Centro Properties Ltd v PricewaterhouseCoopers

Relevant Principles 10 The principles on which the Court acts at the convening stage are well known. In short, the Court's function is limited to ensuring that: (a) the statutory and procedural requirements for the holding of the meeting have been satisfied; (b) there will be available to the creditors all the main facts relevant to the exercise of their judgement; (c) ASIC has had a reasonable opportunity to examine the proposal; and (d) the scheme is of such a nature and cast in such terms that, if it achieves the statutory majority at the meeting, the Court would be likely to approve it on a hearing of the petition which is unopposed (and that it is not so blatantly unfair or otherwise inappropriate that it should be stopped in its tracks). See, in the context of a creditors' scheme, Re HIH Casualty and General Insurance Limited [2005] NSWSC 1180; (2005) 56 ACSR 295 at [6] (Barrett J) (Re HIH (2005) 56 ACSR 295) and the authorities there cited.

Statutory prerequisites 11 For the purposes of s 411(1) of the Corporations Act, the Scheme is an "arrangement or compromise" between a Pt 5.1 body and those of its creditors who are Scheme Creditors. 12 As required by s 411(2) of the Corporations Act, ASIC has been given 14 days' notice of the first Court hearing, and ASIC has also been given a reasonable opportunity to examine the terms of the proposed Scheme and draft Explanatory Statement. APRA, which regulates CCI as an authorised general insurer, has also been given notice of the Scheme, Explanatory Statement and first Court hearing. 13 There has been compliance with the relevant requirements of the Federal Court (Corporations) Rules 2000 (Cth) (Corporations Rules), namely r 2.4 (supporting affidavit and company search carried out within 7 days of filing the originating process), r 3.2 (nomination of Chair and alternate Chair, and as relevant here, Returning Officer and alternate Returning Officer), and r 3.3 (proposed orders to annex or otherwise identify a copy of the Scheme). 14 As to the requirements concerning the Explanatory Statement set out in s 412(1)(a) of the Corporations Act: (a) first, the Explanatory Statement must (relevantly) set out the effect of the Scheme (noting that none of the directors have a material interest in the Scheme). This is dealt with in Part C, Section 3 and Part G of the Explanatory Statement; (b) second, the Explanatory Statement must set out the information prescribed by reg 5.1.01 and Pt 2 of Sch 8 of the Corporations Regulations. The Explanatory Statement, which ASIC has examined, sets out the prescribed information, save where CCI has applied for relief from particular provisions of Sch 8. In particular, as required by Sch 8 (cl 8201(a) and (b)), the Explanatory Statement sets out the expected dividend that would be available to Scheme Creditors on winding up within 6 months of the first Court hearing, and the expected dividend (expressed by way of "total Payment Percentage") if a Trigger Event were to occur under the Scheme within six months of the first Court hearing. This is outlined in Part F, Section 11.6 of the Explanatory Statement, following receipt by CCI and its directors of advice from FTI Consulting in the form of the FTI Consulting Report. The FTI Consulting Report to CCI and its directors is also included in Appendix 6 to the Explanatory Statement. In summary, the Explanatory Statement records, by reference to the FTI Consulting Report, that the expected dividend on a liquidation ranges from 59.54 c/$ to 97.99 c/$, compared to a range under the Scheme of 87.55 c/$ to 100 c/$. This issue is addressed further below; and (c) third, the Explanatory Statement must set out any other information that is material to the making of a decision by creditors whether or not to agree to the Scheme. In this regard, CCI submits, and I accept, that the Explanatory Statement is clear and comprehensive, and contains a detailed evaluation of the Scheme, presented in such a way as to permit Scheme Creditors to form their own views as to the merits of the Scheme. 15 Further, the information in the Explanatory Statement has been subject to a detailed process of verification, such that the Court can be satisfied that it is materially accurate, complete and not misleading. 16 It is proposed to convene the Scheme Meeting by way of advertisement in The Australian newspaper, in addition to dispatch of the Notice of Meeting and Flyer to identified Scheme Creditors via email or post as applicable. This is due to the fact that the process of identification of Scheme Creditors will not necessarily result in all potential Scheme Creditors being identified (including because persons who are not named policyholders or named third-party beneficiaries under Insurance Contracts may still be Scheme Creditors). In the case of each of the proposed newspaper advertisement, the Notice of Meeting and the Flyer, notification is provided of a link to CCI's website where the Explanatory Statement can be downloaded.

Particular Issues 17 Particular aspects of the Scheme are referred to below as being relevant to the exercise of the discretion to convene the Scheme Meeting. CCI submits, and I accept, that none warrants a conclusion that the Scheme Meeting ought not be convened.

Creditors to whom the Scheme applies 18 As noted above, Scheme Creditors are those with Scheme Claims, being claims against CCI under or in connection with Insurance Contracts save for Excluded Insurance Contracts (being policies arising under State Workers Compensation Legislation). 19 Consequently, the Scheme does not apply to the following creditors of CCI: (a) employees; (b) trade creditors; (c) creditors with claims in respect of the costs of implementing the Scheme; and (d) persons with claims against CCI in respect of workers' compensation policies written by CCI. 20 The consequence of excluding such creditors from the Scheme is that their claims will be met in full from the assets of CCI at all times (save where CCI is placed into liquidation). In particular, they will enjoy priority to Scheme Creditors during any Reserving Period, noting that Scheme Creditors will (generally speaking) share rateably in the assets of CCI after provision is made for the claims of all other creditors (ie Non-Scheme Claims). 21 The rationale for excluding such creditors from the Scheme is addressed in the First Scenna Affidavit. In terms of liabilities under workers' compensation policies issued by CCI, this is in recognition of the special rights conferred upon such policyholders pursuant to the so-called "State Cut-through Legislation", the provisions of which are unaffected by Ch 5 of the Corporations Act (including ss 555, 556 and 562A) in a winding up in insolvency: First Scenna Affidavit at [50]-[52]; HIH Casualty & General Insurance Ltd v Building Insurers' Guarantee Corporation [2003] NSWSC 1083; (2003) 202 ALR 610 at [124]-[126] (Barrett J); Re HIH Casualty & General Insurance Ltd [2005] NSWSC 240; (2005) 215 ALR 562; (2005) 53 ACSR 12 at [31] (Barrett J) (Re HIH (2005) 215 ALR 562). Accordingly, the Scheme does not affect the rights of such creditors, in particular upon entry into the Reserving Period following the occurrence of a Trigger Event (and noting the circumstances which constitute such an event), consistently with the approach taken in Re HIH (2005) 215 ALR 562 at [31] (Barrett J). 22 The rationale for excluding the remaining creditors listed above from the Scheme, with their claims being paid in full outside the Scheme, is to ensure that CCI can operate its business during the Scheme on a business-as-usual basis. In so far as this may represent a departure from the position that those creditors might obtain in a winding up, CCI submits, and I accept, that this is a necessary expedient to the due operation of the Scheme during the Reserving Period. The potential impact of this on Scheme Creditors is disclosed in the Explanatory Statement at Part C, Section 9(b) ("Reasons to vote against the Scheme").

Identification of Scheme Creditors 23 The Farren Affidavit addresses in detail the process CCI is undertaking to identify Scheme Creditors. In short compass, that has involved reviewing CCI's "Insure 90" (I90) system, which has been maintained by it since 1988, to determine the legal person or persons associated with relevant policies, and excluding workers' compensation policies, as well as policies which have expired, do not have open claims and would not have any valuation for potential future claims allocated to them for voting purposes in accordance with the Valuation Principles at Appendix 8, Sections 2 and 3 of the Explanatory Statement. 24 CCI submits, and I accept, that Mr Farren's affidavit demonstrates that a robust process has been applied to the identification of Scheme Creditors who may be eligible to vote at the Scheme Meeting. As noted above, the Notice of Meeting and Flyer will be dispatched to such persons by email or post as applicable, in addition to advertisement of the convening of the Scheme Meeting in The Australian newspaper. CCI submits, and I accept, that the combination of these measures will ensure, as far as reasonably practicable, that all creditors affected by the Scheme will be given notice of the Scheme Meeting. 25 ASIC drew attention at the first Court hearing to the fact that the definition of Scheme creditors includes third parties who have a direct right of action against CCI for liabilities of CCI's policyholders or insureds, for example pursuant to ss 48 and 51 of the Insurance Contracts Act 1984 (Cth), s 601AG of the Corporations Act, or the Civil Liability (Third Parties Claims against Insurers) Act 2017 (NSW). ASIC then submitted that there was a real risk that the effect of the Scheme in binding such third parties may not be brought to their attention, whether by way of direct correspondence or by such persons reading the newspaper advertisement relating to the Scheme meeting. ASIC acknowledged that Ms Hunt's affidavit mitigated those concerns by evidence of the relative unlikelihood of there being large numbers of such claimants, but submitted that the definition of "Scheme Creditor" should be modified, and more extensive advertising should be undertaken. ASIC also submitted that the timeframes for Scheme Creditors to register for the meeting and submit proofs of debt were too compressed, given the large number of Scheme Creditors and also taking into account the position of third party claimants who fall within the definition of "Scheme Creditors". 26 In my view, these are not matters which should prevent the convening of the Scheme Meeting. It is a matter for CCI as to the terms of the Scheme which it wishes to propound, and the timeframes for various steps leading up to the Scheme Meeting. I do not regard it as part of the Court's function to encourage or force the scheme company into an alternative definition of "Scheme Creditors" or an alternative timeframe, in circumstances where, if approval of the Scheme is not opposed at the second Court hearing, then, on the material presently available to me, I do not see why the Scheme would not be approved. If there is a risk to CCI in obtaining that approval at the second Court hearing on the grounds expressed by ASIC, then it is a matter for CCI to decide whether it should run that risk.

