Re United Medical Protection & ors (No.6) [2002] NSWSC 562

2545/02 IN THE MATTER OF UNITED MEDICAL PROTECTION LTD (NO.6) 2543/02 IN THE MATTER OF AUSTRALASIAN MEDICAL INSURANCE LTD (NO.6) 2541/02 IN THE MATTER OF MDU AUSTRALIA INSURANCE CO PTY LTD (NO.6) JUDGMENT 1 HIS HONOUR: These reasons for judgment relate to the further hearing of the matters on 14 June 2002, when I received the provisional liquidator's report and stood over the winding up applications for further mention before me on 26 July 2002. 2 When proceedings were commenced for the winding up of UMP and its two subsidiaries, interlocutory applications were made for the appointment of a provisional liquidator to the three companies. The Court appointed Mr David Lombe to that office: Re United Medical Protection Ltd [2002] NSWSC 413 (3 May 2002). At that time the applications to wind up three companies were stood over to 14 June 2002, so that the provisional liquidator could then report to the Court on his work and directions could be given in preparation for the final hearing of the proceedings. 3 On 14 June 2002 the provisional liquidator provided a memorandum to the Court on the progress of the provisional liquidations. He reported that he has taken control of the affairs of the companies, and has held meetings with staff and management, making presentations to them and the members in relation to his appointment as provisional liquidator and the work he is undertaking. He has had correspondence with creditors and the Australian Taxation Office, and has had meetings or correspondence with "key stakeholders" including the Commonwealth Government, the New South Wales Government, the Australian Medical Association and other representative medical associations, the Australian Prudential Regulatory Authority and the Australian Securities and Investments Commission. 4 Central to his work have been lengthy and ongoing negotiations to secure financial support from the Commonwealth. Interim support has been given by means of two letters of comfort, supplemented in each case by statements issued in response to questions raised by the Court. The Court has approved those arrangements under s 477 (2B) of the Corporations Act 2001 (Cth) and has given him consequential directions: Re United Medical Protection Ltd (Nos 2, 3, 4 and 5) [2002] NSWSC 458, 488, 516 and 545. Pursuant to those arrangements and the Court's determinations, Mr Lombe has begun to pay in full claims under AMIL insurance policies and discretionary grants of assistance by UMP which have become payable during the period from 29 April 2002 to 30 June 2002. He has written to members whose memberships and policies are due to expire on 30 June, offering to renew their memberships on certain terms and to renew their policies up to 31 December 2002. He has been able to provide insurance cover for UMP members on an "incidents occurring basis" for claims arising from incidents occurring in the period from 29 April to 30 June 2002. 5 It is intended that these interim arrangements will be replaced by a deed of indemnity, subject to the Court's approval. Mr Lombe expects to be in a position to apply to the Court for this purpose shortly. 6 Mr Lombe is conducting investigations into the financial position of the companies, with specific regard to their solvency. He and his insolvency team are conducting these investigations with help from experts in the areas of taxation, audit and risk management, and actuarial matters. He has also engaged an independent actuary to undertake a full actuarial assessment of the companies' claims provisions and IBNR liabilities. His report to the Court notes issues that are arising in each of these areas. 7 A detailed "assurance of balance sheet" review is nearly complete, the purpose of which is to determine the veracity of the numbers upon which Mr Lombe will be forming a view on solvency. According to Mr Lombe's report to the Court, no significant misstatement of the companies' positions has been identified, although certain issues require further identification. A detailed taxation review is also nearly complete. Its purpose is to highlight any significant indirect tax or income tax considerations applicable to the companies, which may impact on the veracity of the balance sheet figures. The report of the independent consulting actuary is expected to be complete on 28 June 2002. 8 In his affidavit made on 14 June 2002, Mr Lombe said he expected to be in the position to report to the Court on the solvency of the three companies in about six weeks from that time. He said that all of the directors of the three companies had resigned and no new directors had been appointed. In those circumstances he was the only officer of the companies able to give instructions on their respective applications for winding up. 9 He said he had formed the opinion that it would not be in the interest of the companies, their members or creditors for the applications to wind up to be dismissed, given that there are no directors who could resume control of the companies. He has also formed the view that it would be too early to reach a concluded opinion on whether any or all of the companies should be wound up. In particular, there was a real prospect of finalising a deed of indemnity with the Commonwealth in the near future, and in those circumstances he believed there would be substantial benefits to the companies, members, creditors and the public in continuing the provisional liquidations. 