Insurance Commissioner v Associated Dominions Assurance Society Pty Ltd

Insurance Commissioner v Associated Dominions Assurance Society Pty Ltd - [1953] HCA 94 - HCA 1953 case summary — Zoe

[21]

(1) The Life Insurance Act 1945, was assented to on 16th August 1945, and by virtue of a proclamation under s. 2 came into force on 20th June 1946. Section 4 contains a number of definitions, only one or two of which need be noticed. There is a rather curious definition of "approved securities", but the sole or main importance of this appears to be in connection with the deposits which the Act requires a life insurance company to lodge with the Treasurer of the Commonwealth. "Industrial insurance business" is defined as meaning life insurance business consisting of the issuing of or the undertaking of liability under industrial policies, and "industrial policy" is defined as meaning a policy upon which the premiums are by the terms of the policy made payable at intervals of less than two months and are contracted to be received or are usually received by means of collectors. "Ordinary life insurance business" is defined as meaning life insurance business consisting of the issuing of or the undertaking of liability under ordinary policies, and "ordinary policy" is defined as meaning a policy other than an industrial policy. Section 8 provides, subject to a qualification which is not material for present purposes, that the provisions of the Act shall apply to the exclusion of the application of a number of specified State Acts, which may probably be assumed to include all State legislation on the subject of life insurance. Section 9 provides for the appointment of an Insurance Commissioner. Section 15 provides that a company carrying on life insurance business in Australia immediately prior to the commencement of the Act shall not, after the expiration of six months from the commencement of the Act, carry on any class of life insurance business in Australia unless it has been registered by the commissioner. Provisions relating to registration follow. Section 19 of the Act of 1945 has been amended by s. 2 of the Life Insurance Act 1950. Section 26 requires a company carrying on life insurance business in Australia to deposit with the Treasurer money or approved securities or both to the value of £50,000. Section 29 provides that money so deposited is to be invested by the Treasurer in such approved securities as the company selects or, in default of selection, as the Treasurer determines. All deposits are to be deemed to form part of the assets of the company, and interest accruing thereon is to be paid to the company.

[25]

Section 59 provides that if the commissioner, by reason of the conclusions arrived at by him as a result of an investigation so made, is of opinion that it is necessary or proper so to do, he may apply to the Court for (a) an order that the company or any part of the business of the company be placed under judicial management; or (b) an order that the company be wound up. The expression "the Court" is defined by s. 4 as meaning the High Court of Australia. Section 59 also provides that a company may, in respect of itself, after giving the commissioner one month's notice in writing, apply to the Court either for a winding-up order or for an order for judicial management. Both the company and the commissioner are entitled to be heard on any application made to the Court under this section. Section 59 also provides that a company or any part of the business of the company shall not be judicially managed or wound up except under the provisions of the Act. The word "company" is defined by s. 4 as meaning a body corporate which carries on life insurance business in Australia. Sections 60 to 66 inclusive are concerned with the conduct of the "judicial management" of a company in pursuance of an order made under s. 59 (1) (a). All that need be noted at this stage is that s. 62 requires the person appointed by the order as judicial manager to conduct the management with the greatest economy compatible with efficiency, and as soon as possible to file with the Court a report stating what course he thinks most advantageous to the general interests of policy holders. Under this section the judicial manager may recommend inter alia either that the company be permitted to carry on its business as before, or that the company be wound up. Sections 67 to 72 deal with the consequences of a winding-up order. All that need be noted at this stage is that the Court is to appoint a liquidator and to give him such directions as appear to be necessary. The liquidator is to be under the control of the Court and may apply to the Court from time to time for directions. Notice of any such application is to be given to the commissioner. Section 67 (7) provides that "Subject to this Act, and to any direction of the Court, the winding-up of a company incorporated within Australia shall be carried out in accordance with the law in force in the State or Territory in which the head office of the company is situated with respect to the winding-up of a company by a court and that law shall apply accordingly, with such modification and adaptations as are necessary".