Class analysis 27 In First Pacific Advisors LLC v Boart Longyear Ltd [2017] NSWCA 116; (2017) 121 ACSR 136, the NSW Court of Appeal (Bathurst CJ, Beazley P and Leeming JA) had occasion, in the context of a creditors' scheme, to consider the question of class delineation in some detail. 28 Following an extensive survey of the relevant authorities, the Court of Appeal stated the following propositions: (a) the meaning of "class" in s 411(1) is to be construed so as to prevent the section being worked to result in confiscation and injustice, and must be confined to those persons whose rights are not so dissimilar as to make it impossible for them to consult together with a view to their common interest: at [77], citing Bowen LJ in Sovereign Life Assurance Company v Dodd [1892] 2 QB 573 (Sovereign Life Assurance); (b) persons whose rights are so dissimilar they cannot sensibly consult together with a view to their common interest must be given separate meetings. Persons whose rights are sufficiently similar that they can consult together with a view to their common interest should be summoned to a single meeting: at [79] citing Lord Millett NPJ in UDL Argos Engineering & Heavy Industries Co Ltd v Li Oi Lin [2001] 3 HKLRD 634 at [27] (UDL Argos Engineering); (c) the test is based on similarity or dissimilarity of legal rights against the company, not on similarity or dissimilarity of interests not derived from such legal rights. The fact that individuals may hold divergent views based on their private interests not derived from their legal rights against the company is not a ground for calling separate meetings: at [79], citing UDL Argos Engineering; (d) the question is whether the rights which are to be released or varied under the scheme or the new rights which the scheme gives in their place are so different that the scheme must be treated as a compromise or arrangement with more than one class: at [79], citing UDL Argos Engineering; (e) the court has no jurisdiction to sanction a scheme which does not have the approval of the requisite majority of creditors voting at meetings properly constituted in accordance with the relevant principles. Even if it has jurisdiction to sanction a scheme, it is not bound to do so: at [79], citing UDL Argos Engineering; (f) the court will decline to sanction a scheme unless it is satisfied, not only that the meetings were properly constituted and the proposals approved by the requisite majorities, but that the result of the meeting fairly reflected the views of the creditors concerned. To this end it may discount or disregard altogether the votes of those who, though entitled to vote at a meeting as a member of the class concerned, have such personal or special interests in supporting the proposals that their views cannot be regarded as fairly representative of the class in question: at [79], citing UDL Argos Engineering; (g) the question whether any identified differences give rise to separate classes is to be assessed in light of the following: first, where creditors are broken up into classes, each is given a power to veto the scheme and that undermines the basic approach of decision by majority; second, there is a built in safeguard against minority oppression in that the court is not bound by the decision of the meeting, thus it is important to ensure there is no oppression by the minority; third, the court should adopt a practical business-like approach to the issue of classes, as would creditors if they were to decide the matter: at [78], citing Re Opes Prime Stockbroking Ltd [2009] FCA 813; (2009) 179 FCR 20 at [66] (Finkelstein J) (Re Opes Prime); (h) the test involves three questions: (i) what are the rights which existing creditors have against the company and to what extent are they different; (ii) to what extent are those rights differently affected by the scheme; (iii) does the difference in rights or different treatment of rights make it impossible for creditors to consider the scheme as one class: at [80]; (i) the test is not one of identical treatment but of community of interest. The focus is not on the fact of differentiation but its effect on the ability to come together in a single meeting and debate what is good or bad for the constituency as a whole and where the common good lies; only if the differentiation destroys that ability (the word used by Bowen LJ in Sovereign Life Assurance at 583 being "impossible") does class distinction come to prevail: at [81], citing Barrett J in Re Hills Motorway Ltd [2002] NSWSC 897; (2002) 43 ACSR 101 at [12] and Re HIH Casualty and General Insurance Ltd [2006] NSWSC 485; (2006) 200 FLR 243 at [71] (Re HIH (2006) 200 FLR 243); and (j) in considering whether any difference in rights or different treatment of rights would make it impossible for creditors to consult together as a class, the context in which the scheme is propounded is of importance. Where the only realistic alternative to the scheme is insolvency, the appropriate comparator is the rights of creditors against an insolvent company. These may be very different to the rights of creditors against a solvent company, where the appropriate comparator is the creditors' rights against the company as a continuing entity. It is important to consider any similarity or dissimilarity on the overall bundle of rights in that context. Further, if the relevant context discloses that there are alternatives to liquidation, such as another recapitalisation proposal or a deed of company arrangement, that would be required to be taken into account, but only if such alternatives have been suggested and it is not a matter for the court to speculate on whether they might exist: at [82]-[86], citing Re Telewest Communications PLC [2004] EWHC 924 (Ch); [2004] BCC 342 at [29] (David Richards J); Re T & N Ltd (No 4) [2006] EWHC 1447 (Ch); [2007] 1 All ER 851 at [87] (David Richards J); Re APCOA Parking Holdings GmbH (No 2) [2014] EWHC 3849 (Ch); [2015] 4 All ER 572 at [109] (Hildyard J); Re Cortefiel SA [2012] EWHC 2998 (Ch) at [6] and [13] (Norris J); Re NRMA Insurance Ltd [2000] NSWSC 82; (2000) 156 FLR 349 at [29] (Santow J); Centro Properties Ltd v PricewaterhouseCoopers [2011] NSWSC 1465; (2011) 86 ACSR 584 at [28]-[31] (Barrett J).