10 In all circumstances, his request to the Court on 14 June 2002 was that the winding up applications for the three companies be stood over for a period of approximately six weeks. This was on the basis that in six weeks' time he would be in a position to report on the solvency of the companies, and the Court would be aware of the state of the agreement between the companies, himself and the Commonwealth. At that time it would be appropriate for the Court to consider the future conduct of the provisional liquidations and make appropriate directions in respect of the winding up applications. 11 Mr Lombe's evidence is that, once he is able to reach a view on the solvency of the three companies as at the date of his appointment (3 May 2002) and on an ongoing basis, he will be able to formulate some options for each of the companies. He will want to be informed about and take into account the way in which the Commonwealth Government intends to deal with unfunded IBNRs, and also to consider the "Longer Term Strategy" referred to in the Prime Minister's Statement on Medical Indemnity released on 31 May 2002. 12 Having heard Mr Lombe's report and having considered his evidence, I decided on 14 June 2002 to accede to his application to stand the winding up applications over for further mention before me in six weeks' time. In doing so, I expressed no view as to the propriety and appropriateness of the resignations of the directors. I relied on Mr Lombe's evidence that on the next occasion he will be in a position to give a report to the Court on the solvency of the companies and also on the state of development of the Commonwealth Government's assistance proposals. I proceeded on the assumption that in the meantime, negotiations for the deed of indemnity between the companies, Mr Lombe and the Commonwealth would have been finalised and an application would have been made for the Court's approval of that instrument. 13 At various points during the hearings of these matters I have been concerned about whether adequate information was being provided by the provisional liquidator to UMP's members. The members clearly have an interest in the process of provisional liquidation, even though it is unnecessary under the present law for them to approve the application for the appointment of the provisional liquidator. However, I have been impressed by Mr Lombe's efforts to provide information to members by electronic means. In particular, internet communications have been an effective and relatively inexpensive way for him to reach those members wishing to have information. It does not seem to me to be necessary at the present stage to make any orders for the convening of a meeting of UMP members. 14 The provisional liquidator has communicated with members of UMP principally through the UMP Website. The home page of the UMP Website has links to "News in Brief" and "Status of Provisional Liquidation". Mr Lombe has used those parts of the Website to inform members of relevant matters. The relevant contents of the Website are in evidence. 15 Additionally, he participated in a broadcast panel discussion on 12 June 2002 to explain to members and other doctors the negotiations regarding the Government assistance package, the status of the provisional liquidation, and the broader medical indemnity environment. The panel comprised the Minister for Health, the Hon Kay Patterson, Dr Kerryn Phelps, National President of the Australian Medical Association, Dr Ken Mackey, of the Rural Doctors Association, and the moderator, Dr Norman Swan, as well as Mr Lombe. A videotape of the program, and a transcript of the text, are in evidence. 16 The discussion was broadcast by satellite to doctors via the rural health network and was webcast nationally. Doctors could participate during the broadcast by telephone, e-mail and facsimile. The broadcast was extensively promoted by the AMA and the Rural Health Education Foundation, by media advertisements and facsimile, and by Mr Lombe. Mr Lombe caused notices to be sent by e-mail to those members having an e-mail address (approximately 4000) and the notice was posted on the UMP Website. The broadcast cost $30,000, which was shared equally by Mr Lombe, the AMA and the Rural Health Education Foundation. 17 Although information about these communications with members has been put into evidence, it is not the role of the Court to review those communications or to express any view on their accuracy or completeness. Responsibility for those matters lies with Mr Lombe. **********

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