[28]

In the first place Mr. Holmes challenged the validity of s. 59 of the Act, so far at least as it purported to authorize the making of a winding-up order. No general attack was made on the validity of the Act, regard being had doubtless to the recent decisions of this Court in Associated Dominions Assurance Society Pty. Ltd. v. Balmford [1] , and Hospital Provident Fund Ltd. v. State of Victoria [2] . It was said, however, that sub-s. (4) of s. 59 was invalid and inseverable from the rest of the section, so that the whole section fell to the ground. It was also said that the Commonwealth Parliament had no power under the Constitution to create or destroy legal personality, or to make laws affecting the status or capacity of corporations which owed their existence to, and derived their status and capacity from, State laws. The minor premise of the argument was not, I think, expressly stated, but it is presumably to be found in the proposition that a law providing for the winding up of companies incorporated under State laws is a law which directly affects the status and capacity, and ultimately the legal existence, of such companies. The very words "winding up" denote, it might be said, a process in the course of which the affairs of such a corporation are taken out of its hands and its property and rights disposed of, and at the end of which the corporation itself is annihilated. Mr. Holmes referred to Huddart, Parker & Co. Pty. Ltd. v. Moorehead [1] , and to a line of Canadian cases in the Privy Council of which John Deere Plow Co. Ltd. v. Wharton [2] is an important example. He referred also to Re Alberta Debt Adjustment Act [3] . The latter case went on appeal to the Privy Council, and is reported sub nom. Attorney-General for Alberta v. Attorney-General for Canada [4] , but their Lordships held the Alberta statute in question invalid on a broad ground which did not require them to consider that part of the majority judgment in the Supreme Court of Canada on which Mr. Holmes relied.

[30]

There are provisions in the Life Insurance Act 1945, which may be found difficult to sustain under the Constitution at all, and others which it may be found difficult to sustain without an application of s. 15A of the Acts Interpretation Act 1901-1950. In the first place, take sub-ss. (4) and (5) of s. 40, sub-ss. (4) and (5) of s. 47, sub-ss. (4) and (5) of s. 52, and sub-ss. (3) and (4) of s. 58. In each of these cases the Act purports to confer on this Court a "jurisdiction" to entertain an "appeal" from an administrative decision of the commissioner. In the last of the four cases it purports to confer a similar "jurisdiction" on the Supreme Court of a State. I should have thought it difficult to say that the power so conferred is judicial power, and equally difficult to say that powers other than judicial powers, and powers strictly incidental thereto, could lawfully be conferred under Chapter III of the Constitution on this Court or on any Federal court or on any State court as a court to exercise Federal jurisdiction: cf. Queen Victoria Memorial Hospital v. Thornton [5] . Again, s. 8 of the Act, which purports to deprive a large number of State Acts of all effect, could conceivably be open to a challenge which would raise the whole question of what Evatt J. has called "manufactured inconsistency": see West v. Commissioner of Taxation (N.S.W.) [6] . There are other provisions too which may be thought dubious. For example, though I express no opinion on the matter, I can readily imagine its being argued that the character of a "law with respect to insurance" does not attach to the provisions of ss. 92, 93 and 94 of the Act, which are concerned with the protection of the rights of insured persons under life policies against creditors and with the creation of beneficial interests in life policies. And, to come nearer home, the argument presented in this case that sub-s. (4) of s. 59 is invalid is, to say the least, an argument which may some day demand serious consideration, for its effect would appear at first sight to be that no creditor or shareholder can present a petition for the winding up of any company which carries on a life insurance business, even though that business may constitute only a very small part of that company's activities.

