1 On 29 March 2005, I declined to accede to an application by the liquidators of each of eight insurance companies to make orders for the convening of meetings of their creditors under s.411(1) of the Corporations Act 2001 (Cth). I did so because, for reasons I then published (see Re HIH Casualty and General Insurance Ltd (2005) 215 ALR 562), I was of the opinion that the proposed compromise or arrangement between each company and its creditors failed to give effect to and was inconsistent with provisions of Commonwealth law, being s.116 of the Insurance Act 1973 and s.562A of the Corporations Act. The originating process was stood over to provide the liquidators with an opportunity to reformulate the proposal, if minded to do so.
2 The liquidators took up that opportunity. They embarked upon an extensive reformulation. In the course of pursuing that task, they obtained on 3 June 2005 a further adjournment of the proceedings so that a separate proceeding might be instituted in England where provisional liquidators have been appointed under the Insolvency Act 1986 (see Re HIH Casualty and General Insurance Ltd (2005) 54 ACSR 380). The English proceeding was initiated with a view to obtaining a decision on the question whether assets in the hands of those provisional liquidators (and any subsequently appointed liquidators) ought properly, in the eyes of English law, be remitted to the liquidators appointed by this court. That question was answered in the negative: see Re HIH Casualty and General Insurance Limited [2005] EWHC 2125 (Ch), 7 October 2005. At a directions hearing before me on 10 October 2005, the liquidators indicated an intention of progressing their reformulation in the light of the English judgment, and in a way that would accommodate the possibility that an appeal to the English Court of Appeal might be allowed. Leave to appeal was subsequently granted on 24 October 2005.
3 At the directions hearing of 10 October 2005, I made directions calculated to ensure that the revised proposal for a compromise or arrangement with each company's creditors was exposed in the first instance to the creditors who had been granted leave under rule 2.13(1) of the Supreme Court Corporations Rules 1999 to be heard in this proceeding without becoming parties. As a result, redrafting occurred, submissions were exchanged and, by the time the adjourned hearing began yesterday morning, there was a substantial measure of agreement that the revised scheme proposed by the liquidators adequately accommodated and gave effect to the statutory provisions in respect of which the original version had been found deficient. Australian Securities and Investments Commission has again appeared as amicus curiae and there have also been appearances on behalf of the creditors to which I have referred. One creditor, Perisher Blue, indicated that it wished to make no submissions and its solicitor was given leave to withdraw. The remaining creditors, represented by Mr Robb QC (Amaca Pty Ltd and Amaba Pty Ltd) and Mr Jackman SC (La Trobe Power and Hazelwood Power) made submissions.
4 I am satisfied that the original shortcomings in the proposal to which the judgment of 29 March 2005 was devoted have been adequately addressed. As now proposed, the scheme does not purport to encroach upon the operation of s.116 of the Insurance Act or s.562A of the Corporations Act or, indeed, to alter the scheme of entitlements arising under the statutory provisions concerning winding up.
5 As now formulated, the proposed arrangement is predicated upon the operation of ss.116 and 562A detailed in the judgment of 29 March 2005. There is no longer any attempt to make special provision with respect to assets in other countries. As far as administration of assets is concerned, the proposal merely causes the form of administration provided for in a winding up under the Corporations Act to be applied, albeit with more expeditious procedures for assessing and adjudicating claims, for settling small claims and otherwise for proceeding in a more streamlined way than would apply in a winding up. The concept is probably best described as unchanged rights in a streamlined setting. The runoff model referred to in the 29 March judgment by reference to Re Osiris Insurance Limited [1999] 1 BCLC 182 is adopted.
