Colonial Portfolio Services Ltd v Australian Prudential Regulation Authority

Federal Court of Australia|1997-02-18|Before: Sheppard J, Flick J

Background and overview of the Scheme 1.1 Budget Insurance Company Limited ABN 48 095 974 548 (BIC) and Auto & General Insurance Company Limited ABN 42 111 586 353(A&G) are each authorised to carry on insurance business under the Insurance Act. 1.2 BIC is incorporated in the United Kingdom and registered as a foreign company in Australia and has carried on general insurance business as a branch operation in Australia since June 2001. A&G is incorporated in Australia and has carried on general insurance business in Australia since July 2005. Both companies are subsidiaries of Budget Holdings Limited (a Guernsey corporation). 1.3 BIC has not issued any new contracts of insurance in Australia since 31 August 2005 and wishes to be relieved of its liabilities and obligations under and in respect of all contracts of insurance that it has issued and underwritten in the course of carrying on its Australian general insurance business thereby enabling it to apply to have its authorisation to carry on general insurance business under the Insurance Act revoked. 1.4 This Scheme has been prepared in accordance with Part III, Division 3A of the Insurance Act to give effect to the terms of an agreement between BIC and A&G for the transfer and amalgamation of the Australian insurance business of BIC to A&G. 1.5 This Scheme is based on an actuarial report dated 17 January 2008 of Finity Consulting Pty Limited.
Defined terms and interpretation 2.1 Defined terms In this Scheme, unless the context requires otherwise: Actuarial Report means the report ofFinity Consulting Pty Limited upon which this Scheme is based. APRA means the Australian Prudential Regulation Authority. Assumed Liabilities has the meaning given in paragraph 4(a). BIC Policy means each and every contract of insurance issued or underwritten by BIC in the conduct of BIC's Australian insurance business. Business Day means a day that is not a Saturday, Sunday, public holiday or bank holiday in Queensland. Court means the Federal Court of Australia. Court Confirmation means an order of the Court confirming this Scheme (with such modifications, if any, as it thinks appropriate) under Part III, Division 3A, of the Insurance Act. Effective Date means the first Business Day after the Scheme Date. Insurance Act means the Insurance Act 1973 (Cth). insurance business has the meaning given in the Insurance Act. Personal Information means personal information, as defined in the Privacy Act 1988 (Cth), that has been received by BIC or A&G or an officer, employee, agent or contractor of BIC or A&G in connection with a BIC Policy. policyholder means, in relation to a BIC Policy, the holder of a BIC Policy. Records means all records in respect of BIC Policies in BIC's possession and control as at the Effective Date, including without limitation insurance proposals and applications, policy documents, insurance premium receipts, payment records, claims records, correspondence and file notes, whether recorded on paper, electronically or otherwise. Scheme Date means the date on which this Scheme is confirmed by the Court under the Insurance Act. Transfer Agreement means the Transfer Agreement dated 11 January 2008 between BIC and A&G for the transfer of BIC's Australian insurance business to A&G. Transfer Amount means the amount of the Assumed Liabilities (net of third party recoveries referred to in paragraph 3.2(a)) as at the Effective Date determined in accordance with APRA's Prudential Standard GPS 310 - Audit and Actuarial Reporting and Valuation. 2.2 Interpretation In this Scheme, except where the context otherwise requires: (a) the singular includes the plural and vice versa, and a gender includes other genders; (b) a reference to a clause, paragraph, schedule or annexure is to a clause or paragraph of, or schedule or annexure to, this Scheme, and a reference to this Scheme includes any schedule or annexure; (c) a reference to a person includes a natural person, partnership, body corporate, association, governmental or local authority or agency or other entity; (d) a reference to a statute, ordinance, code or other law includes regulations and other instruments under it and consolidations, amendments, re‑enactments or replacements of any of them; and (e) a word or expression used in this Scheme which is defined in the Insurance Act has the meaning given to it in the Insurance Act. 2.3 Headings Headings are for ease of reference only and do not affect interpretation.