[33]

Nor do I think that I can accept Mr. Holmes's more general constitutional argument. It is quite true that the Parliament of the Commonwealth has no general power to make laws with respect to the creation of corporations, or the powers and capacities of corporations, or the liquidation and dissolution of corporations. The power given by s. 51 (xx.) of the Constitution with respect to "foreign corporations, and trading or financial corporations formed within the limits of the Commonwealth", whatever may be its true scope, does not amount to any such general power (Huddart, Parker & Co. Pty. Ltd. v. Moorehead [1] ). In Bank of New South Wales v. The Commonwealth [2] , Latham C.J. said of s. 51 (xx.) that "the one thing that is clear about it is that" [it] "assumes the existence of corporations either under foreign law or under some law which is in force in the Commonwealth. If the corporation is already formed it derives its existence and its capacity from the law which provided for its formation" [3] . If there is no general power to provide for the creation of corporations, it may be taken that there is no general power to wind up or dissolve corporations. But I should think it quite clear that a law made by the Parliament with respect to any of the subjects mentioned in s. 51 may be made applicable to corporations and control their conduct within the field of the power, and I am disposed to think further that such a law may, if the special character of corporations requires special provision in order to make the law effectively applicable to corporations, make any such special provision. Although there are matters of detail (such as those I have mentioned) in which its provisions may be open to constitutional attack, I can feel no doubt that the Life Insurance Act of the Commonwealth is, regarded as a whole, a law with respect to "insurance", which is authorized by s. 51 (xiv.) of the Constitution. Life insurance is, and was in 1900, a well recognized kind or class of "insurance". It may be that the power includes a power to make special provision for the constitution or incorporation of bodies to carry on insurance businesses of various kinds (cf. M'Culloch v. Maryland [1] ; Jumbunna Coal Mine N.L. v. Victorian Coal Miners' Association [2] ), though it may be noted that s. 51 (xiii.), which confers legislative power with respect to banking, expressly refers to the incorporation of banks, and there is no corresponding reference in s. 51 (xiv.). But it is not necessary to consider this question, because the Act (apart from Pt. VI., with which I am not concerned) makes no attempt to do any such thing. It seems to me that the power to make laws with respect to insurance must include power to prescribe conditions upon which any person, natural or artificial, may carry on an insurance business of any kind. It must include power to require such persons to be registered and to provide security for the due performance of their obligations to insured persons, to maintain funds to answer those obligations, to keep appropriate accounts, to submit those accounts to a designated authority, to make and return to a designated authority periodical actuarial investigations disclosing their true financial condition, and so on. It must include power also to make such provisions practically effective, and s. 51 (xxxix.) is there to be called in aid, if need be. Further, the whole relation of insurer and insured is within the scope of the power, and the power must extend to providing for the enforcement of contractual obligations and for the creation and enforcement of further obligations. It must extend also, in my opinion, to dealing with a situation in which the interests of a body of insured persons are involved by reason of an actual or probable default on the part of their insurer. In such a situation it extends, in my opinion, to providing for the taking of such steps as may be thought necessary or desirable for the protection of such persons as a body and the equitable adjustment of their interests inter se. It cannot, as I think, be held to stop short of authorizing the taking of such steps as are authorized by s. 59. It seems to me that such provisions possess on their face the character of laws with respect to life insurance. It may be that the power does stop short of authorizing a direct provision for the actual dissolution of a corporation. But I regard this as a point of small importance in this case. Neither an order for judicial management nor an order for winding up affects the existence of a corporation.