6 There are however some matters to which reference needs to be made. In addressing them I remind myself of the function of the Court upon an application of this kind. It is sufficient that I repeat here what was said at paragraphs 11 to 14 of the 29 March 2005 judgment:
"The function of the court upon such an application is well settled. I summarised the matter thus in Re Westfield Holdings Ltd (2004) 49 ACSR 734 (a case involving a members' scheme):
'The court's role on a s.411 application of this kind has been described in a number of cases. According to the formulation adopted by Santow J in Re NRMA Insurance Ltd (2000) 33 ACSR 595, the court must see, on the material placed before it, that the proposal fits within the statutory concept of arrangement or compromise, that there will be available to members all the main facts relevant to the exercise of their judgment, that ASIC has had a reasonable opportunity to examine the proposal and that the scheme is so conceived and presented as to that structure, purpose and effect that there is no apparent reason, so far as can be foreseen, why it should not, in due course, receive the court's approval if the necessary majority of members' votes is achieved. To substantially similar effect are observations of Austin J in Re GIO Building Society Ltd (2001) 39 ACSR 77, French J in Re Foundation Healthcare Ltd (2002) 42 ACSR 252 and Parker J in Re Ranger Minerals Ltd (2002) 42 ACSR 582. Slightly different, but by no means conflicting, are the criteria enunciated by Emmett J in Re Central Pacific Minerals NL [2002] FCA 239 and repeated in the following terms by Conti J in Re CSR Ltd (2003) 45 ACSR 34:
"(i) the likelihood or otherwise that the court will approve the scheme of arrangement, if the statutory majority of shareholders is achieved at the proposed scheme meeting;
(ii) whether there has been compliance with such preliminary matters as are relevant to the holding of the meeting;
(iii) where there will be sufficient disclosure, to those persons and entities who will be affected by the scheme of arrangement, of its detail and effects; and
(iv) whether there has been reasonable opportunity for the commission to examine the terms of the scheme of arrangement."'
A source of the aspect focussing on the likelihood or otherwise of the court's approval of the scheme being given is the judgment of Street CJ (with whom Hutley JA and Samuels JA agreed) in F T Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69. The Chief Justice said (at p.72):
'The approach taken upon a summons [for orders for the convening of meetings] is that the court will not ordinarily summon a meeting unless the scheme is of such a nature and cast in such terms that, if it achieves the statutory majority at the creditors' meeting the court would be likely to approve it on the hearing of a petition which is unopposed.'"
7 The first group of matters to be considered upon the present application was raised by the Hazelwood Power and La Trobe Power interests for which Mr Jackman SC appeared. Hazelwood and La Trobe are insureds in respect of whose risks the HIH companies carry reinsurance. Those creditors have a special interest, therefore, in s.562A generally and in the particular aspect of it under which such an insured may apply to the court under s.562A(4) for an order for participation in reinsurance proceeds on a special basis. The scheme as now proposed contains a number of provisions calculated to preserve the rights of insureds to whom s.562A applies and, in particular, to accommodate the operation of s.562A(4) both as to the making of applications and the satisfying of orders. There is a clause to the effect that before the scheme administrators make any payment out of the proceeds of facultative or fronting reinsurance received by them, they must give to any insured creditor interested in those proceeds 60 days prior notice. The notice must refer to the amount received, the fact that it has been received in relation to a liability under facilitative or fronting reinsurance, and the intention of the scheme administrators to pay out the amount unless a s.562A(4) claim is made in relation to it. The intention, clearly enough, is to ensure that relevant creditors have time within which to decide whether to make a s.562A(4) application.
8 Hazelwood and La Trobe say that this provision should be altered in two ways. First, they say that the notice should be given within 28 days after receipt of the amount. Second, they say that there should be a provision that the insured is to be given a copy of the relevant contract of reinsurance if it asks for it after receiving the notice of intention to pay. The first refinement is sought merely as a matter of convenience. The second is sought because it is said the strengths of any s.526A(4) case the insured may consider bringing could depend on the terms of the reinsurance. A further submission made on behalf of Hazelwood and Latrobe is that there should be a mechanism for an insured in respect of whom s.562A applies to have in advance a copy of the relevant reinsurance contract.
