Australian Securities and Investments Commission v International Unity Insurance

REASONS FOR JUDGMENT 1 The plaintiff applied to wind up the defendant pursuant to s 583(c)(i) and s 583(c)(ii) of the Corporations Act 2001 (Cth) (the Act). 2 On 2 June 2004, I made the following orders: '1. The defendant, International Unity Insurance (General) Limited, being a Part 5.7 body which is unable to pay its debts and has ceased to carry on business in the jurisdiction be wound up pursuant to sub-section 583(c)(i) and under sub-section 583(c)(ii) of the Corporations Act 2001. 2. Paul A Pattison, of Level 14, 461 Bourke Street, Melbourne, be appointed as liquidator of the defendant. 3. The plaintiff's costs, including reserved costs, be taxed and be reimbursed out of the property of the defendant in accordance with section 466(2) of the Corporations Act 2001.' 3 The plaintiff asked me to give reasons for those orders. There follows those reasons. 4 This matter was heard at the same time as the plaintiff's application to wind up International Unity Insurance Pty Ltd (IUI Australia). 5 The reasons in that matter are relevant to this matter (the IUI Australia reasons): Australian Securities and Investments Commission v International Unity Insurance Pty Ltd ACN 085 026 348 [2004] FCA 1059. 6 International Unity Insurance Company Limited was incorporated in the Solomon Islands in December 2000 and has two subsidiaries, Internaional Unity Insurance (General) Limited (IUI General) and International Unity Insurance Life Company Limited. The defendant, IUI General, is registered in the Solomon Islands and has not been registered under the Act. 7 At some stage, IUI General became authorised to operate an insurance business in the Solomon Islands. There is some evidence to suggest that it became authorised on 20 December 2000. Other evidence suggests that IUI General obtained that authorisation on 30 January 2001 and even other evidence suggests that the authorisation dated from June 2001. 8 It is, however, clear that, at some stage, after December 2000 IUI General became authorised to operate an insurance business in the Solomon Islands and it continued to hold that authority until 25 March 2002. 9 Prior to 25 March 2002 IUI General entered into broker agreements with insurance brokers in Australia to underwrite contracts of insurance. A number of insurance contracts were written. The insurance policies so written were administered by IUI Australia pursuant to an agreement between IUI General and IUI Australia. IUI Australia was incorporated in Australia on 4 November 1998. Its history is described in the IUI Australia reasons. 10 On 25 March 2002 IUI General's authority to conduct an insurance business in the Solomon Islands was revoked and on that day IUI General ceased issuing new insurance policies to persons in Australia. 11 IUI Australia maintained a claims reserve account in Australia on behalf of IUI General and met claims on the insurance policies issued by IUI General before and after 25 March 2002. 12 At some time after 25 March 2002, and probably before June 2002, the claims reserve account was exhausted either by payment of claims or by dissipation. As the IUI Australia reasons disclose, after 25 March 2002 IUI Australia divested itself of its assets which left IUI General unable to meet claims on policies issued by that company. 13 After 25 March 2002 and before November 2002, Mr Pawsey, who was a director of IUI General, represented to Mr Steele, a broker who had a broker's agreement with that company, that IUI General would honour all existing insurance policies written by it including approved outstanding claims and pro rata refund payments. 14 After 25 March 2002 cheques issued by IUI Australia in relation to claims against IUI General were dishonoured. Requests for payments for outstanding claims and pro rata refunds by insurance brokers were not met. Mr Nelson, who was appointed to act in relation to the settlement of claims against IUI General, failed to ensure that the claims were met. Again, as the IUI Australia reasons show, IUI Australia dissipated its assets and tried to conceal that fact by a number of 'sham' transactions. 15 Neither IUI Australia nor IUI General have any available assets with which to meet any insurance claims made in respect of policies issued by IUI General. 16 IUI General's business activities in Australia have ceased and, in my opinion, the company is insolvent. 17 IUI General is a foreign company not registered under Division 2 of Part 5B.2 of the Act and is a corporation that has carried on business, but has now ceased to carry on that business, in Australia. 