[37]

As is well known, ss. 91 and 92 of the British North America Act 1867 Imp. (30 & 31 Vict., c. 3) confer exclusive legislative powers over specified subjects upon the legislatures of the Dominion and of the Provinces respectively, and there is a provision at the end of s. 91 which may be stated sufficiently for present purposes by saying that (as it has been interpreted) a matter which falls within s. 91 is not to be deemed to be a matter falling within s. 92. Among the matters assigned to the Dominion by s. 91 is "(2) The Regulation of Trade and Commerce", and among the matters assigned to the Provinces by s. 92 is "(11) The Incorporation of Companies with Provincial Objects". In order to preclude what was regarded as a potential "hiatus" with respect to the incorporation of companies, it was held by the Privy Council at an early stage that the power to regulate trade and commerce included a power in the Dominion Parliament to provide for the constitution and incorporation of companies having "Dominion objects", i.e., objects not confined to the boundaries of any particular Province: Colonial Building & Investment Association v. Attorney-General for Quebec [1] . So to hold was, of course, equivalent to holding that an express and exclusive power with respect to the constitution and incorporation of companies with "Dominion objects", as distinct from companies with "Provincial objects", resided in the Dominion legislature. Nor could it be easy to confine such a power within narrow limits, although the doctrine actually developed has been criticized: see, e.g., the observation of Meredith C.J. quoted in Great West Saddlery Co. v. The King [2] . For a power to create, although exclusive, might be thought to be empty and nugatory unless it comprised a power to endow the thing created with powers and capacities to govern within a wide field its potentially Dominion-wide corporate activities, and to provide ultimately for its liquidation and dissolution. The result has been the rule exemplified in John Deere Plow Co. Ltd. v. Wharton [3] . It does not mean that Dominion companies are immune from Provincial legislation of a general character, but it does appear to mean that neither the existence of such a company nor the pursuit of its corporate objects can be controlled or affected by any law enacted in a Province.

[41]

I cannot say that I have felt any serious difficulty as to the general principles which should guide the Court in exercising its discretion under s. 59. With regard to the ultimate discretion, I think the general conception to be applied is that which is inherent in the words "just and equitable" in the Companies Acts. Those words are wide and vague, but they have become very familiar, and they have been judicially considered on many occasions. The Act, however, contemplates that certain matters are to be established before a question of discretion arises. When the application under s. 59 is made by the commissioner, it can only be after he has made an investigation under s. 55, and if he is of opinion that the results of the investigation warrant the making of the application. The grounds which justify the making of an investigation are stated in s. 55, and I have set them out above. They are seven in number. Six of them are specific, and the seventh is of a general nature. What might be included within the seventh need not now be considered. The six which are specific indicate, in my opinion, grounds which may justify the Court in making either a winding-up order or an order for judicial management. It does not follow from the establishment of any one or more of the grounds mentioned that either order should be made. The Court has still to exercise a discretion, and it should, in my opinion, make one or other order if, but not unless, it is satisfied that to do so is "just and equitable". It will be just and equitable if to do so appears likely to be in the best interests of all concerned. In saying this, I have it in mind that the prime intention of the Act is to protect policy holders - they, as Mr. Macfarlan said, borrowing from legislation on another subject, should be the "first and paramount consideration" - but I do not regard this as meaning that the interests of shareholders or others are always to be ignored. The grounds which may, under s. 55, support an investigation by the commissioner and an application under s. 59 are intrinsically of varying degrees of seriousness, and the facts of any particular case which falls within any one of them may be of varying degrees of seriousness. If any one of those grounds is established, the making of either of the orders authorized by s. 59 is still a matter of discretion. No rule should, or can, be laid down. The case must depend on all the circumstances. But, so far as grounds (a) and (b) in s. 55 are concerned - and these are the most important for the purposes of the present case - it may be said that, generally speaking, if there appears to be no reasonable prospect of the position being remedied and the company's business being placed in the near future on a sound basis, a winding-up order should be made. If it appears likely to be a case of mere temporary embarrassment, no order should be made. If the position is in doubt, and the Court thinks that, although a serious position is disclosed, further investigation and experiment would be desirable - perhaps that the company ought to be given a chance to see what it can do - then an order for judicial management of the company may well be thought appropriate.

