CIC; HIH Casualty & General;HIH Insurance [2001] NSWSC 438

HIS HONOUR: 1 These are applications by the provisional liquidators of three companies, being HIH Insurance Limited, HIH Casualty & General Insurance Limited and CIC Insurance Limited. The provisional liquidators seek the approval of the court under s.477(2B) of the Corporations Law to enable the companies of which they are provisional liquidators to enter into agreements containing provisions giving rise to obligations which may not be discharged by performance within three months after the agreements are entered into. 2 There are several proposed agreements and it is intended that they be entered into in accordance with and pursuant to the terms of an agreement of an umbrella nature designated Co-Ordination Agreement between HIH Insurance Limited and QBE Insurance Group Limited. By the Co-Ordination Agreement the respective parties undertake, in effect, to enter into and to cause their respective subsidiaries to enter into a series of further agreements, the general result of which will be that elements of the insurance business of the HIH Group will pass to the QBE Group in return for payment by the latter to the former. 3 There are seven such proposed agreements. They form annexures or schedules to the Co-Ordination Agreement, a copy of which is in evidence. The general nature and intent of each of the seven agreements are described in the affidavit of Mr Macintosh, one of the provisional liquidators, sworn today. That affidavit also identifies and refers to those provisions of each proposed agreement which require the approval of the court under s.477(2B). I do not intend to go into detail about the agreement and the clauses giving rise to the need for the approval of the court. It is sufficient to say that various assets of the HIH Group will be sold to the QBE Group and that in conjunction with that sale other measures will be put in place to bring about an effective transfer of business from the HIH Group to the QBE Group in the fields of travel insurance in Australia and nine distinct classes of insurance in New Zealand. The provisions additional to those involving outright sale are to the effect that HIH companies will vacate the relevant fields of insurance and that QBE companies will enter those fields in place of the HIH companies in such a way that future business is written by the QBE companies instead of the HIH companies, and claims referable to pre-existing business written by HIH will be met and serviced by QBE companies. 4 There is, thus, a combination of sale and purchase and assumption of liability coupled with a vacating of fields of business by one company or group so that the other company or group may enter, with the vacating company or group facilitating that move by ensuring that renewing policy holders are encouraged to deal with the entering company or group. 5 It will be clear from this general description that almost inevitably the proposed contracts involve or include provisions which will not be fully discharged by performance within the space of three months. 6 The provisions in question are, as I have said, summarised in Mr Macintosh's affidavit. It is sufficient to say that they fall generally into three classes. There are provisions for future novation which may be performed outside the three month period. There are provisions for the rendering of services in support of the principal transactions which may also continue in operation for some time as business runs off. And there are provisions for financial adjustment and crystallisation of financial rights and obligations by reference to events yet to happen. 7 In the particular context all of this may be regarded as a quite normal contractual framework which would not cause any concern or any particular interest were it not for the requirement for court approval because of the provisions not to be performed within three months. 8 In an application under this section by another member of the HIH Group which I heard yesterday, I commented that I did not see it as the function of the court in deciding whether to give approval under s.477(2B) to concern itself with the commercial merits or otherwise of the transaction. The court's concern, rather, is with the position of the creditors of the company in provisional liquidation and with the general expectation that liquidation should be, as it were, a one way street of fairly short length to the position where assets are realised, proofs of debt crystallise the liabilities position, and an orderly disposition of assets in the hands of the liquidator takes place. 9 Although, as I have said, the court is not concerned with the commercial desirability or otherwise of the particular transaction, I do in this case have an opinion of Mr Macintosh, one of the provisional liquidators, expressed in his affidavit, that the performance of the obligations which may exceed three months is, in all the circumstances, a reasonable element of the overall transaction. I should also say that this particular transaction or series of transactions has a clear arm's length aspect to it. In fact, the transaction is based upon and will replace one which was entered into by HIH and QBE before the appointment of provisional liquidators to the former group. Although there are some structural changes as between the original transaction and the one currently before me, I am told that the essential commercial features are the same, from which I can conclude that those commercial features were arrived at by representatives of two self-sufficient insurance companies, through ordinary commercial negotiation. 10 In the matter that came before me yesterday I had the additional reassurance of submissions by a solicitor for APRA, the Australian Prudential Regulatory Authority, to the effect that the transaction was in accordance with directions imposed by APRA as the regulatory authority, principally, no doubt, in the interests of policy holders. I asked in the course of today's hearing whether similar assurances could be given by APRA, noting that on this occasion the solicitor for APRA did not seek to appear. In response I was furnished with a copy of an e-mail from APRA to the solicitors involved in the transaction which makes it clear that, in contradistinction to yesterday's case, the matters before me today are not of such a nature that they are required to conform to the directions of APRA. I, therefore, have no reassurance today of the kind I had yesterday but in saying that I do not for a moment suggest that it detracts from the case that has been made in support of the proposition that the approval should be given. 11 In the course of the ex tempore judgment I gave yesterday I referred to the judgment of Hamilton J in Re HIH Insurance Group Limited [2001] NSWSC 308 and to the observations of Young J (as he then was) in Re GA Listing and Maintenance Pty Limited (1994) 15 ACSR 308, to which Hamilton J referred. In particular, I quoted from paragraph 7 of the reasons for judgment of Hamilton J. Those observations are equally applicable to the matter before me today in that the winding up of each of the companies concerned will be of its nature a long and complicated process probably extending over years rather than months and involving a very large number of claims under policies and otherwise. That being so there is a community interest in having the administration of claims dealt with in an orderly way, and orderly arrangements made for the provision of replacement and renewal insurance to policy holders who are left, in effect, without insurance by the company's collapse. That is what the transactions and agreements presently before me will do and for that reason they are an integral part of the furtherance of the community interest to which I have referred, being the same community interest as was referred to by Hamilton J in what was in many ways a matter very similar to the one now before me, in that it was concerned with a series of contracts with another counter party (that is to say, not QBE but another insurer) entered into with the purpose of hiving off part of the HIH business to the other insurer. 12 In the circumstances the case for granting an approval under s.477(2B) has been made out and I will make in each of the three proceedings orders in terms of paragraphs 1, 2 and 3 in the applicable interlocutory application. The orders may be entered forthwith.

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