(c) refuse to confirm the scheme."
2 AMP and GIO are both life insurance companies that are ultimately wholly owned by AMP Limited. Both AMP and GIO transact life insurance business in their statutory funds. GIO, together with its parent company and ultimate holding company, was acquired by a subsidiary company of AMP on 20 December 1999. To avoid duplication of distribution costs and reduce distribution unit costs, the insurance product range of GIO was closed with effect from 30 June 2000. It is proposed that no further new policies will be sought by GIO.
3 Planners of GIO, who were engaged in obtaining new life insurance business, have continued to seek new life insurance business in the product range of AMP rather than in the product range of GIO. The GIO planners have now been integrated into the AMP team of planners in AMP's distribution system. One consequence of that rationalisation would be that, if matters were left where they are, the number of GIO policy owners and the premium income of GIO would, over time, reduce as policies become claims or are surrendered. That in turn could ultimately result in infrastructure systems and other costs and charges being spread over a reducing GIO policy owner base. In the long term, that would probably result in increasing charges to owners of non-participating GIO policies and decreasing bonuses for owners of participating conventional GIO policies.
4 Those consequences can be avoided and further cost savings can be accomplished if the administration of the GIO policies can be transferred to AMP and administered on the AMP computer and other systems. Any avoidance of the continuing costs associated with maintenance of those systems would represent a substantial saving. If the GIO policies are transferred to the AMP systems without the AMP systems having to be enhanced substantially, the cost of the AMP computer and other systems can also be spread over a larger number of policies, thus reducing the unit costs through the synergy benefit emanating from using one set of computer and other systems to administer more policies.
5 Those costs savings would accrue to shareholders in the AMP Limited group, through its ownership of GIO, and to AMP's associated service company. However, to the extent that the latter company experiences lower costs, it generates the potential for it to be able to respond more readily to future market pressures by reducing charges to policy owners where it would benefit scheme policies and other policies as well as shareholders.
6 Other benefits have been identified as flowing from the transfer of the life business of GIO to AMP. Present owners of GIO policies would have a much wider variety of investment options. They would have a wider spectrum of backing assets for participating conventional policies. They would also have enhanced security of benefits associated with the much larger size of AMP.
7 The scheme that is being propounded involves liabilities under all policies of GIO as at 31 December 2000 ("Scheme Policies") being to be transferred from the applicable GIO statutory fund to an appropriate AMP statutory fund. All other liabilities of each GIO statutory fund will also be transferred to a corresponding AMP statutory fund. However, liabilities consisting of provisions for current income tax are not to be transferred. All assets of the GIO statutory funds, except cash assets to the value of the provisions for current income tax, will be transferred to AMP statutory funds. Those assets represent in value:
- The liabilities of the respective GIO statutory funds that are transferred;
2. Australian policy owners' retained profits, shareholders' retained profits for Australian participating polices; and
- Shareholders' retained profits for overseas and non-participating polices.
8 It is proposed that, once the assets are transferred, AMP will make provisions against the assets held in the statutory funds that are appropriate, in the opinion of the AMP appointed actuary, to ensure that assets and policy liabilities are valued on consistent bases. The assets of GIO that are not held in any its statutory funds will not be transferred and will be released from any potential liability for Scheme Policies.
9 There is evidence before me of the financial consequences of the transfer with respect to AMP's three statutory funds. So far as AMP's three statutory funds are concerned, the consequences are not significant. Under the scheme, all the guaranteed benefits under Scheme Policies as at 1 January 2001 ("the Effective Date") will be maintained as a consequence of the transfer. Policy conditions do not change, except to the extent described in the actuary's report, which is in evidence before me. Owners of Scheme Policies will be affected in the following respects:
- The nature and value of the rights of policy owners to participate in profits;
- The approach used to determine:
(a) the levels of discretionary charges;
(b) the charges for risk benefits where premium rates can be altered;
(c) future reversionary and terminal bonuses and surrender values for conventional policies;
3. In matters such as investment management, expenses levels and valuation bases, in so far as they may affect the liability of AMP to meet the reasonable expectations of policy owners after the Effective Date.