[45]

I have no evidence as to the activities of the company before the commencement of the Life Insurance Act 1945. The business carried on has comprised ordinary life insurance, industrial insurance and accident insurance. Shortly after the Act was proclaimed, the company applied for registration, and it was registered by the commissioner under s. 19 on 9th September 1946. The material, however, which, in pursuance of s. 17, accompanied the application for registration, disclosed certain features which the commissioner not unnaturally considered unsatisfactory. This material included a valuation report, with a valuation balance sheet, as at 30th June 1941, the latest date as at which the company had caused an actuarial investigation to be made. The valuation balance sheet showed "net liability under assurance and annuity transactions" at a figure of £331,564, and "assurance funds as per balance sheet" at a figure of £179,915. A deficiency of £151,649 was thus disclosed. The material also included accounts of the company as at 30th June 1945. The balance sheet as at that date showed, on the liabilities side, an item "Assurance Account - £307,262". It also showed other liabilities (apart from shareholders' capital and a reserve) amounting to some £12,000. The assets side showed "tangible" assets amounting to about £240,779 and "Establishment and Purchase Account - Cost of establishment of business and purchase price of other business acquired - £111,429". The company's next actuarial investigation was made as at 30th June 1946, and the documents in connection therewith, including a valuation balance sheet, were received by the commissioner in Canberra on 7th July 1947. It is necessary at this stage to say only that this valuation balance sheet showed net liabilities under policies at a figure of £549,783, and the life assurance statutory fund at £332,239. The deficiency thus disclosed was £217,544. It should be mentioned here also that the ordinary balance sheet as at 30th June 1946 showed, on the assets side, an increase in the figure for "Establishment Account" of some £8,000, that figure now standing at £119,911. Accounts for succeeding years, up to and including the year ended 30th June 1952 were transmitted by the company to the commissioner. Under s. 48 of the Act the company's next actuarial investigation should have been made as at 30th June 1951, the last having been made as at 30th June 1946. On 1st April 1952 the commissioner received a letter from the company, saying that a valuation as at 30th June 1950 had been made by Mr. A. T. Traversi, a Fellow of the Institute of Actuaries, and suggesting that, in order to save expense to the policy holders, this should be accepted in lieu of the valuation which was due as at 30th June 1951. Mr. Traversi's valuation balance sheet showed net liabilities under policies at a sum of £660,325, and the life insurance statutory fund at a sum of £475,173. The deficiency thus disclosed was £185,152. The commissioner raised various objections to accepting the material thus put before him, pointing out, among other things, that, if the material was intended to comply with the Act, it ought, in accordance with s. 52, to have been lodged with him twelve months earlier. In the meantime, however, several things had been happening.

[46]

The commissioner appears from the outset to have taken a serious view of the company's position. He began by requiring the company, under s. 40 (3) to rectify its accounts in various respects, which included a writing down of the value of certain shares held by the company in other companies. These requirements appear to have been carried out. However, after receiving the valuation balance sheet as at 30th June 1946, and the company's ordinary accounts for the year ended 30th June 1947, and after some correspondence with the company and an interview with its auditor, he wrote to the company on 2nd April 1948, informing it that he had instructed Mr. S. W. Caffin of his office to conduct an investigation into the affairs of the company. The company protested, and on 28th April 1948 issued a writ in an action in this Court claiming, inter alia, an injunction to restrain the commissioner from investigating its affairs. No further step was ever taken in this action. It was obvious that the commissioner had not complied with s. 55 of the Act, and (having doubtless been so advised) he issued on 30th April 1948 a formal notice to the company requiring it to show cause why its affairs should not be investigated. The company's immediate response was to commence another action, the writ in which was issued on 12th May 1948. For some reason more than two years elapsed before this action was practically determined in favour of the company when the Full Court, on 9th August 1950, on appeal from McTiernan J., held that the notice of 30th April 1948 did not comply with the requirements as to time of s. 55, and granted an injunction restraining the commissioner from acting on the notice: see Associated Dominions Assurance Society Pty. Ltd. v. Balmford [1] . On 8th February 1951 the commissioner issued a fresh notice to show cause under s. 55, but, because the company claimed that it had not a fair opportunity of showing cause, he decided not to proceed further under that notice, and on 28th March 1951 he issued a third notice.