Contingent "incurred but not reported" (IBNR) claims versus existing claims 29 In the specific context of insurance creditors' schemes, a number of United Kingdom authorities have considered the question whether policyholders with contingent incurred but not reported (IBNR) claims ought to be regarded as falling within a separate class to policyholders with existing claims, such as those which are admitted but unpaid or admitted subject to determination of quantum only. 30 The effect of the United Kingdom cases, as expressed in Re British Aviation Insurance Co Ltd [2005] EWHC 1621 (Ch) at [82]-[97] (Lewison J), is that, where what is proposed is a "cut off" scheme (ie the valuation and settlement of all claims, whether actual or contingent) and the appropriate comparator is an insolvent liquidation, the distinction between actual and contingent claims does not warrant the composition of separate meetings. This is because, in an insolvent liquidation, all such claimants would have the same right, namely a right to have their claims valued and a dividend paid on the basis of the value of their claim. The position is different where what is proposed is a "cut off" scheme and the appropriate comparator is a solvent run off. This is because creditors with actual claims would be entitled to payment on the same basis (or, where only the quantum of the claim is yet to be settled, substantially the same basis), regardless of whether the scheme proceeds or not. By contrast, those with contingent IBNR claims would face the prospect under the scheme of receiving a payment reflecting an estimate of the value of their contingent claim (incorporating estimates both as to the likelihood of the claim arising as well as its quantum in that event), as compared to a full indemnity on the claim should it crystallise under a solvent run off. Later UK cases have tended to emphasise the fact-dependent nature of the analysis, but without disturbing at the level of principle the broad thrust of Lewison J's reasoning: Re Scottish Eagle Insurance Company Ltd [2005] EWHC 2683 (Ch) at [3]-[4] (Evans-Lombe J); Re Sovereign Marine & General Insurance Co Ltd [2006] EWHC 1335 (Ch) at [113] (Warren J); Re Stronghold Insurance Company Ltd [2018] EWHC 2909 (Ch) at [75]-[78] (Hildyard J). The same may be said of the one Australian case to have considered whether IBNR claims fall into a separate class: Re NRG London Reinsurance Co Ltd [2006] FCA 872; (2006) 58 ACSR 674 at [65]-[68] (Lindgren J). I note that the thorough research undertaken by CCI's legal representatives has identified one precedent dealing with the kind of two-stage process proposed in the Scheme, whereby Scheme Creditors' rights are not materially affected in the initial stage, but only at some time in the future upon the occurrence of a Trigger Event (that being an event which bespeaks actual or impending insolvency), namely the decision of the High Court of New Zealand in Re ACS (NZ) Ltd [2012] NZHC 1396. In that case, Venning J accepted at [16] that in light of the discussion in cases including Re British Aviation Insurance Co Ltd, it was appropriate to treat scheme creditors as members of a single class for voting purposes. 31 Re British Aviation Insurance Co Ltd was concerned with a solvent cut off scheme, and Lewison J held that the failure to convene separate meetings in respect of the two classes of creditors deprived the court of jurisdiction to approve the scheme. As to the circumstance where insolvency is the appropriate comparator, Lewison J cited Re Hawk Insurance Co Ltd [2001] 2 BCLC 480 (Court of Appeal) and Re Telewest Communications Plc [2004] EWHC 924 (Ch); [2004] BCC 342 (David Richards J), in particular, in support of the proposition that no class distinction is warranted. 32 Turning to the Scheme here, CCI submits, and I accept, that no class delineation is required. In short, this is because: (a) the appropriate comparator, as regards the affectation of the rights of Scheme Creditors upon a Trigger Event, is an insolvent liquidation, noting that unless and until a Trigger Event occurs there is no material effect on the rights of Scheme Creditors; and (b) the Scheme is not a cut off scheme, unless the finalisation mechanism under cl 50 is activated, in which case the appropriate comparator remains an insolvent liquidation. 33 In the Initial Scheme Period of the Scheme, consistently with the status quo, the claims of Scheme Creditors will be paid in full as and when they fall due (or otherwise in accordance with CCI's existing practices). Scheme Creditors' rights will only be affected under the Scheme upon the occurrence of a Trigger Event, whereupon the Reserving Period commences. At that point, CCI enters the Reserving Period, whereby the claims of Scheme Creditors continue to be assessed as and when they arise, but paid on a proportional basis having regard to a prudent estimate of CCI's overall asset position; that is to say, following an assessment of CCI's total liabilities and the assets available to meet them. The object of the Reserving Period is thus to ensure that Scheme Creditors are paid an equivalent proportion of their Scheme Claims as and when they arise during the Reserving Period (with necessary "top up" payments to Scheme Creditors where proportions are increased, but no "clawback" of past payments where proportions are decreased). 34 In consequence, during both the Initial Scheme Period and the Reserving Period, Scheme Creditors with IBNR claims are not paid an estimate of the value of their claims in final settlement of those claims, as is the case in a cut off scheme. Rather, in common with other Scheme Creditors and subject to one qualification, they are paid either the full value of their claims, should they arise in the Initial Scheme Period, or (progressive) proportions of their claims, should they arise in the Reserving Period. 35 The qualification is where Scheme Creditors resolve by special meeting to invoke the finalisation mechanism in cl 50 of the Scheme, whereby the Scheme converts to a "cut off" arrangement in which the claims of Scheme Creditors are to be valued and met, so far as is possible, from the proceeds of CCI's Scheme Assets in accordance with the waterfall provisions in cl 47 of the Scheme. In that case, Scheme Creditors with contingent IBNR claims will receive a distribution by reference to the adjudication of their proofs of debt in a manner consistent with Pt 5.6 of the Corporations Act, which would require an estimate of the value of their claims (Corporations Act, s 554A(2)), as distinct from Scheme Creditors with actual claims, who will receive an equivalent distribution but by reference to the actual value of their claims as adjudicated pursuant to the proof of debt process. However, the activation of the finalisation mechanism is only possible during the Reserving Period where, by virtue of the occurrence of a Trigger Event, the appropriate comparator to the Scheme is an insolvent liquidation. In that event, a solvent run off is not a realistic alternative to the operation of the Scheme. Accordingly, even in this circumstance, contingent Scheme Creditors are treated consistently with non-contingent Scheme Creditors, reflecting what would occur in a winding up in insolvency. 36 As such, CCI submits, and I accept, that as regards their consideration of the Scheme, the interests of contingent IBNR Scheme Creditors are (in all circumstances) not so dissimilar to the interests of other Scheme Creditors as to make it impossible for them to consult together with a view to their common interest, and accordingly that the Scheme ought to be regarded as a single composition or arrangement. This is consistent with the UK authorities considered above. The same is true of the other possible creditor distinctions, to which it is appropriate to now turn. 37 I note for completeness that, although ASIC in its written submissions put an argument that CCI had not established that an insolvent administration was the appropriate comparator, ASIC accepted in the course of oral argument that that was appropriate given that the rights of Scheme Creditors would not be materially affected unless and until a Trigger Event occurred.

Policies with facultative reinsurance versus policies without facultative reinsurance 38 The Scheme contains specific provisions for Reinsurance Assets (being receipts under a Contract of Reinsurance within the meaning of s 562A of the Corporations Act). These provisions reflect the effect in a winding up of s 562A of the Corporations Act on the one hand, and s 116(3) of the Insurance Act 1973 (Cth) (Insurance Act) on the other, as was explained by Barrett J in Re HIH (2005) 215 ALR 562. 39 Section 116(3) of the Insurance Act requires that in the winding up of a general insurer, the general insurer's assets in Australia must not be applied in the discharge of its liabilities other than its liabilities in Australia, unless it has no liabilities in Australia. Separately, s 562A(2) and (3) of the Corporations Act require (in broad terms) that the proceeds of contracts of reinsurance be applied in the payment of liabilities under relevant contracts of insurance (being contracts of insurance entered into by the company as insurer before the relevant date) against which the company was (re)insured, in priority to all payments in respect of debts mentioned in s 556. The obligation is one of "broad pooling", whereby all insurance creditors are entitled to priority in the totality of insurance recoveries, whether or not their claims under insurance contracts have played a part in bringing home the reinsurance recoveries: Re HIH (2005) 215 ALR 562 at [83] and [88]. An exception to this is where the court orders under s 562A(4) and (5) that the proceeds of a contract of reinsurance be applied in particular way (for example, to a particular contract of insurance): [90] and [91]. 40 In Re HIH (2005) 215 ALR 562, Barrett J declined to order a scheme proposed in respect of certain companies in liquidation on the basis the scheme would cause assets to be applied in contravention of s 116(3) of the Insurance Act: at [154]. Further, the proposed scheme provided for a departure from s 562A of the Corporations Act, which departure was either prohibited under a s 411 arrangement by virtue of 562A(7) (which provides that s 562A has effect despite any agreement to the contrary), or meant the court would decline to approve a compromise of that nature as a matter of discretion: at [154]. 41 Earlier in the judgment, Barrett J set out guidance on how s 562A of the Corporations Act and s 116(3) of the Insurance Act may be observed in a winding up: at [75]-[109]. It is this guidance that informs cl 24.1 of the Scheme, which sets out how Scheme Assets are to be applied in the payment of Established Scheme Liabilities during the Reserving Period, and which is intended to reflect how such assets would be applied in a winding up (albeit recognising that CCI would not be subject to a winding up in that event and that Non-Scheme Claims would continue to be met from the company's assets before Scheme Assets came to be applied in this way). In summary, cl 24.1 contains the following steps: (a) first, Allocated Reinsurance Assets are to be applied only in accordance with the applicable Exemption Decision. This is a reference to cl 20 of the Scheme, which sets out a process by which Scheme Creditors may apply to the Scheme Advisers for a decision that an amount received under a Contract of Reinsurance be applied in a particular way; ie a process which approximates s 562A(4) and (5) of the Corporations Act. As discussed below, this clause has particular relevance to facultative reinsurance; (b) next, Unallocated Reinsurance Assets in Australia are to be applied only in payment of Established Scheme Liabilities in Australia until CCI has no liabilities in Australia, following which they may be applied to the payment of Established Scheme Liabilities outside Australia; (c) next, Unallocated Reinsurance Assets that are not in Australia are to be applied first to Established Scheme Liabilities outside Australia and then to Established Scheme Liabilities within and outside Australia, so as to achieve pari passu distribution between the two, to the extent Established Scheme Liabilities in Australia remain unsatisfied, or if none remain, then simply in payment of Established Scheme Liabilities outside Australia; (d) next, Unallocated Assets (Scheme Assets less Reinsurance Assets) in Australia are to be applied pari passu in payment of Established Scheme Liabilities in Australia, following which they may be applied pari passu in payment of Established Scheme Liabilities outside Australia; and (e) finally, Unallocated Assets outside Australia are to be applied pari passu to Established Scheme Liabilities within and outside Australia. 42 Staying with the waterfall provisions, on the occurrence of a Liquidation Event, the Scheme will not terminate and will continue in full force and effect to the maximum extent possible under applicable law (cl 47.1). In that event, the application of Scheme Assets switches to the process outlined in cl 47.3, which reflects how Scheme Assets would be distributed to meet all liabilities of CCI in a winding up according to the priority provisions of Subdiv D of Ch 5 of the Corporations Act, as well as s 116(3) of the Insurance Act (and noting that non-Scheme Assets would be applied to liabilities of CCI in parallel in accordance with those statutory provisions). Again, the structuring of the Scheme in this manner avoids any issue associated with the prospective operation of the Scheme to CCI in liquidation arising, as arose in Re HIH (2005) 215 ALR 562. 43 CCI submits that the issue of domestic and foreign assets to meet insurance liabilities under s 116(3) of the Insurance Act is unlikely to pose any or any material practical issue under the Scheme, and I accept that the evidence reveals that CCI's Scheme Assets and liabilities are, to the best of its knowledge, likely to be exclusively within Australia: Farren Affidavit at [39]; Second Scenna Affidavit at [10]. Nevertheless, as explained above, the relevant provisions of the Scheme avoid any potential or theoretical issue arising in this regard. 44 I turn then to the question of potential classes in respect of policies with facultative reinsurance versus policies without facultative reinsurance. Facultative reinsurance is addressed in Section 13.10 of the Explanatory Statement, where it is explained that during the Reserving Period, Scheme Creditors may make an application to the Scheme Advisers for amounts received under particular Contracts of Reinsurance to be applied in a particular way. The example given is of amounts being paid to a particular policyholder to whom the facultative reinsurance applies, in the same way as a court might order under s 562A(4) of the Corporations Act were CCI being wound up. This is a reference to the Exemption Application and Exemption Decision procedure in cl 20 of the Scheme. 45 By reason of this aspect of the Scheme, Scheme Creditors (including policyholders to whom facultative reinsurance applies) may apply to the Scheme Advisers, during the Reserving Period, to have all or part of their Scheme Claims met out of that portion of the Scheme Assets which represents the proceeds of any such reinsurance received by CCI. The consequence, were the Scheme Advisers to make such an Exemption Decision in favour of the relevant policyholder, would be that the proceeds of the relevant reinsurance would be applied in payment of all or part of the policyholder's Scheme Claim effectively in priority to other policyholders under the Scheme. It should be noted that all Scheme Creditors have the right under the Scheme to apply for an Exemption Decision under cl 20, although cl 20.2 makes plain that the clause was drafted with facultative Contracts of Reinsurance in mind, in that cl 20.2 requires the Scheme Advisers to give 60 days' written notice to the Scheme Creditor in respect of whom any facultative reinsurance proceeds were received, before making any payment out of the Scheme Assets of such amount, in order to permit the Scheme Creditor to make an Exemption Application. 46 However, I accept CCI's submission that the prospect that Scheme Creditors to whom facultative reinsurance applies may apply to receive such amounts in priority to other Scheme Creditors does not warrant the composition of separate classes to consider and vote on the proposed Scheme. This is because the right of such Scheme Creditors to apply for an Exemption Decision is available only while the Reserving Period is in operation (following the occurrence of a Trigger Event), when CCI would be insolvent or have a negative net asset position but for the operation of the Scheme. Before that occurs, Scheme Creditors' claims are met in the ordinary course of business. As such, the appropriate comparator to the Scheme, in terms of the rights and interests of Scheme Creditors affected by it, is a winding up of CCI in insolvency. In that circumstance, Scheme Creditors to whom facultative reinsurance applies would possess a substantially similar right (ie the ability to apply to the Court under s 562A(4) of the Corporations Act) to that afforded to them under cl 20 of the Scheme, noting that any decision of the Scheme Advisers under cl 20 would be subject to appeal to the Court under s 599 of the Corporations Act (cl 32.9). 47 This gives rise to three interrelated consequences. First, the right of Scheme Creditors to whom facultative reinsurance applies to apply to have their claims met from the proceeds of such reinsurance is not materially affected by the Scheme. Second, the Scheme does not give rise to differential treatment of Scheme Creditors by virtue of the rights of Scheme Creditors to whom facultative reinsurance applies. Rather, any difference in the rights and interests of Scheme Creditors in this regard is a pre-existing one, arising from the fact that some may have claims against CCI to which facultative reinsurance applies (noting that if an Exemption Decision is to be made in their favour, such Scheme Creditors will have demonstrated it is just and equitable to apply the proceeds of such reinsurance to them having regard to the factors enumerated in s 562A(5)) while others will not. Third, there is no feature of the Scheme which means that any such pre-existing difference among Scheme Creditors renders it impossible for them to consult together on the Scheme with a view to their common interests, having regard to the alternatives of either business as usual, if and for as long as that remains a viable prospect for CCI, or a winding up of CCI. CCI submits, and I accept, that, the Scheme does not render any group of Scheme Creditors worse off by reason of this pre-existing distinction. As such, it is not a feature which calls for class delineation.

