the company was first formed, he did not purchase any shares in it. After that, however, he had taken shares and become a member of the company; but this fact was not brought up in the judgments of the Court of Appeal.

Therefore, apart from what was stipulated in the Articles, there was no independent contract between the company and Eley. Consequently, his lawsuit was dismissed.

The reasoning behind the decision

Because the Articles of Association do not constitute a contract between the company and the outsiders, the outsiders cannot sue the company. An outsider is not permitted to use the articles as legal grounds to sue the company for violating a right that is conferred upon him by the articles. Even if the proposed business makes reference to a third party in the Articles of Association, the company is in no way obligated to comply with the terms of that reference.

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DHN Food Distributors v Tower Hamlets LBC [1976]: Summary

Case name & citation: DHN Food Distributors Ltd v Tower Hamlets London Borough Council [1976] 1 WLR 852 (CA)

Court and jurisdiction: The Court of Appeal, England & Wales

Decided on: 4 March 1976

The bench of judges: Lord Denning MR, Goff LJ and Shaw LJ

Area of law: Corporate veil

What is the case about?

DHN Food Distributors v Tower Hamlets [1976] is a UK company law case wherein the courts decided to pierce the corporate veil and treated a group of companies as a single entity.

Facts of the case (DHN Food Distributors Ltd v Tower Hamlets LBC)

In a group of three companies, DHN served as the holding company. The two subsidiaries were wholly owned by DHN. One subsidiary owned land that was utilized and occupied by DHN, while the other owned vehicles that were used by DHN. The land was going to be purchased by the government through compulsory acquisition, and DHN wanted compensation for the disruption to their operations.

The parent company argued that the Court of Appeal ought to “pierce the corporate veil” in order to treat the companies as being the same legal entity and to make it possible for compensation to be paid.

The issue that arose

Could DHN be granted compensation even though the premises being compulsorily acquired were owned by its subsidiary?

Judgment of the Court in DHN Food Distributors v Tower Hamlets

The Court of Appeal decided in the case of DHN Food Distributors Ltd to award compensation to the group for the reason that it believed it was appropriate to pierce the corporate veil.

In finding that “the three companies should, for present purposes, be treated as one,” Lord Denning disregarded the view that the parent company and each of its subsidiaries have their own separate legal personality. He said: the group of companies is a partnership in which all the “companies are partners”.

The fact that the parent company held total control over each of its subsidiaries provided sufficient justification for the piercing. As a result, the compensation that the parent company had been demanding was granted.

In the context of company group structures, the other two judges of the court, Goff and Shaw LJJ, found that there was no general jurisdiction to pierce the corporate veil. On the other hand, Goff and Shaw LJJ decided, based on the facts presented, that the companies could all be treated as one entity because of the level of control exercised by the parent company over the subsidiaries. The subsidiaries did not perform any distinct functions and shared the same board of directors as the parent company.

Further, in this case, the claimants did not rely solely on the doctrine of piercing the corporate veil; rather, they also relied on other grounds. For instance, the Court determined that DHN had a sufficient interest in the land to warrant compensation for disturbance. Because the subsidiary held the property on trust for DHN, it had an irrevocable license to occupy the land as well as an equitable interest in the property.

A critical view

The decision in DHN Food Distributors v Tower Hamlets was soon criticized. The House of Lords overturned Lord Denning’s view in the Woolfson v Strathclyde Regional Council [1978] case and instead gave precedence to the Salomon principle. The court decided not to lift the “corporate veil” and instead considered each company and the plaintiff himself to be separate legal entities. As a result, the court did not award compensation for the disruption of business.

In this case, their Lordships sought to put restrictions on the application of the doctrine of piercing the corporate veil with Lord Keith stating that the veil should be pierced “only where special circumstances exist indicating that it is a mere façade concealing the true facts”. This establishes fraud as a primary basis for piercing the veil that corporations hide behind.

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Re Darby, ex parte Brougham (1911): Case Summary

Case name & citation: Re Darby, ex parte Brougham [1911] 1 KB 95

Court and jurisdiction: High Court, UK

Year of the case: 1911

The learned judge: Phillimore J

Area of law: Corporate veil

What is the case about?

This is a UK company law case showing that courts lift the corporate veil where fraud is committed taking the shelter of a company.