[51]

I have thought it desirable to set out the events which led up to the making of these applications to the Court. It is not that I think that anything that emerges from them should carry decisive weight with me in determining what course I should adopt. But they present some remarkable features, which ought not to be overlooked. Statements made in one of the letters from the company to the commissioner suggest that at one stage the company's managing director was willing to interview the commissioner and make certain books and records available. But it remains true to say that for a period of five years the company did everything in its power to delay the taking of decisive action by the commissioner, to prevent an examination of its books and records, and to withhold all information other than the returns which the Act required it to make. It did not even comply fully with the Act, for it did not make the actuarial investigation required as at 30th June 1951. Ultimately, indeed, it succeeded in its endeavours in all the directions mentioned. In the course of its endeavours it made most serious allegations against the commissioner and Mr. Caffin, which were - very properly, no doubt - not raised before me, but which have never been withdrawn. I think I ought to say that, so far as any material before me goes, these allegations are without any foundation. Then, when the commissioner finally moves for a winding-up order, the company, having done all the things which I have mentioned, agrees in effect that the intervention of the Court is necessary, but asks the Court to make an order which, while taking its affairs out of its own control, will not actually put it into liquidation. It may be that the death of Mr. W. T. Page in 1952 was a material event in the story, but the acts of the company are the acts of the company whoever is responsible for its management. Mr. Macfarlan, for the commissioner, did not strongly press these matters upon me, and the company's actual financial position and prospects must clearly be regarded as the main factors in the case. I think, however, that such matters as I have mentioned might legitimately be weighed in the balance in a doubtful case. And, in so far as there are any gaps in the relevant material, it is to be borne in mind that these exist because the company has not chosen to disclose books and records to the commissioner.

[53]

An ordinary commercial institution measures its financial solvency by means of a balance sheet setting forth the actual liabilities and assets in hand. Regard may, of course, also be had to contingent assets or liabilities, if any. In the case of a life insurance company which has been doing a substantial business, while the immediate liabilities may be quite small, those which are payable in the future upon death, or in the case of endowment assurances upon survival, are likely to be very substantial. The consideration to the company for the undertaking of these future liabilities is the payment of premiums, and future premiums payable must be taken into account in order to arrive at an estimation of the company's true future liabilities. To arrive at the true position of a company's life insurance business, it is, therefore, necessary to begin by estimating the cost of future claims and future receipts from premiums. This involves, in the first place, an estimate of the number of present policy holders of each age - (a) who will die or attain the maturity age of their policies in each future year, from which numbers can be obtained the cost of the claims arising in each future year; and (b) who will not have died or will not have attained the maturity age of their policies in each future year, from which numbers can be obtained the premiums to be received in each future year. Having obtained an estimate of the claims and premium receipts in each future year the actuary has then to discount these amounts at an appropriate rate of interest in order to obtain their value at the present time. The difference between these two discounted values represents the "net liabilities under policies", which are referred to in Form J in the Second Schedule to the Act. A major consideration in the valuation is the determination of the rate of interest to be used in discounting future claims and premium receipts. The valuation rate of interest should be related to the rate of interest which it is anticipated that the company will earn on its investments, though it is to be noted that maximum rates of interest to be used in the calculation of future liabilities are now fixed by the Fourth Schedule to the Commonwealth Act. The effect of assuming in the valuation a higher rate of interest than that which can be actually earned is to under-estimate, or at least to run a grave risk of under-estimating, the value of the company's liabilities. The higher the rate of interest adopted, the lower will be the apparent net liability. The accepted method of arriving at the financial position of a life office is by comparing the net liabilities, actuarially calculated in the manner described above, with the assets available to meet those liabilities.

