The Application of Advance Life Insurance Ltd (ACN 003 182 670) & Anor [1997] FCA 83
[1997] FCA 83
At a glance
Source factsCourt
Federal Court of Australia
Decision date
1997-02-18
Before
Sheppard J
Source
Original judgment source is linked above.
Judgment (5 paragraphs)
HIS HONOUR: By their application in this matter, Advance Life Insurance Limited and Tower Life Australia Limited seek an order pursuant to s.193 of the Life Insurance Act 1995 ("the Act") that the scheme which is substantially in the form of a document which is annexed to an affidavit of Mr Martin and Mr Clemans for the transfer of the life insurance business of Advance Life Insurance Limited to Tower Life Australia Limited be confirmed. Section 193 of the Act is to be found in Part 9 thereof. Part 9 deals with transfers and amalgamations of life insurance business. Section 190 of the Act provides that no part of the life insurance business of a life company may be transferred to another life company or amalgamated with the business of another life company except under a scheme confirmed by the court. A scheme must set out the terms of the agreement or deed under which the proposed transfer or amalgamation is to be carried out and particulars of any other arrangements necessary to give effect to it. The Court referred to is the Federal Court of Australia; s.8 of the Act and the dictionary contained in the Schedule thereto. By s.191, an application for confirmation of a scheme may not be made unless a copy of the scheme and any actuarial report on which the scheme is based have been given to the Insurance and Superannuation Commissioner in accordance with the regulations. The Insurance and Superannuation Commissioner is appointed pursuant to the Insurance and Superannuation Commissioner Act 1987, s.4. It will later be seen that there was correspondence with a body called the Insurance and Superannuation Commission. I was not referred to any statute providing for the constitution of such a body and I have found none. So far as I can tell, the Commission exists as a matter of administrative convenience. Nothing, however, turns on this. Notice of intention to make the application has been published by the applicant in accordance with the regulations and an approved summary of the scheme has been given to every affected policyholder of Advance Life. Subsection 191(5) enables that last provision to be dispensed with in an appropriate case. It was dispensed with in part in the present case in relation to the policyholders of Tower Life Australia by order of this Court made on 22 January 1997. Section 192 of the Act provides that, when a copy of a scheme has been given to the Commissioner for the purpose of para. 191(2)(a), the Commissioner may arrange for an independent actuary to make a written report on the scheme. The Commissioner did not see fit to do that in this case. That is a matter which I regard as significant. I shall say more about it in a moment. Section 193, the section pursuant to which this application is made, provides that any of the companies affected by a scheme may apply to the Court for confirmation of the scheme. An application for confirmation must be made in accordance with the regulations and the Commissioner is entitled to be heard. The Commissioner has been represented throughout this hearing. By s.194, the Court may confirm a scheme without modification or confirm the scheme subject to such modifications as it thinks appropriate. It may of course refuse to confirm the scheme. Section 195 deals with the effect of a confirmation. It provides that, when a scheme is confirmed it becomes binding on all persons. It has effect in spite of anything in the articles of association of any company affected by it. The company on whose application the scheme was confirmed must cause a copy of the scheme to be lodged at an office of the Australian Securities Commission in every State and Territory in which a company affected by the scheme carried on business. The object of the Act is stated in s.3 which provides that the object of the Act is to protect the interests of the owners and prospective owners of life insurance policies in a manner consistent with the continued development of a viable, competitive and innovative life insurance industry. The Act is thus intended to protect the interests of policyholders. That is one of its principal purposes. It must be the principal concern of a court dealing with an application such as this. The Court's role is an important and responsible one. Care must be taken so far as it can be to endeavour to see that the scheme will protect the interests of policyholders so that they will be properly safeguarded. The facts of the matter may be briefly stated. On 21 November 1996, an agreement was entered into between Advance Life Insurance Limited, which was described as the vendor, Advance Bank Australia Limited, which was described as Advance, and Tower Life Australia Limited, which was described as the purchaser. By clause 2 of the agreement, the vendor, that is Advance Life, agreed to sell and the purchaser, that is Tower, agreed to purchase the property which is defined in the agreement to mean "all the vendor's", that is to say Advance Life's, rights, title and interest under the contracts of insurance, including the goodwill owned by it in the life insurance business represented by the contracts, i.e. the policies referred to in clause 1.1 of the agreement. The agreement was to have effect on and from a date described as "the effective date" which has the meaning given to it in the