Long-tail versus short-tail policies 48 The next possible distinction is that of long-tail policies versus short-tail policies. The Scheme does not distinguish between such policies. Where the distinction is of potential relevance is in regard to the finalisation mechanism set out in cl 50 of the Scheme, which may apply during the Reserving Period. 49 In explaining the finalisation mechanism, the Explanatory Statement (at Part D, FAQs) notes that CCI's insurance contracts fall into two general categories: short-tail policies that will run off in two to three years, and long-tail policies for which claims may be made for up to or beyond 20 years. It is noted that once the short-tail policies have run off, the volume of Scheme Claims being received by that time may not justify the costs of CCI in maintaining claims assessment capability, and Scheme Creditors may resolve (with the approval of CCI and the Scheme Advisers) to bring the Scheme to an end early via the finalisation mechanism. The Explanatory Statement further notes that if a Trigger Event occurs, CCI does not currently expect the finalisation mechanism would be activated until material progress has been made on clearing current claims and the short-tail claims, which may be up to 10 years from the Effective Date. 50 It is important to observe that in the event of activation of the finalisation mechanism, all Scheme Liabilities are to be adjudicated and admitted to proof in a manner consistent with Pt 5.6 of the Corporations Act, as if the Trigger Date were the relation back date, and Scheme Assets are to be realised and applied in the manner set out in cl 47.3 (cl 50), which as noted above, reflects the statutory order of priorities applicable on a winding up. 51 Accordingly, in the scenario posited in the Explanatory Statement, the situation as regards short-tail policies and long-tail policies would be as follows. During the Initial Scheme Period, claims arising under both short-tail and long-tail policies would be met in the ordinary course of business. If the Initial Scheme Period endured for as long as it took for short-tail policies to run off (a matter about which there can be no certainty), that would be the end of the matter as far as those liabilities were concerned. Regardless, upon entry into the Reserving Period (by reason of the occurrence of a Trigger Event), claims under short-tail policies (if any remained) and long-tail policies would be subject, as and when they arose, to payment at the prevailing Payment Percentage determined by the Scheme Advisers. In consequence, during the Reserving Period, liabilities under any remaining short-tail and long-tail policies would not be fully discharged until the Scheme ends (see cll 46.1(c) and 46.2(c)) as they would be subject to proportionate treatment in the intervening period by reason of the Payment Percentages. This would be the case even if the short-tail policies to which the existing liabilities related expired during the Reserving Period. Then, were Scheme Creditors to resolve to activate the finalisation mechanism, liabilities (both actual and contingent) under any remaining short-tail policies and under the long-tail policies would be valued and subject to distribution in a manner reflecting a statutory winding up in insolvency. As this could only occur during the Reserving Period, it would again be a situation in which the appropriate comparator to the Scheme was a winding up in insolvency. 52 Accordingly, the rights and interests of short-tail and long-tail policyholders are not subject to differential treatment under the Scheme as might make it impossible for them to consult together on the Scheme with a view to deciding what is in their common interest. Therefore, any distinction between short-tail and long-term policies is not class creating.

Policyholders versus insureds 53 A further possible distinction relevant to class analysis is the situation of policyholders versus insureds. 54 Scheme Creditors are those with claims against CCI under Insurance Contracts. As such, the definition of Scheme Creditors is apt to cover both policyholders and insureds, to the extent they differ and have claims against CCI (either expressly under the policy or by operation of law), and the Scheme does not distinguish between the two groups for any purpose. Consequently, so far as the Scheme is concerned, there is no divergence in rights or interests between the two groups as might make it impossible for them to consult together with a view to their common interest. Again, no class delineation is required. 55 For completeness, I note that the same is true of persons who may be Scheme Creditors by reason that they have a direct right of action against CCI for liabilities of CCI's policyholder or insured, such as where s 51 of the Insurance Contracts Act 1984 (Cth) or s 601AG of the Corporations Act applies. Again, the definition of Scheme Creditors is apt to cover such creditors and the Scheme does not distinguish between them and other Scheme Creditors for any purpose.

LRD Scheme Creditors versus non-LRD Scheme Creditors 56 In late 2021 and early 2023, CCI entered into "Large Retrospective Deductible" (LDR) transactions with certain policyholders, by which the policyholders agreed to assume a $2 million deductible in respect of specified professional standards claims in exchange for an upfront capital payment from CCI. The Explanatory Statement states that the LRD payments will not be clawed back if there is a Trigger Event as CCI was solvent at the time the transactions were undertaken and the LRDs delivered a considerable capital benefit to CCI, and adds that if the Scheme is approved and a Trigger Event occurs, the Scheme Advisers will review any potential causes of action that might be available to CCI in an insolvent liquidation and report the results to the Creditors' Committee: Explanatory Statement at Part D (FAQs). 57 The fact of the LRD transactions does not give rise to any class delineation in respect of LRD Scheme Creditors versus non-LRD Scheme Creditors. The two groups are treated in the same manner under the Scheme, as indeed they would be under a winding up of CCI in insolvency. While the LRD transactions reduced CCI's liability to the counterparties under the relevant policies, they did not otherwise affect the counterparties' status as Scheme Creditors, who are treated equally under the Scheme.