[59]

The amount of the deficiency disclosed by these figures in each year is very substantial. If we regard them comparatively, they show an increase in the amount of the deficiency as between 1941 and 1946 of some £66,000, and a decrease in the amount of the deficiency as between 1946 and 1950 of some £32,000. It would appear, however, that, for purposes of comparison, the figures for 1941 and 1950 require adjustment. In the first place it seems that the valuation of 1946, being made after the Act of 1945 came into force, was on a "more stringent" basis than that of 1941. This means, as I understand it, that, if the same basis were taken for 1941 as for 1946, the amount of the 1941 deficiency would be greater than the above figure, with the result that the difference between the figures for the two years would be reduced. Mr. Traversi says, and Mr. Balmford accepts this position, that an adjustment for this change in the valuation basis would reduce the apparent increase in amount of deficiency between these two years to approximately £30,000. In the second place, in the year ended 30th June 1950 the company sold a property which it had acquired and thereby realized a capital profit of some £37,000. Since this is a non-recurring profit, it would seem right to exclude it in comparing the positions as at 30th June 1946 and as at 30th June 1950, though it could not, of course, be excluded in considering the company's actual position as at 30th June 1950. If this be excluded, the company's deficiency increased between 1946 and 1950 to the extent of some £5,000. So far as amount of deficiency is concerned, it may perhaps be said that no very startling change took place over the nine years. On the other hand, if the above figures are taken at their face value, it may be said that there has been a substantial improvement in the company's position, since they would appear to indicate that the percentage of statutory fund to net liabilities increased between 1946 and 1950 from about sixty per cent to about seventy-two per cent, about half of this increase being accounted for by the non-recurring profit on the sale of the land. If the 1941 liabilities are calculated on the 1946 basis, a somewhat similar percentage improvement is indicated as between 1946 and 1941.

[60]

(b) In spite of the apparently improving ratio, the above figures show a serious deficiency existing as at 30th June 1950. But the above figures are far from disclosing the full seriousness of the position. The figure taken above as representing the statutory fund at each date is taken from the company's ordinary balance sheets, in which it appears, of course, on the liabilities side. We have not a copy of the balance sheet as at 30th June 1941, though the relevant figures can be obtained from material before the Court. It will suffice to look at the balance sheets for the years ended 30th June 1946 and 1950. In 1946 the item "Statutory Fund - £332,239" appears on the liabilities side. There are also certain current liabilities, though these are, comparatively speaking, not of large amount. They do, of course, affect the actual position, but for present purposes I am prepared to ignore them. When we turn to the assets side of the balance sheet, in order to ascertain what there is to answer the "statutory fund", we find the total assets of the company stated at a figure of £371,737, of which, however, no less a sum than £119,911 is the value attributed to an "intangible" asset described as "establishment account". Of this sum of £119,911 (which, by the way, has increased by about £8,500 since 1941) a sum of £95,902 is attributed to the life insurance business, the balance of £24,009 (which is the amount of shareholders' paid-up capital) being attributed to "Other classes of business". The position disclosed by the ordinary balance sheet as at 30th June 1950 is substantially the same in the respect under consideration. The statutory fund is shown on the liabilities side at the figure of £475,173. Total assets of the life insurance business are shown at a figure of £480,005, but the "establishment account" still stands at £119,911, though the amount of this which is attributed to life insurance business is reduced to £91,111. There is an additional item on the assets side - "Sundry Debtors (Including Insurance Act Suspense Account) - £10,284". I am not clear as to what this item is supposed to represent, but I did not understand it to be suggested that it should be regarded otherwise than as an "intangible". We thus get a total figure for intangibles of £101,395. In the absence of any evidence as to these intangibles, or as to the existence of anything in the nature of a "hidden reserve", I would be disposed to express the result of this examination of the balance sheets at 30th June 1946 and 1950 by saying that, at least to the extent of the intangibles, the statutory fund mentioned in those balance sheets was not represented by assets. It is, I think, only saying the same thing in another way if we say, as the commissioner says, that we should add to the amount of the deficiency shown in the table at the beginning of par. (a) above the amount of the value attributable to intangibles. If we do that, we get the following result: -