(a) all of the liabilities and obligations of BIC under and in respect of BIC Policies (Assumed Liabilities) are assumed by A&G and, by virtue of the Court Confirmation, become liabilities and obligations of A&G and BIC is released and discharged from all of the Assumed Liabilities; (b) A&G will indemnify and keep indemnified BIC from and against all Assumed Liabilities, including all actions, proceedings, claims, costs, demands and expenses in respect of Assumed Liabilities; (c) A&G is substituted for BIC in all BIC Policies; (d) the rights, benefits, obligations and liabilities of policyholders, and any person claiming through or under them, under BIC Policies will be the same as if: (i) any proposals, applications and representations made by a policyholder, or any person claiming through or under them, in relation to a BIC Policy had been made to A&G instead of BIC; and (ii) those policies had been issued or underwritten by A&G instead of BIC; (e) any person having a claim on or obligation to BIC in respect of a BIC Policy will have the same claim on or obligation to A&G in substitution for the claim on or obligation to BIC irrespective of when the claim or obligation arose; (f) any legal proceedings pending by or against BIC in respect of or in connection with a BIC Policy will be continued by or against A&G as the case may be; and (g) A&G will be entitled to enforce all rights and remedies and receive and appropriate all premiums and other moneys which, but for this Scheme, would have been enforceable or recoverable by BIC under or in respect of or in connection with BIC Policies. 5. Reinsurance 5.1 On and from the Effective Date, all reinsurance contracts and treaties in respect of BIC's Australian insurance business and to which BIC is a party (as reinsured) will be assigned to A&G as valid, effective and continuing agreements between A&G and the parties other than BIC to those reinsurance contracts and treaties, despite anything to the contrary in those reinsurance contracts and treaties. 5.2 On and from the Effective Date, A&G will: (a) be bound by; (b) perform the obligations under; (c) be entitled to the benefits of and to take action under; and (d) assume any obligations and liabilities in respect of and relating to any matter arising out of, the reinsurance contracts and treaties referred to in paragraph 5.1 as if A&G was a party to, and at all relevant times had been a party to, those reinsurance contracts and treaties in place of BIC and references to BIC Policies the subject of such contracts and treaties shall be taken to refer to BIC Policies transferred to A&G under this Scheme.

5.3 On and from the Effective Date, BIC will be released from all obligations and liabilities under the reinsurance contracts and treaties referred to in paragraph 5.1. 6. Privacy In relation to the Personal Information, BIC and A&G agree:

(a) to comply with all applicable laws in respect of the use, disclosure and storage of personal information (privacy laws), including without limitation the Privacy Act 1988 (Cth); (b) to not do anything that will cause the other to breach any privacy laws; (c) to take all reasonable steps to ensure that the Personal Information is protected against misuse and loss, unauthorised access, modification and disclosure; and (d) to only use the Personal Information, and to only provide access to the Personal Information to their officers, employees, agents or contractors who need to access the Personal Information, to fulfil their respective obligations or to exercise their respective rights: (i) in implementing this Scheme; (ii) under the Transfer Agreement; and (iii) in the case of A&G, as insurer under the BIC Policies. 7. Effective Date The assumption of the Assumed Liabilities by A&G and the transfer of the BIC Policies to A&G in accordance with this Scheme will take effect on the Effective Date and BIC will account to A&G and A&G will be entitled to the benefits and rights in respect of BIC Policies and will assume all of the obligations in respect of the Assumed Liabilities on and from the Effective Date.

Implementation BIC and A&G will do all acts and things and execute all documents necessary or desirable to give effect to the provisions of the Transfer Agreement, this Scheme and the Actuarial Report and the transactions contemplated by them.

Costs and expenses of the Scheme BIC will bear the costs and expenses of and incidental to the preparation and confirmation of this Scheme and its implementation.