Scheme Creditors who are shareholders of CCI 58 Scheme Creditors who are shareholders of CCI are treated in the same manner under the Scheme as Scheme Creditors who are not, as would be the case in a winding up of CCI in insolvency, and they do not possess any sufficient ground of distinction as might deprive them of the capacity to consult together in their common interest: Re Jax Marine Pty Ltd [1967] 1 NSWR 145; (1966) 85 WN (NSW) (Pt 1) 130 (Street J); Re Anaconda Nickel Holdings Pty Ltd [2003] WASC 19; (2003) 44 ACSR 229 at [33]-[36] (McLure J). 59 In this regard, the Scheme expressly obliges CCI, in its dealings under the Scheme, to treat all Scheme Creditors fairly and without regard to any relationship CCI may have with any Scheme Creditor other than it its capacity as Scheme Creditor (cl 2.6(a)), and deal with any Scheme Creditor that is a member of CCI on terms that are reasonable in the circumstances (or less favourable to the member than those terms) as if CCI and the member were dealing at arm's length (cl 2.6(c)). Further, under cl 17.5 of the Scheme, CCI must not make any dividend, distribution or other return of capital to shareholders until all Scheme Liabilities have been paid in full.

Potential Financial Claims Scheme (FCS) creditors 60 Part VC of the Insurance Act sets out the "Financial Claims Scheme for Policyholders with Insolvent General Insurers". The operation of the FCS is summarised in the Explanatory Statement at Part D (FAQs), where it is noted that the relevant Minister has the power to declare that the FCS applies to CCI in circumstances where APRA has advised the Minister it believes CCI is unable to pay its debts as they fall due. If the Minister exercises his or her discretion to make the declaration, certain Scheme Creditors holding a "protected policy" as defined in the Insurance Act would be entitled to payment by APRA or have their claims transferred to another insurer, in each case subject to the conditions in Pt VC of the Insurance Act. The Explanatory Statement notes that if CCI is placed into liquidation (whether or not the Scheme goes ahead), activation of the FCS would be at the discretion of the Minister, and if he or she did activate the FCS, it is not known which Scheme Creditors the FCS might apply to. While the Insurance Regulations 2002 (Cth) contain a definition of a protected policy, the Minister also has a power to determine that persons in a specified class do not have an entitlement under the FCS. Therefore, the Explanatory Statement states that Scheme Creditors should not place reliance on the FCS being activated or applying in respect of their claims when making a decision as to whether to approve the Scheme. 61 When a policyholder's entitlement arises under the FCS, the policyholder's rights that it had against the general insurer in relation to the protected policy cease to be rights of the policyholder and become rights of APRA, and APRA has the same priority in the winding up of the general insurer as the policyholder would have had: Insurance Act, s 62ZZL. 62 Because of the uncertainty associated with whether the FCS would apply to CCI in insolvency at all, and the Scheme Creditors to whom it might apply, CCI submits, and I accept, that the potential application of the FCS to Scheme Creditors in the event of CCI's insolvency is not something which mandates any class delineation. This is because the Scheme does not alter the rights of Scheme Creditors in this respect (ie if and when it applies, relevant Scheme Creditors would have their claims met by APRA and APRA would be subrogated to the rights of Scheme Creditors). Moreover, its potential and uncertain future application to Scheme Creditors is not something which could reasonably be said to create such a fracturing of interests as to render Scheme Creditors incapable of consulting with a view to their common interest. Again, no class delineation is required.

Foreign versus Australian Scheme Creditors 63 As noted above, the Scheme is structured so as to observe the requirements of s 116(3) of the Insurance Act with respect to the application of CCI's assets within and outside Australia. While this necessitates, during the Reserving Period, some differential treatment under the Scheme of Scheme Creditors located overseas (to the extent there are any) as compared to Scheme Creditors located in Australia, it arises as a necessary consequence of their respective rights in a winding up. So understood, the Scheme does not in fact treat such Scheme Creditors in a differential manner relative to their rights in a winding up in insolvency, which as explained above is the appropriate comparator to the operation of the Scheme during the Reserving Period. 64 Accordingly, the interests of Scheme Creditors overseas and in Australia are not so dissimilar as to make it impossible for them to consult together as a class and thereby to warrant class delineation. For completeness, as noted above, the evidence indicates that CCI is unlikely to possess any Scheme Assets and Scheme Liabilities outside Australia.

Scheme Creditors with rights of set off or security interests 65 The Scheme does not preclude the enforcement of security interests or the exercise of rights of set off by Scheme Creditors during the Reserving Period (or otherwise): cll 11.15 and 12. As a result, Scheme Creditors possessing such rights are treated the same way under the Scheme as they would be in a winding up in insolvency, and they do not possess any relevant divergence of interest to other Scheme Creditors as might make it impossible for them to consult together on the Scheme with a view to deciding what is in their common interest. No class delineation is warranted.

Voting at the Scheme Meeting 66 Part A, Section 2, Part D (FAQs), Part H and Appendix 8 (Voting Rules and Valuation Principles) of the Explanatory Statement set out in detail how Scheme Creditors may register to attend and vote at the Scheme Meeting and how the Returning Officer, Mr Farren, will adjudicate claims for voting purposes. The Farren Affidavit also addresses these matters in detail: at [51] and [84]. 67 In summary, the conduct in preparation for the Scheme Meeting will be facilitated through a digital platform known as the Creditor Portal. Scheme Creditors will be sent a link to register with and log in to the Creditor Portal, which will take place between 28 September and 16 October 2023 ("Module 1"). Scheme Creditors who have been identified as such by CCI (via the process outlined above) will be sent the link automatically. Potential Scheme Creditors not known to CCI will be required to contact CCI by 5.00 pm on 9 October 2023 to request a Validation Form. They will then need to substantiate their claim to be a Scheme Creditor by way of the submission to CCI of the completed Validation Form, which Mr Farren as Returning Officer will assess and adjudicate whether or not that person is a Scheme Creditor. If they are determined to be a Scheme Creditor, they will be sent a link to log in to the Creditor Portal. 68 From 18 October to 25 October 2023, Scheme Creditors can then log in to the Creditor Portal to complete their proofs of debt and confirmation of attendance or appointment of proxies ("Modules 2 and 3"). These forms will have a Claims Estimate assigned to them by CCI, based on the Valuation Principles in Appendix 8 to the Explanatory Statement. Scheme Creditors can either accept the Claims Estimate and submit a proof of debt on that basis, or they can submit a proof of debt on a different basis, together with any information in support of the claim. 69 Mr Farren will then adjudicate all proofs of debt for voting purposes by 30 October 2023, in accordance with the Valuation Rules and Principles in Appendix 8 of the Explanatory Statement, and from 5.00 pm on 30 October 2023 Scheme Creditors can log in to the Creditor Portal to view the just estimate of their claims for voting purposes. 70 The meeting will be held virtually through a Webcast link. Scheme Creditors or their proxies will also need to access the Creditor Portal during the meeting in order to mark their attendance and vote on the resolutions ("Module 4"). 71 The Returning Officer's adjudication of the value of claims for voting purposes will be determined based on any information provided by the Scheme Creditor, the information available to CCI from its books and records, and the Valuation Principles: Appendix 8, Rule 12. How claims will be valued for the purpose of making a just estimate is summarised in Part D of the Explanatory Statement (with the full detail outlined in Appendix 8) as follows, and subject to any alteration following an assessment of any supporting information supplied by a given Scheme Creditor: (a) Scheme Creditors who have made claims that have been accepted by CCI but not yet paid will have the claim admitted for voting purposes at full value; (b) Scheme Creditors who have made claims that have not yet been accepted by CCI will have the claim admitted for voting purposes based on an estimate, which is likely to be consistent with CCI's provision for the claim; (c) Scheme Creditors who have IBNR claims: (i) in the case of public liability (professional standards claims) Insurance Contracts, will have the claim admitted for voting purposes based on an estimated value derived from an actuarial assessment of such claims by CCI's appointed actuary, using existing methodology; and (ii) in the case of most other policies, absent any other evidence or open claims, will have the claim admitted for voting purposes in the amount of $1. 72 The above approach is consistent with ss 75-85 and 75-100 of the Insolvency Practice Rules (Corporations) 2016 (Cth), which CCI is seeking to apply to the Scheme Meeting by order of the Court with some modification. The effect of those rules here is that: (a) each Scheme Creditor is entitled to vote and has one vote; (b) a Scheme Creditor is not entitled to vote at the Scheme Meeting unless the Scheme Creditor has lodged particulars of the claim; (c) a Scheme Creditor must not vote in respect of an unliquidated or contingent debt or claim, or a debt the value of which is not established, unless a just estimate of its value has been made; (d) the person presiding (here, the Returning Officer) at the Scheme Meeting may determine any question that arises as to the entitlement of a person to vote; (e) in deciding whether a person is entitled to vote at the meeting, the Returning Officer at the Scheme Meeting must have regard to the merits of the person's claim and act impartially and independently; (f) if the Returning Officer at the Scheme Meeting has doubt about whether a proof of debt or claim should be admitted or rejected, they must mark the proof as objected to and allow the person to vote, subject to the vote being declared invalid if the objection is sustained; and (g) a decision by the Returning Officer at the Scheme Meeting to admit or reject a proof of debt or claim for the purposes of voting may be appealed against to the Court within 10 business days after the decision. 73 The predecessors to ss 75-85 and 75-100 were considered in detail by Barrett J in Selim v McGrath [2003] NSWSC 927; (2003) 47 ACSR 537 at [88]-[103]. The relevant principles are as follows. A creditor seeking to vote at a creditors' meeting must furnish particulars of the debt or claim, and the person presiding must then determine two things, namely: (i) whether or not the person is a creditor at all, which determines whether or not they can vote; and (ii) if so, what amount represents a just estimate of the creditor's claim. 74 The creditor must furnish sufficient particulars to show, at least at a prima facie level, the existence of the asserted debt or claim. The person presiding may then have regard not only to that material, but to other material within his or her knowledge, in determining the two questions outlined above. If the person presiding is in no doubt that the person is not a creditor, the "proof" is rejected and the person is not entitled to vote. If the person presiding entertains doubt about the person's status as a creditor, the proof is marked as objected to and the creditor is permitted to vote, subject to any subsequent disallowance if the objection is sustained. 75 Where the person is permitted to vote, a just estimate of the debt or claim must be made. The process, which will necessarily be undertaken at or shortly before the meeting, is summary in nature. The person presiding is not required to undertake any detailed inquiry, but rather to do the best he or she can by reference to the factual material furnished, viewed in the total context in which the decision maker is dealing. If the material provides reasonable grounds for ascribing a figure to the claim, the person presiding must accept that position, but if not, a just estimate may be zero or perhaps the nominal amount of $1, assuming admission is warranted at all. 76 Consistently with these principles, the process to be undertaken by the Returning Officer will ensure that claims are properly adjudicated ahead of the Scheme Meeting, and in particular, that a just estimate of claims the value of which is uncertain is able to be made. Where CCI's books and records permit it to do so, together with an assessment of any material furnished by a Scheme Creditor, such a just estimate will entail a value being ascribed to any such claims. In the absence of those matters, the just estimate of any such claims will be $1.