[67]

(f) It seems to me to be an extremely important fact that the company is now entering on a period in which heavy increases in maturity claims can be anticipated. The commissioner has examined the maturity dates of a large number of endowment assurance policies in force in the ordinary branch and in the industrial branch respectively as at 30th June 1946 and 30th June 1950. I will refer only to policies in force at the later date. The total sums insured in the ordinary branch at that date amounted to £885,556. The commissioner excluded from his calculations whole life policies for a total amount of £267,172, and he had to exclude from his calculations endowment assurances for a total amount of £311,925, the years of maturity of which were not disclosed by the company's returns. Taking the four quinquennial periods, 1951-1955, 1956-1960, 1961-1965, and 1966-1970, they show maturities under the policies taken into account at the respective figures of £19,077, £33,829, £53,688 and £109,067. The corresponding figures for the industrial branch are much more striking. The total sums insured in this branch at 30th June 1950 amounted to £942,014. Here again a large number of policies were excluded from the commissioner's calculations. The whole life policies in this branch were, as one would expect, for the comparatively small total amount of £21,404. The endowment assurances, the maturity dates of which were not disclosed by the returns, amounted to £307,808. Taking the endowment assurances of which he knew the maturity year and taking the five quinquennial periods, 1946-1950, 1951-1955, 1956-1960, 1961-1965, and 1965-1970, the commissioner found the maturities respectively as amounting to £8,409, £151,154, £240,638, £137,327, and £15,395. These figures for the industrial branch have to be viewed alongside Exhibit R4, which purports to take the whole of the endowment assurances in this branch, and which suggests that (through surrenders and lapses and perhaps other causes) the actual figures for the maturities are likely to be considerably lower than the commissioner anticipates. I am not able, however, to regard Exhibit R4 as substantially qualifying the general picture which the commissioner's calculations present.

[77]

(a) Mr. Traversi began by saying that, in considering the solvency of a company which it was proposed should be wound up, it was altogether wrong to apply the stringent "minimum basis" prescribed by the Fourth Schedule for the valuation of liabilities. He said that the Fourth Schedule was concerned only with the distribution of bonuses and dividends. So far as this view depends on the construction of the Act, I do not agree with it. I do not think that the Fourth Schedule is concerned only with the distribution of bonuses and dividends. Such a view appears to me to be decisively negatived by s. 55 (1) (b), which states one of the grounds justifying an "investigation" by the commissioner, and which expressly refers to a valuation which has to be made subject to s. 49 and the Fourth Schedule. I do, however, agree - at any rate, up to a point - with what I understand to be the broad general contention underlying what Mr. Traversi said. While I think that the Act has prescribed its own standard of solvency, I do not think for a moment that a company ought to be wound up merely because a Fourth Schedule valuation discloses that net liabilities exceed the statutory fund even to a considerable degree. I agree that it is a very serious matter indeed to order a life insurance company to be wound up. All sorts of circumstances may have to be taken into consideration. The most obvious is the degree of the deficiency revealed. Not less obvious are the period during which the deficiency has existed and the prospect for the future. Another - perhaps less obvious - is the age of the company. I would fully accept the statement in the Report of the Hood Commission, which was cited to me, that "the business of life insurance at the present day is so complex and the changes taking place during its development are so considerable that the application of a "hard and fast" standard of solvency to all companies irrespective of their age or the nature of their business would undoubtedly result in serious injury to the company and through it to its policy-holders". I see no reason to suppose that this is less true in 1953 than it was in 1910.

At a glance

Court

Decision date

Before

Source

Judgment (95 paragraphs)

Parties

Cited By (1)