Australian Prudential Regulation Authority Insurance Act 1973(Cth)

The Insurance Act and Section 17F 7 The "main object" of the Insurance Act 1973 (Cth) is set forth as follows in s 2A(1): The main object of this Act is to protect the interests of policyholders and prospective policyholders under insurance policies (issued by general insurers and Lloyd's underwriters) in ways that are consistent with the continued development of a viable, competitive and innovative insurance industry. 8 Part III of the Act concerns the need to apply to the Australian Prudential Regulation Authority for an authorisation to carry on insurance business in Australia and further provides for those circumstances in which an authorisation may be revoked. 9 Part III, Division 3A provides for the transfer and amalgamation of an insurance business. Of particular importance is s 17B which relevantly provides: Transfer or amalgamation of insurance business (1) No part of the insurance business of a general insurer may be: (a) transferred to another general insurer; or (b) amalgamated with the business of another general insurer; except under a scheme confirmed by the Federal Court. … (3) A scheme must set out: (a) the terms of the agreement or deed under which the proposed transfer or amalgamation is carried out; and (b) particulars of any other arrangements necessary to give effect to the scheme. 10 Section 17C sets out those steps which must be undertaken before an application may be "made" for confirmation. For the purposes of s 17C, it is considered that an application for confirmation of a scheme is "made" at that point in time when a hearing is held which seeks confirmation and not at that point in time when proceedings are filed with this Court: Re Insurance Australia Ltd [2004] FCA 524 at [30]-[37] per Lindgren J, 139 FCR 450 at 458-9. See also: Calliden Group Limited in the matter of Calliden Group Limited [2007] FCA 2019 at [81]. 11 Section 17D provides that the Australian Prudential Regulation Authority may arrange for an independent actuary to make a written report on a scheme. 12 Section 17E identifies those bodies corporate that may apply to this Court for confirmation and s 17F provides as follows for those orders which this Court may make, namely: Confirmation of scheme (1) The Federal Court may: (a) confirm a scheme without modification; or (b) confirm the scheme subject to such modifications as it thinks appropriate; or (c) refuse to confirm the scheme. (2) The Federal Court may make such orders as it thinks fit in relation to reinsurance. When a scheme is confirmed, it becomes binding on all persons: s 17G. 13 The discretion conferred by s 17F is conferred in general terms and does not specify any criteria to be satisfied. It must, however, be a discretion exercised in a manner which promotes the objects of the Act, including the protection of the interests of policy holders in ways consistent with "the continued development of a viable, competitive and innovative insurance industry". A "critical consideration" is "whether affected policyholders will be detrimentally affected by the implementation of the scheme": PMI Indemnity Limited (No 2) [2005] FCA 1842 at [24] per Lindgren J. 14 Section 32 of the 1973 Act, it should further be noted, provides that the Authority may also determine "prudential standards" that must be complied with. Of immediate relevance to the present proceedings are three such standards, namely: (i) Prudential Standard GPS 110 - which deals with "Capital Adequacy" and aims to ensure that the security of policy holder obligations of all insurers is established at an appropriate level by requiring that each general insurer maintain at least a minimum amount of capital; (ii) Prudential Standard GPS 310 - which deals with audit and actuarial reporting and outlines the roles and responsibilities of a general insurer's Approved Actuary; and (iii) Prudential Standard GPS 410 - which deals with the transfer and amalgamation of the insurance business of a general insurer. Also of relevance is: (iv) A "Prudential Practice Guide (Draft)" which deals with "Capital Adequacy" and "Capital Management".