Here, two directors had established a company through fraudulent means in order to pocket money that belonged to the general public, and as a result, the courts held those directors responsible for returning all of the money that had been fraudulently obtained.

Facts of the case (Re Darby, ex parte Brougham)

Mr. Gyde and Mr. Darby were fraudsters. They established company A. A then contracted to purchase a license to operate a Welsh slate quarry for a nominal amount of money (£3500). A new company B was formed and A sold (for £18,000) the recently acquired license to B, which was subsequently renamed Welsh Slate Quarries Limited.

The funding that was necessary for B to make this acquisition came from the sale of debentures to subscribers who had been convinced to participate as a result of the representations that had been made by A.

A served in both capacities as the promoter and the vendor for the event. After the funds from the subscribers had been transferred to A, B ran out of money and went into insolvency. This is something that may not come as a surprise perhaps. Later, Gyde and Darby were both found guilty of fraud and were declared bankrupt. The estate of Darby had a considerable amount of assets.

On liquidation of B, the liquidator laid claim to the secret profit that Darby had made while acting as a promoter. Darby expressed his disagreement with the contention that the company “A”, and not he, was the promoter.

Judgment of the Court in Re Darby, ex parte Brougham

Phillimore J rejected the contention. And the liquidator recovered the secret profit that has been fraudulently derived.

Company “A” was merely a name under which Gyde and Darby conducted their business. They had it in their minds to commit a very massive fraud.

Simply put, the company was nothing more than a facade for the two fraudsters who were behind the fraudulent scheme, and the entire series of transactions was a part of it. What they did through the company, they did themselves, and then they pretended that it was something the company did. This is how the fraud was committed.

Summing up the case

This case can be summarised as follows:

Two undischarged bankrupts initiated a company that made hidden profits from the sale of assets that were grossly overvalued to another company that the company promoted.

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Macaura v Northern Assurance Co Ltd (1925): Case Summary

Case name & citation: Macaura v Northern Assurance Co Ltd [1925] AC 619

Court and jurisdiction: The House of Lords, England and Wales

Decided on: 03 April 1925

The bench of judges: Lord Sumner, Lord Wrenbury, Lord Phillimore, Lord Buckmaster

Area of law: Separate property

What is the case about?

Macaura v Northern Assurance Co Ltd (1925) is a UK company law case concerning the interest of shareholders in the property of a company.

It was held that the insured must have a legal or equitable relation to the object insured.

Facts of the case (Macaura v Northern Assurance Co Ltd)

The owner of a timber estate sold the timber to a company in exchange for stock in the company. As a result, he (Macaura) was the major shareholder of the timber company and was also its creditor to a large extent. He took out an insurance policy in his own name on the timber. After the timber was destroyed by fire, he filed a claim with the insurance company for the resulting loss.

But the insurance company refused to settle the claim.

Issue raised

Was the insurance company liable to indemnify the claimant for the loss of timber by fire?

Judgment of the Court in Macaura v Northern Assurance Co Ltd

Due to the fact that the timber was not insured under the company’s name, the insurance provider was found to be exempt from liability towards the claimant.

The timber belonged to the company, and therefore, only the company could obtain an insurance policy for it.

In this case, it is the company that possesses the insurable interest (and not the shareholder). Since the insured party had no insurable interest in the timber which was the property of the company, the Court ruled that he could not file an insurance claim when the timber was destroyed by fire.

Macaura’s claim was denied despite the fact that the loss of timber had a negative impact on his finances.

(To understand this judgment better, please go through the reasoning below.)

Governing principles behind the case

As a legal person, a company has the capacity to own property in its own name, as well as to enjoy and part with that ownership. Even though its shareholders are the ones who contribute its capital and assets, they are not the private and joint owners of the property that the company has.

No shareholder has any right to any item of property owned by the company, for he has no legal or equitable interest in the company’s property. If he purchases an insurance policy on the property that belongs to the company, he will not be able to make a claim against the insurer in the event that the property owned by the company is damaged or destroyed. As a consequence, a member does not have an insurable interest in the property of the company.

Takeaway from the case

Neither a shareholder nor a simple creditor of a company has any insurable interest in any particular asset of the company, despite the fact that both the shareholder and the creditor may experience financial hardship in the event that their company’s property is destroyed.

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