Section 28 of the Insurance Act 77 Section 28 of the Insurance Act provides that a general insurer commits an offence if: (a) it does not hold assets in Australia (excluding goodwill and any assets or other amount prescribed by the prudential standards for the purposes of this section) of a value that is equal or to or greater than the total amount of its liabilities in Australia other than pre-authorisation liabilities; (b) APRA has not authorised the insurer to hold assets of a lesser value; and (c) there is no determination in force under s 7(1) determining that s 28 does not apply to the insurer. 78 Section 116A(4) relevantly provides that for the purposes of s 28, unless a contrary intention appears, a reference to liabilities of a body corporate includes a reference to provision for liabilities made in its accounts. Accounts means "ordinary accounts" (whether or not prepared for the purposes of any law) and "statutory accounts" (reporting documents the body corporate is required to lodge with APRA) (s 3). 79 On 20 September 2023, APRA made a determination under s 7(1) of the Insurance Act that s 28 does not apply to CCI, subject to CCI observing the conditions set out in the determination.

Waterfall provisions and application of assets within and outside Australia 80 The waterfall provisions of the Scheme that apply during the Reserving Period (cll 24.1 and 47.3) have been addressed above. As there outlined, these provisions are structured so as to be consistent with the constraints which would otherwise be imposed in a winding up by s 116(3) of the Insurance Act and s 562A of the Corporations Act, and they are also consistent with the statutory order of priorities in Div 6 of Pt 5.6 of the Corporations Act should a Liquidation Event occur during the operation of the Scheme.

Scheme Creditors' rights of appeal 81 Clause 32.9 of the Scheme expressly provides that the Scheme Advisers from time to time constitute persons "administering the compromise or arrangement" that constitutes the Scheme for the purposes of the Corporations Act (including ss 411(9) and 599). Further, the functions they perform will form part of the overall administration of the Scheme. As such, the Scheme affords appropriate safeguards to Scheme Creditors as regards the conduct of the Scheme Advisers in connection with the Scheme, including the ability to appeal to the Court in respect of any act, omission or decision of the Scheme Advisers: see Re HIH (2005) 56 ACSR 295 at [12]-[15] (Barrett J); Re Opes Prime at [77]-[81] (Finkelstein J). The Scheme Advisers must also be qualified in accordance with s 411(7) of the Corporations Act to perform the function of Scheme Advisers (cl 32.3 and Annexure A (Scheme Adviser Deed Poll, cl 6) of the Scheme; First Scenna Affidavit at [89]; Appendix 4 of the Explanatory Statement), so no leave is required in this respect: cf Re HIH (2005) 56 ACSR 295 at [18]-[23]. 82 In addition to the general requirements imposed upon a company (and its officers) by law, the Scheme expressly provides at cl 10.5 that CCI, in relation to whether it agrees to an Established Scheme Liability under cl 13.1 and in relation to whether it decides to enter into contractual arrangements under cl 17.1(a) (ie commutations or settlements with particular Scheme Creditors), constitutes a person "administering the compromise or arrangement" that constitutes the Scheme for the purposes of s 599 of the Corporations Act. As such, Scheme Creditors are afforded an express avenue for appeal against decisions of CCI in respect of such matters (in addition to any rights at general law): see Re HIH (2005) 56 ACSR 295 at [13]. 83 Separately to Scheme Creditors' appeal rights, the Scheme provides that proceedings to establish the existence or amount of any Scheme Claim must not be commenced unless the Scheme Creditor has first given notice to CCI of the Scheme Claim and relevant supporting documentation (cl 10). Further, the Scheme provides that apart from rights of set-off or security, Scheme Creditors will not be entitled to take any proceeding or step against CCI or its property in any jurisdiction for the purposes of enforcing payment of all or any part of a Scheme Claim other than to the extent of any failure of CCI to make payment in respect of any Established Scheme Liability in accordance with the terms of the Scheme (cl 11). Upon the occurrence of a Trigger Event, payments to Scheme Creditors in respect of Established Scheme Liabilities may be suspended by up to 90 days while the initial Payment Percentages for the Reserving Period are set (cll 7.1 and 26.6), and if the Scheme Advisers determine during the Reserving Period that reduced Payment Percentages should be set (or that Non-Scheme Liabilities would likely not be capable of being paid as they fall due), payments to Scheme Creditors may be suspended for such period as the Scheme Advisers consider appropriate, but no more than six months, whereupon payments will resume (cl 27.2). 84 CCI submits, and I accept, that the above limitations on the exercise of the rights of Scheme Creditors through curial or quasi-curial processes (none of which is absolute or denies the validity of rights created or modified by the Scheme) are necessary to ensure that the Scheme is prudently managed for the benefit of all creditors, and that disputes and any attendant costs are minimised so as far as is reasonably practicable.