Prudential Standard GPS 410 and the Role of the Authority 26 Section 17C(2) of the 1973 Act provides as follows: An application for confirmation of a scheme may not be made unless: (a) a copy of the scheme and any actuarial report on which the scheme is based have been given to APRA in accordance with the prudential standards; and (b) a notice of intention to make the application has been published by the applicant in accordance with the prudential standards; and (c) an approved summary of the scheme has been given to every affected policyholder. 27 A copy of the Scheme has been provided to the Authority in accordance with s 17C(2)(a). 28 The Authority has no objection to this Court making an order for confirmation of the Scheme. In a letter dated 2 May 2008 the Authority thus states: After due consideration of the relevant material including the additional actuarial report included in the affidavit of Timothy Edgeworth Andrews sworn 2 May 2008, APRA is satisfied that the Scheme, if confirmed, will provide an adequate level of protection for the policyholders of BIC. I also note that the terms of the policies held by BIC policyholders will not change (other than the identity of the insurer changing from BIC to A&G) and that claims handling procedures will continue as before. I therefore advise that APRA has no objection to the applicants seeking an order for confirmation of the Scheme. 29 The manner in which this Court exercises the discretion conferred by s 17F(1) is informed and assisted by the views expressed by the Australian Prudential Regulation Authority. This Court has long recognised the role played by the Authority and the reliance placed by the Court upon its review of the proposed schemeand its assessment as to whether or not it should oppose an order seeking confirmation. Albeit in the comparable context of a transfer under Part 9 of the Life Insurance Act 1995 (Cth), in Colonial Portfolio Services Ltd v Australian Prudential Regulation Authority [1999] FCA 1779, Mathews J observed: [28] It is relevant to note that APRA, which operates as something of a watchdog in relation to transfers under Pt 9 of the Act, had no objection to the confirmation of the scheme. Nor did APRA arrange for an actuarial report on the scheme, as it is entitled to do under s 192 of the Act. It can be inferred that APRA regarded the reports furnished by the applicants as adequate. … Like comments have also been made in other cases: Re Royal & Sun Alliance Life Assurance Ltd [2000] FCA 1259 at [23], 104 FCR 37 at 40 per Katz J. See also: Application of Zurich Insurance Company and Converium Limited [2003] FCA 1519 at [4] per Hely J; Application of Advance Life Insurance Limited (Unreported, FCA, Sheppard J, 18 February 1997). 30 The conclusion that the Scheme should be confirmed in the present proceedings has been likewise assisted by the views expressed by the Authority.

Procedural Requirements 36 The procedural requirements imposed by s 17C and Prudential Standard GPS 410 are of fundamental importance. They are designed to ensure that affected policy holders are both informed of the scheme which is being proposed and given adequate information such that they can make a decision as to whether or not they wish to support or oppose that scheme. The steps to be undertaken have helpfully been summarised by Jacobson J in SGIC General Insurance Limited [2004] FCA 1639 at [18]. 37 In addition to requiring that a copy of the scheme and any actuarial reports are to be provided to the Australian Prudential Regulation Authority, Prudential Standard GPS 410 also imposes obligations as to the need for a Notice of Intention to be published and for an approved summary of the scheme to be given to every affected policy holder. The Standard also requires that a copy of the scheme be available for inspection. 38 In accordance with that Standard, the Authority has approved the Notice of Intention, the list of newspapers in which the Notice has been published, and the locations in each of the States and Territories where copies of the Scheme have been made available for inspection. The Authority has also approved the "Scheme Summary". 39 The Scheme has been advertised as required and has also been available for inspection. 40 Specific reference should be made to s 17C(2)(c) of the 1973 Act. That provision requires that an approved summary of the scheme must be given to every affected policy holder. Section 17C(5), however, further provides as follows: The Federal Court may dispense with the need for compliance with paragraph (2)(c) in relation to a particular scheme if it is satisfied that, because of the nature of the scheme or the circumstances attending its preparation, it is not necessary that the paragraph be complied with. On 4 March 2008, Branson J made orders pursuant to s 17C(5) dispensing with the need for compliance with s 17C(2)(c). The orders as made by Her Honour, namely requiring that copies of the approved summary of the Scheme be provided to those persons identified in the order, have been complied with. 41 All procedural requirements which are to be satisfied prior to confirmation of the Scheme, it is considered, have been satisfied.

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