18 'Registrable body' means a registrable Australian body or a foreign company: s 9 of the Act. A 'Part 5.7 body' is defined in s 9 of the Act as follows: ' "Part 5.7 body" means: (a) a registrable body that is a registrable Australian body and: (i) is registered under Division 1 of Part 5B.2; or (ii) is not registered under that Division but carries on business in this jurisdiction and outside its place of origin; or (b) a registrable body that is a foreign company and: (i) is registered under Division 2 of Part 5B.2; or (ii) is not registered under that Division but carries on business in Australia; or (c) a partnership, association or other body (whether a body corporate or not) that consists of more than 5 members and that is not a registrable body.' 19 A Part 5.7 body includes a registrable body that is a foreign company and is not registered under Division 2 of Part 5B.2 but carries on business in Australia. 20 In my opinion, a company does not cease to be a Part 5.7 body when it ceases to carry on business at least for the purposes of s 583 of the Act. 21 Section 583 provides: 'Subject to this Part, a Part 5.7 body may be wound up under this Chapter and this Chapter applies accordingly to a Part 5.7 body with such adaptations as are necessary, including the following adaptations: (a) the principal place of business of a Part 5.7 body in this jurisdiction is taken, for all the purposes of the winding up, to be the registered office of the Part 5.7 body; (b) a Part 5.7 body is not to be wound up voluntarily under this Chapter; (c) the circumstances in which a Part 5.7 body may be wound up are as follows: (i) if the Part 5.7 body is unable to pay its debts, has been dissolved or deregistered, has ceased to carry on business in this jurisdiction or has a place of business in this jurisdiction only for the purpose of winding up its affairs; (ii) if the Court is of opinion that it is just and equitable that the Part 5.7 body should be wound up; (iii) if ASIC has stated in a report prepared under Division 1 of Part 3 of the ASIC Act that, in its opinion: (A) the Part 5.7 body cannot pay its debts and should be wound up; or (B) it is in the interests of the public, of the members, or of the creditors, that the Part 5.7 body should be wound up; (d) if the Part 5.7 body is a registrable Australian body - the winding up must deal only with the affairs of the body outside its place of origin.' 22 In this case, the plaintiff relied upon ss 583(c)(i) and (ii) of the Act. Section 583(c)(i) itself provides for four separate circumstances which would allow for a Part 5.7 body to be wound up. One of those circumstances is that the Part 5.7 body has ceased to carry on business in the jurisdiction. That confirms my view that a company does not necessarily cease to be a Part 5.7 body in sub-section (b)(ii) of the definition if it ceases to carry on business in Australia. It remains a Part 5.7 body for the purpose of a winding up order under s 583 if the ground relied upon is that it carried on business in Australia but has ceased to carry on business. 23 I am satisfied that IUI General is unable to pay its debts. Section 585 provides a deeming provision for when a Part 5.7 body shall be deemed to be unable to pay its debts. In this case, the plaintiff has not established that any of paragraphs (a), (b) or (c) of s 583 apply. Therefore, it must otherwise establish that IUI General is unable to pay its debts: s 583(d). 24 IUI General has failed to honour claims on policies issued by it and no longer has any assets available either to pay claims or to repay premiums, repayable by the revocation of its authority to carry on business as an insurer. 25 Its authority to issue insurance policies was revoked on 25 March 2002. It has not issued any policies since that time. It has not met any claims made against it in relation to policies issued prior to that time. It has conduced its business since 25 March 2002 in such a way as to make it just and equitable for it to be wound up. The IUI Australia reasons apply equally to this company as to IUI Australia. 26 It has also ceased to carry on business in this jurisdiction. It no longer carries on any business at all. Its agent in Australia, IUI Australia, has also ceased to carry on business in Australia and is also insolvent. 27 For these reasons, it seemed appropriate to make an order under s 583(c)(i) of the Act. 28 The plaintiff also sought an order under s 583(c)(ii) of the Act that it was just and equitable that IUI General be wound up.