Scheme amendment powers 85 Clause 49 of the Scheme deals with modifications to the Scheme. Clause 49.1 concerns modifications raised by the Court at the approval stage (ie pursuant to the power in s 411(6) of the Corporations Act), and provides that Scheme Creditors irrevocably consent to CCI consenting on their behalf to any such modifications which the Court may think fit to approve or impose and which would not have a materially adverse effect on the interests of any Scheme Creditor under the Scheme. No controversy presently arises in relation to cl 49.1. 86 Clause 49.2 provides that if there is any change in law or regulation after the date of the Scheme which in the opinion of the Scheme Advisers (after consultation with the Creditors' Committee) would mean the Scheme is no longer in the best interests of Scheme Creditors as a whole or could be amended so as to materially improve the position of Scheme Creditors or fairness of the Scheme, CCI or (during the Reserving Period) the Scheme Advisers may seek the approval of the Court to modify the Scheme to take account of that change and may consent on behalf of all those concerned to any such modification as the Court may think fit to approve. 87 Finally, cl 49.3 provides that Scheme Creditors may, with the approval of CCI and in consultation with the Scheme Advisers, resolve at a meeting of Scheme Creditors (passed by 50% or more in number, representing not less than 75% in value, of those present and voting) to modify the Scheme to the extent that any such modifications are necessary to achieve the purpose of the Scheme set out in cl 3; ie to enable CCI's liabilities to be paid in the ordinary course until the occurrence of a Trigger Event, and in an orderly manner thereafter with the intention that Non-Scheme Liabilities continue to be met and that payments are able to be made in respect of actual and anticipated Established Scheme Liabilities on an equal basis (cll 3.1 and 3.3 of the Scheme). 88 There are cases in which the Court has refused to convene a meeting to consider a scheme on the ground that the proposed scheme contained an internal process for amendment of the scheme, which bypassed the need for a fresh scheme application to be made: Re R M Eastmond Pty Ltd (1972) 4 ACLR 801 at 804 (Street J); Re Telford Inns Pty Ltd (1985) 3 ACLC 660 (McLelland J); Re Leamon Consolidated (Vic) Pty Ltd (1985) 10 ACLR 263 (Ormiston J). In Re R M Eastmond Pty Ltd at 804, Street J appeared to adopt a rigid principle that "No scheme compulsorily imposed under the authority of the court under s 181 [the then counterpart to s 411 of the Corporations Act] should be capable of amendment by machinery internal to the scheme itself". The decision in Re W J McGrath & Co Pty Ltd (1979) 4 ACLR 451 at 456-8 (Dunn J) was to the opposite effect, but the Court did not appear to have been referred to Street J's judgment in Re R M Eastmond Pty Ltd. In Re NRMA Ltd (2000) 33 ACSR 595, Santow J said in Appendix A at [28]-[29] that courts will "generally" not approve schemes which carry within themselves machinery for variation of their own terms, and that clarity and certainty are the relevant touchstones. However, Santow J convened a meeting to consider the scheme in Re Australian Co-operative Foods Limited [2001] NSWSC 382; (2001) 38 ACSR 71, containing a provision for variation without court approval on conditions including that the variation was not prejudicial to members and debenture holders bound by the scheme and was so confirmed by senior counsel: [84]-[85]. By contrast, in Re Homemaker Retail Management Ltd [2001] NSWSC 1058; (2001) 40 ACSR 116, Barrett J required the deletion of a very similar provision before approving the scheme, referring at [17] to the "clear and firm predisposition of the court not to favour provisions allowing schemes to be changed after they have received court approval", and referring also to the stark way in which Street J expressed the point in Re R M Eastmond Pty Ltd. Barrett J at [18] then referred with approval to the reasoning of Santow J in Re NRMA Ltd, to the effect that the Court will "generally" not approve a scheme with an internal means of variation. In my view, neither Santow J nor Barrett J in those passages went so far as to say that the court does not have jurisdiction to approve such a scheme in appropriate circumstances. 89 In Re Cape plc [2006] EWHC 1316 (Ch) at [53]-[73], David Richards J analysed the authorities, including the Australian authorities referred to above, concerning the power of the Court to sanction a scheme containing internal powers of amendment. The context was a scheme which could be amended if an independent trustee representing creditors were to conclude that any such amendment was in the interests of creditors as a whole and not materially prejudicial to them, in circumstances where the scheme was set up to deal with asbestos liabilities and was likely to continue for 40 to 50 years. By reference to the relevant authorities, his Lordship concluded that the court has jurisdiction to sanction a scheme containing internal powers of amendment, but that their inclusion will be relevant to the exercise of the court's discretion to approve such a scheme: at [70]-[73]. It was observed that in most cases the court would be unlikely to approve such a scheme, as such arrangements may compromise the need for clarity and certainty to creditors and the court at the time of approval of the commercial arrangements to be brought about by the scheme: at [70]-[73]. Nevertheless, David Richards J made orders convening the scheme meeting in that case, reasoning that it was predictable that during the life of the scheme there would be legal, medical and financial developments which could impact on the scheme which were impossible to know and which, taken with the provisions to protect creditors, raised a clear case for flexibility: at [73]. His Lordship subsequently approved the scheme, holding that in the exceptional circumstances of that case, the powers of amendment and attendant safeguards to their exercise were fair and necessary, including having regard to the impracticability of proposing a new scheme each time an amendment was required, and that the absence of such provisions could be regarded as unfair in the circumstances: at [31]-[32]. 90 CCI submits, and I accept, that the internal powers of amendment contained in cl 49 of the Scheme are fair and necessary in the relatively exceptional circumstances pertaining to the Scheme, and are not such as would lead the Court, in the exercise of its discretion, to decline to convene the Scheme Meeting on the basis the Court would be unlikely to approve the Scheme at an unopposed second Court hearing. 91 Clause 49.1 concerns modifications to the Scheme at the approval stage and is therefore not an internal power of amendment in the relevant sense. 92 Clause 49.2 is limited to proposed modifications designed to materially improve the position of Scheme Creditors and the fairness of the Scheme following changes in law or regulation which affect the best interests of Scheme Creditors as a whole, and requires CCI or the Scheme Advisers to seek approval of the Court to any such proposed modifications. Thus, it arises only where unforeseen legal or regulatory changes affect the best interests of Scheme Creditors as a whole, and it contains the additional safeguard of Court approval. 93 Clause 49.3 provides that Scheme Creditors may (with the approval of CCI and in consultation with the Scheme Advisers) resolve by meeting to modify the Scheme, but only to the extent that such modifications are necessary to achieve the purpose of the Scheme. As such, modifications under this clause are limited to those which are necessary to achieve the commercial purpose of the Scheme, and they are subject to the further safeguards of the need for both CCI approval (in consultation with the Scheme Advisers) and Scheme Creditor approval (by way of a double majority test corresponding to that contained in s 411). 94 In the present case, the Scheme may endure for up to 10 to 20 years, to deal with liabilities of CCI in run off including substantial unknown contingent liabilities. CCI submits, and I accept, that it is likely to be impracticable and unduly costly to propose a new scheme each time any necessity for modifications within the limited constraints of cl 49 arises, and none of those provisions are inimical to the commercial arrangements sought to be achieved by the Scheme. In those circumstances, CCI submits, and I accept, that this is the kind of exceptional case in which such internal powers of amendment are fair and necessary and of a kind that ought not preclude consideration of the Scheme by Scheme Creditors at a Scheme Meeting. Whether the Scheme should ultimately be approved with those powers of amendment is a matter for the second Court hearing. Further, I note that ASIC did not make any submissions, either orally or in writing, concerning this issue.

Operation of the Scheme in liquidation 95 As noted above, the Scheme is structured so that, to the maximum extent permitted by law, it will continue in the event of CCI being placed into liquidation (cl 47.1), whereupon Scheme Assets are to be applied in accordance with the statutory order of priorities in Div 6 of Pt 5.6 of the Corporations Act and also having regard to s 116(3) of the Insurance Act. This is consistent with Re HIH (2005) 215 ALR 562, which considered the circumstances in which a creditors' scheme may operate with respect to a company in liquidation: at [124]-[126] and [154]. As such, cl 47 raises no issue as might impact the exercise of the Court's discretion, noting in particular that it is expressly stipulated to operate only to the maximum extent permitted by law.

Finalisation mechanism 96 The operation of the finalisation mechanism (cl 50 of the Scheme) is addressed above. It is only capable of operation after the occurrence of a Trigger Event, and only where Scheme Creditors, with the consent of CCI and the Scheme Advisers, resolve at a meeting (by 50% or more of Scheme Creditors present and voting, representing not less than 75% in value of Scheme Creditors present and voting) to bring the Scheme to an end, by way of the valuation of all outstanding Scheme Liabilities, the realisation of the Scheme Assets, and the application of Scheme Assets to liabilities (including Scheme Liabilities) under cl 47.3, consistently with the statutory order of priorities in a winding up. 97 As noted above, while the finalisation mechanism would see the claims of Scheme Creditors, whether actual or contingent, valued once and for all and Scheme Assets applied to them on that basis consistently with the statutory order of priorities in a winding up, as opposed to the reserving mechanism during the Reserving Period, the clause does not give rise to any differential treatment of Scheme Creditors. This is particularly so having regard to the fact that where a Trigger Event has occurred, the realistic alternative to the Scheme is a winding up in insolvency. 98 As such, CCI submits, and I accept, that the finalisation mechanism does not raise any issue concerning the commercial fairness of the Scheme as might otherwise be relevant to the Court's discretion to convene the meeting.