9 The liquidators do not agree that the scheme should incorporate these features. They say that such features are not found in the winding up regime laid down by the Corporations Act and that since, as regards s.562A, the intent of the scheme is merely to accommodate the statutory regime, there is no basis for making the additions. On the last of the matters mentioned, Mr McGrath, one of the liquidators, refers in an affidavit to apprehensions that advance access to reinsurance terms by an insured might encourage direct negotiations and settlements between insureds and reinsurers in the absence of cut through liability (that is, directly maintainable contractual claim by the insured against the reinsurer). The apprehension is that recovery by the insurer against the reinsurer to the benefit of a wider body of creditors might be effectively bypassed to the detriment of that body of creditors. Hazelwood and La Trobe say that the envisaged disclosure provision would assist insureds covered by reinsurance to discover whether cut through provisions are included in the relevant reinsurance contracts.
10 It is not the function of the court in the present kind of context to arbitrate matters of this kind. The liquidators have proposed a particular scheme. It does not incorporate the features Hazelwood and La Trobe regard as desirable from the point of view of insureds such as them. The task of the court is to judge whether a scheme lacking those features and in the form the liquidators propose is, if it achieves the statutory majority at a meeting of creditors, likely in due course to be approved by the court upon an uncontested hearing for approval.
11 In the respects to which the Hazelwood and La Trobe submissions relate, the scheme as proposed by the liquidators leaves creditors in the position they occupy under the legislation. The fact that they are not afforded some enhanced position cannot, in my view, be seen as a factor detracting from the likelihood that the court would approve the scheme if it found favour with creditors. I think the matters raised by Hazelwood and La Trobe may be left there.
12 I refer next to a matter flagged in the March judgment at paragraph 155, namely the aspect that sees the scheme administered principally by scheme administrators to whom the liquidators entrust all assets under their control. I raised at paragraph 155 the question of whether such officials will operate under a regime sufficiently akin to that of liquidators to engender confidence that appropriate safeguards exist.
13 The Corporations Act contains numerous references to a "person administering" a Part 5.1 compromise or arrangement. The various references lay to rest the doubts that were canvassed in cases such as Harris v Shepherd (1976) 1 ACLR 50 and, on appeal, Harris v S (1976) 2 ACLR 51. Such a person is now included within the s.9 definition of "officer" as it relates to a corporation. That, of itself, does much to define and shape the person's duties, having regard to the fact that each of the key sections imposing statutory duties of care and diligence, good faith, avoidance of conflict and the like (ss.180 to 184) refers expressly to a "director or other officer of a corporation". In addition, it has been pointed out by Mr Oakes SC on behalf of the liquidators that a number of the provisions of the Act dealing with receivers are, by s.411(9)(a), made applicable to a person administering a comprise or arrangements; also, that s.536, dealing with what might loosely be described as "disciplining", is made by s.411(9)(b) to apply to such a person as if the person were a liquidator. Further, decisions and actions of such persons may be reviewed by the court under s.1321 in the same way as decisions and actions of liquidators may be reviewed.
14 These statutory provisions, coupled with provisions of the scheme that will be made binding on the scheme administrators by contracts to be made as part of their appointment, provide sufficient safeguards in relation to these matters. Although there is no clear mechanism for scheme administrators to obtain directions from the court, it is pointed out in submissions that it should be possible in most cases for relevant matters to be adjudicated upon an appropriately constituted application for declaratory relief.
15 The possible concern I flagged at paragraph 155 of the March judgment about the existence of an appropriate supervisory regime in relation to scheme administrators may therefore be taken to be resolved.
16 Two classes of functionaries will play a part in the implementation of the scheme, assuming it comes into effect. There are the scheme administrators to whom I have already referred. There are also officials designated "scheme adjudicators" whose functions will be to assess and quantify claims received from creditors. The scheme provisions require that scheme adjudicators be actuaries, it being clear that the skills to be brought to bear in the assessment process will be skills of the kind that are involved in judging risk and probability, that is to say matters within the professional province of an actuary.
17 I had some concern whether these scheme adjudicators would properly be regarded as persons "administering a compromise or arrangement", as that expression is used in the Act. However, I am persuaded that they will have that character, particularly in light of the provision of the scheme which reads in part as follows:
"The Australian Scheme shall be administered by the Scheme Administrators and the Scheme Adjudicators according to the respective powers and functions assigned to them by the provisions of the Australian scheme..."