scheme which has been proposed. Clause 2.2 provided that by virtue of the scheme Tower is to assume on and from the effective date all liabilities of Advance Life referable to the contracts of insurance. Clause 2.3 provides that the "underlying assets" must be transferred to Tower Life on completion free from any mortgage, charge, lien, pledge or other encumbrance by Advance Life. The underlying assets are a reference to assets of the number 2 and number 3 statutory funds of Advance Life, sufficient in value to support the liabilities under the contracts of insurance on the basis set out in the actuarial report which is to be referred to. Statutory funds are provided for in s.29 of the Act. It is there provided that a statutory fund is a fund that is established in the records of a life company and relates solely to the life insurance business of the company or a particular part of that business. Detailed requirements in relation to statutory funds are provided for in succeeding sections. I do not find it necessary to refer to the detail of these. The scheme, confirmation of which is sought, has undergone some amendment, although not significant amendment, since it was first proposed in the application which has been made. The final form of it is annexed to short minutes of order which have been handed to me, they being the orders which I am asked to make in this application. The scheme is expressed to be a scheme under Part 9 of the Act, for the transfer of the remaining life insurance business carried on by Advance Life to Tower. Reference is made to a joint report on the scheme which has been prepared by an actuary appointed by Tower, Mr Clemans, and an actuary appointed by Advance Life, Mr Martin. In background information, the scheme says that Tower is a life insurance company incorporated in New South Wales, registered under the Act. As at September 1996 it had assets of approximately $1,450,000,000. It is part of the Tower Group of Companies, of which the ultimate holding company is Tower Corporation, a mutual life insurance company in New Zealand. Advance Life is a life insurance company, also incorporated in New South Wales, and registered under the Act to carry on life insurance business. It is part of a group of companies known as the Advance Bank group. The scheme says in clause 2.4 that the life insurance business to be transferred is all of Advance Life's remaining business and is held in its statutory funds the detail of which is provided. Clause 3 provides that the transfer is to take effect at 12 a.m. (sic), Sydney time, or such other time as the Court determines on Wednesday, 19 February 1997, that is tomorrow, or such other date as the Court determines, described as "the effective date". That is the date referred to in clause 2 of the agreement. There are detailed provisions in clause 4 about the transfer of the life insurance business to Tower, and more detailed provisions about the management of certain scheme policies, and other provisions to which I need not refer. Clause 7 provides for a joint report on the scheme by the two actuaries to whom I have referred. It is said, amongst other things, that the actuaries conclude that the Advance Life Scheme policy holders have been protected and that the transfer is in their general interests. The actuaries are also said to be satisfied that the rights and benefits of Tower policy-owners will not be affected. The report to which I have referred is annexed firstly to an affidavit sworn by Mr Martin and Mr Clemans jointly on 16 December 1996. Because the report underwent some amendment, a further affidavit annexing a copy of the amended report was filed; that affidavit was sworn on 13 February 1997. In their first affidavit Mr Martin and Mr Clemans say that each is a Fellow of the Institute of Actuaries of Australia and is duly qualified to practise as an actuary. Upon instructions of Advance Life and Tower they jointly prepared a report "for" the scheme; the original report is annexed to the affidavit. Their opinion, expressed in paragraph 5 of their affidavit was: "On balance we conclude that the reasonable benefit expectations of the Advance Life Scheme policy-owners have been protected, and that the transfer is in their general interests. We are also satisfied that the rights and benefits of Tower policy-owners will not be affected." The report is detailed and it is not necessary to refer to it fully. There is background information given in part 2 of it; that is in accordance with the background information to which I have referred. Reasons for the merger are dealt with in section 3 where it is said that Advance Life is seeking to make the transfer for a number of reasons, namely: "(a)The financial services division of Advance Bank wishes to rationalise its business so that it can focus on its core products where it enjoys a competitive advantage, with the objective of enhancing the longer term profitability of the division. As the life insurance business of Advance Life does not form part of this core product range, Advance Bank is looking to divest itself of this business. (b) At the time of this report the Advance Life Scheme Policy Owners represent the only remaining life insurance portfolio of Advance Life. All other portfolios have terminated. (c) The transfer of the Advance Life Scheme Policies to [Tower] enables Advance Bank to realise its capital investment in Advance Life and provides an appropriate means for meeting the ongoing benefit and security expectations of these remaining Advance Life Scheme Policy Owners."