General commerciality of the Scheme and CCI's recommendation in respect of it 99 The First Scenna Affidavit at [14]-[46] sets out the circumstances which led to CCI proposing the Scheme, including the Board's decision to place CCI into run off, the commissioning of the PwC Report to consider options to effect an orderly run off, and the Board's resolving thereafter to proposed the Scheme. 100 The rationale for the Scheme is addressed in Part C, Section 5 of the Explanatory Statement. In short, the Scheme is designed to ensure an orderly run off and minimise the prospect of CCI becoming insolvent and being placed into liquidation, in which case it is expected that: (a) recoveries under reinsurance policies will likely be significantly reduced, because many of the reinsurance policies give the reinsurer the right to cancel policies and cease cover in respect of future losses if the company is insolvent or is in liquidation, and also because the reinsurances may not respond to the usual proof of debt processes in liquidation; (b) the costs of liquidation would be significant and would run for many years, impacting distributions to creditors; and (c) there is no certainty that the FCS would apply to provide protection to any or all Scheme Creditors. 101 The position of reinsurance is also addressed at Part F, Section 11.4 of the Explanatory Statement. It is there noted that CCI's portfolio is heavily reinsured, with reinsurance mitigating 84% of short-tail insurance products, with an example being given of Fire and ISR claims whose estimated net exposure as at 30 June 2023 drops from $344.1 million to $41.4 million once reinsurance is factored in. It is also noted that CCI has in place an adverse development cover reinsurance agreement indemnifying it for certain claims under professional standards policies. The Explanatory Statement goes on to note that given the significance of reinsurance to policyholders, the Scheme has been developed to maximise the preservation of reinsurance for the benefit of all stakeholders during run off to protect the available capital. The Second Scenna Affidavit at [8] records that CCI has in place catastrophe reinsurance cover for the periods 1 July to 31 December 2023 and 1 January to 30 June 2024 in the amounts of $605 million and $200 million respectively. 102 As noted above, in order to fulfil the requirement under Sch 8 of the Corporations Regulations that the Explanatory Statement address the expected dividend in a winding up as compared to the Scheme, CCI and its directors have obtained advice from FTI Consulting in the form of the FTI Consulting Report. 103 It was initially contemplated that Mr Hill of FTI Consulting would provide an independent expert report in respect of the Scheme, which would accompany the Explanatory Statement. However, ASIC raised a concern that the provision of the independent expert report in respect of the Scheme would constitute general financial product advice for the purpose of Ch 7 of the Corporations Act, for which the expert would require an AFSL covering general insurance. This was on the basis that it was proposed the expert would opine that the Scheme is in the best interests of Scheme Creditors as compared to a winding up, which supports the directors' recommendation that Scheme Creditors vote in favour of the Scheme. When it was proposed that the best interests recommendation be removed from the independent expert report, such that it be limited solely to the expected dividend requirement of Sch 8 of the Corporations Regulations, the position of ASIC was that it was a matter for the independent expert to satisfy himself that a report in those terms did not constitute general financial product advice. The result of that engagement with ASIC is that FTI Consulting has instead advised CCI and its directors, in the form of the FTI Consulting Report, as to the matters which CCI is required by cl 8201(a) and (b) of Sch 8 of the Corporations Regulations to include in the Explanatory Statement. It should be noted that the Corporations Regulations do not mandate the provision of an independent expert report to creditors in respect of a creditors' scheme in respect of this issue (or any other issue for that matter). Accordingly, CCI submits, and I accept, that the approach now taken in the Explanatory Statement is a practical solution to address ASIC's concerns. 104 The FTI Consulting Report is addressed at Part F, Section 11.6 of the Explanatory Statement, and the Report itself is included as Appendix 6. The section notes that CCI and its directors have been advised by FTI Consulting as to the expected dividend that would be available to Scheme Creditors on a winding up within six months of the first Court hearing, and the expected dividend (expressed by way of a "total Payment Percentage") if a Trigger Event were to occur under the Scheme within six months of the first Court hearing. It is there noted, by way of summary, that the FTI Consulting Report concludes that the expected dividend on a liquidation ranges from 59.54 c/$ to 97.99 c/$, compared to a range under the Scheme of 87.55 c/$ to 100 c/$. 105 In directing attention to the FTI Consulting Report which is included as Appendix 6, the Explanatory Statement makes clear in the Important Notice and Part F, Section 11.6 that: (a) the FTI Consulting Report has been prepared for CCI and its directors for the sole purposes stated in it and including in the Explanatory Statement for those purposes only; (b) the FTI Consulting Report is not intended to be regarded as a recommendation by FTI Consulting as to how any person should vote or exercise any other right in relation to any financial product affected by the Scheme; (c) the FTI Consulting Report is not advice to any person other than CCI and its directors; and (d) any statements made in the Explanatory Statement recommending the Scheme are made by CCI and its directors. The FTI Consulting Report itself contains an equivalent disclaimer. 106 The instructions FTI Consulting has been asked to assume for the purposes of the FTI Consulting Report, principally concerning the operation of CCI's reinsurance agreements and the process of winding up, are set out at section 1.3 of the Report. The instructions provided to FTI Consulting annex a representative sample of the various cancellation clauses in CCI's contracts of reinsurance. Relevantly, a risk of cancellation under those reinsurance contracts arises should CCI become insolvent or enter a process of liquidation or administration. For risks attaching policies (being policies which cover CCI's liabilities under relevant insurance contracts in force during the reinsurance contract period, regardless of when the loss occurs), cancellation does not affect the reinsurer's liability. However, for loss occurring policies (being policies which cover CCI's liabilities under relevant insurance contracts in respect of losses occurring during the reinsurance contract period), cancellation will result in losses occurring after the date of cancellation not being indemnified. There is also a risk that in a winding up of CCI, reinsurance contracts may not respond to the usual proof of debt processes that apply, in particular, to claims by policyholders for liabilities which have not crystallised under the underlying insurance policies at the time of adjudication of proofs (ie contingent claims). 107 The sources of information and use of expert material to which FTI Consulting has had regard are set out at sections 1.6 and 1.8 respectively, including in particular an actuarial valuation of CCI's claims and reinsurance assets prepared by am actuaries (CCI's independent actuary). The limitations and restrictions with respect to the FTI Consulting Report are set out at section 1.4. 108 In terms of conclusions and as noted above, in summary, the FTI Consulting Report concludes that the expected dividend on a liquidation ranges from 59.54 c/$ to 97.99 c/$, compared to a range under the Scheme of 87.55 c/$ to 100 c/$: section 2 - Summary of Conclusions. 109 The Explanatory Statement records that the directors believe the Scheme is the best way to ensure an orderly and equitable run-off which improves the prospects of claims being paid in full and, in any event, provides for the fair and efficient handling of claims both while CCI is solvent and should it be unable at some future point to meet its liabilities in full: Section 7.1. The Explanatory Statement further records that the directors consider, having regard to the advice they have received, including the FTI Consulting Report, that the Scheme is in the best interests of Scheme Creditors as compared with a potential winding up of CCI, and that the Scheme will deal with all Scheme Creditors fairly in relation to their existing rights, irrespective of whether their claims have already been notified to CCI or whether they will be brought in the future: Section 7.1. For those reasons, the directors recommend that all Scheme Creditors vote in favour of the Scheme: Section 7.1 and Chair's Letter. The reasons to vote for and against the Scheme are also detailed at Part C, Sections 8 and 9 respectively of the Explanatory Statement. 110 A further matter which is emphasised in respect of the Scheme, at Part C, Section 3 of the Explanatory Statement, is the fact that the Scheme does not impact on the rights of claimants to pursue their own claims against a party insured by CCI under an Insurance Contract, including during the Reserving Period. It is noted that a party insured by CCI will remain liable to claimants in respect of any such claims, and that where any Payment Percentage during the Reserving Period does not cover the full amount payable by the party insured by CCI to the claimant, the payment gap is the responsibility of that party to satisfy the claim in full. It is noted that a person who is a Scheme Creditor in relation to an Insurance Contract by statute (for example, where the party insured by CCI has died, been deregistered or is being wound up, or cannot be found) is subject to the Payment Percentage and its rights against CCI are affected in the same way as other Scheme Creditors. It is further noted that a party insured by CCI should take advice and arrange their finances and manage their cashflow to ensure they are in a position to satisfy all claims against them in full in light of these matters. Finally, it is noted that in the event Scheme Creditors resolve to activate the finalisation mechanism, the claims of Scheme Creditors would be valued and paid out of the remaining Scheme Assets on a lump sum basis, including in respect of contingent or prospective claims, and that Scheme Creditors would have no further rights to make claims under their policies on an ongoing basis thereafter. 111 Having regard to the material outlined above, CCI submits, and I accept, that CCI's commercial rationale for proposing the Scheme is one which is bona fide, fair and reasonable. Furthermore, the material in the Explanatory Statement will ensure that Scheme Creditors are sufficiently informed of the nature of the proposal so as to properly assess the commercial merits of the Scheme for themselves. Accordingly, CCI submits, and I accept, that the Scheme raises no aspect of commercial fairness or morality, or public policy, which might otherwise move the Court to decline to order the Scheme Meeting to proceed to the convening stage: Re CSR Limited [2010] FCAFC 34; (2010) 183 FCR 358 at [57]-[59] (Keane CJ and Jacobson J).

Communications with Scheme Creditors 112 In the First Scenna Affidavit at [74], Mr Scenna explains that if the Court orders the Scheme Meeting to be held, he and other representatives of CCI propose to hold further briefings with policyholders for the purpose of answering any questions they may have about the Explanatory Statement, to demonstrate use of the Creditor Portal and to explain what policyholders need to do to be able to vote at the Scheme Meeting. Mr Scenna's evidence provides appropriate disclosure to the Court about such matters, having regard to my reasons in Re Vita Group Ltd [2023] FCA 400; (2023) 165 ACSR 576 at [32]-[34]. 113 As also noted above, CCI proposes to dispatch the Flyer, a short document outlining the key features of the Scheme, to Scheme Creditors along with the meeting materials. This reflects a procedure which was ordered by Finkelstein J in Re Opes Prime at [98], the rationale being to ensure that Scheme Creditors have the benefit of a short summary of the Scheme which exists independently of the necessarily lengthy Explanatory Statement.

Dispatch of Materials to Scheme Creditors 114 The process of dispatch of meeting materials to Scheme Creditors is addressed in the Farren Affidavit at [35]-[44] and discussed above. It will entail the uploading of the Notice of Meeting, Explanatory Statement and Flyer to CCI's website (referenced in the proposed newspaper advertisement convening the meeting), together with the distribution by email or post (as applicable) of the Notice of Meeting and Flyer to known Scheme Creditors, with reference to the CCI's website address at which the Explanatory Statement may be downloaded. 115 As noted above, the proposal to convene the Scheme Meeting by advertisement, in addition to dispatch of materials to identified Scheme Creditors, is to ensure, so far as is reasonably practicable, that unknown, potential Scheme Creditors (to whom dispatch of meeting materials is not possible) are given notice of the Scheme Meeting. An analogous process has been adopted in the context of members' schemes, to cater for shareholders with incorrect addresses recorded in the company's share register. In that event, the court gives a procedural direction for notice to be given to such members by way of advertisement or similar process pursuant to ss 411(1) and 1319 of the Corporations Act, in lieu of the usual process of notification, noting that in the case of a members' meeting, such a course may not correspond with the procedural requirements of Pt 2G.2 of the Corporations Act and the company's constitution: see Re Strategic Energy Resources Limited (No 2) [2012] VSC 75 at [2]-[7] (Davies J). I certify that the preceding one hundred and fifteen (115) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Jackman.