10 All costs and expenses, including administrative and stamp duty costs incurred or payable in connection with the scheme and all transactions contemplated by the scheme and their implementation, other than income tax, are to be borne by AMP as a liability of its shareholders' funds or of AMP Services Limited. None of those costs and expenses is to be borne by or charged as a liability of the GIO statutory funds or the AMP statutory funds.
11 In recognition of the benefit that AMP will obtain in respect of future profits, synergies and cost savings and new life insurance policies that would otherwise have been written by GIO, AMP is to pay GIO, on completion, a sum calculated in accordance with a transfer agreement to be entered into between AMP and GIO in pursuance of the scheme. Thus AMP Life will pay GIO Life on completion:
(a) A sum equal to the discounted value of future profits; and
(b) A sum equal to the value of the benefits of synergies and cost savings; and
(c) A sum equal to the discounted value of the profits to be derived from new life business.
Those sums are to be a liability of, and paid out of, the shareholders' funds of AMP and not of any of the AMP statutory funds. The sums will be determined by AMP on the advice of its appointed actuary and in consultation with the appointed actuary of GIO.
12 I am satisfied, from the evidence adduced in the application, that, with certain exceptions to which I will refer in a moment, all of the procedural requirements of the Act and the regulations made under the Act have been complied with. The exceptions are covered by orders under s 191(5) of the Act sought by GIO and AMP.
13 Section 191(2) of the Act provides a procedure that must be followed in any application for confirmation of a scheme. One requirement is that an approved summary of the scheme must be given to every affected policy owner. Section 191(5), however, provides that the Court may dispense with the need for compliance with that requirement if it is satisfied that, because of the nature of the scheme or the circumstances attending its preparation, it is not necessary that the requirement be complied with.
14 The joint actuarial report in evidence before me expresses the opinion by each of the actuaries that the policy owners of AMP will not be materially adversely affected by the scheme. The scheme will not result in any changes to policy terms and conditions for AMP policy owners. Particulars of the scheme have been appropriately advertised in newspapers and on Internet web sites. AMP has also provided a telephone inquiry service to answer questions of policy owners arising from that material.
15 AMP has approximately 860,000 policy owners and approximately 2,200,000 superannuation fund members. The estimated cost of mailing a summary of the scheme to AMP policy owners, including the call centre cost of handling subsequent inquiries, would be approximately $880,000. The estimated cost of mailing summaries to superannuation fund members would be approximately $2,100,000.
16 GIO usually becomes aware that it has no current mailing address for a policy owner when mail is sent to the recorded address is returned. Historically, employers under superannuation schemes insured with GIO have received from GIO a newsletter called "Assets" every quarter. They have also received an annual review. The GIO procedure for processing returned mail from such mailings depends on whether the relevant superannuation scheme is active or inactive, that is whether or not contributions are currently being made. If contributions are being made, the practice of GIO has been to carry out an electronic White Pages search to locate addresses. If there is no success with that search then a facsimile transmission is usually sent to the relevant company representative to obtain new address details. If it has a name and contact on record, then the company is telephoned. By contrast, if no contributions are currently being made, then GIO does not change its records but flags the address as unknown and does not make any attempt to contact the company or its representatives.
17 I also have before me evidence of the procedures that are adopted by GIO when mail to a member of a superannuation scheme is returned. The relevant superannuation legislation requires that, once every quarter, GIO reports "lost" superannuation members to the Australian Taxation Office. If GIO subsequently finds any members, it reports the new address details to the Australian Taxation Office in the next quarter. Approximately 13 per cent of superannuation employers and members have addresses unknown to GIO. Approximately 2.85 per cent of non-superannuation policy owners have addresses unknown to GIO.
18 Notice of intention to make this application has been published in newspapers in all states and territories. The notice included a 1300 telephone number by which policy owners could make inquiries and order copies of the scheme summary documents free of charge. GIO updates its records with new address information and policy owners previously considered unknown may contact GIO by that means.
19 In the circumstances I am satisfied that it is appropriate to make an order under s 191(5) dispensing with compliance with the requirements of s 191(2)(c) to the extent that I will specify in the orders that I will make on the application.
20 When the matter was called on for hearing today, Mr Julian Burnside QC sought to be heard, on the hearing of the application, on behalf of persons who are applicants in a proceeding in the Court before Moore J (N 955 of 1999). Those proceedings arise out of takeover offers that were made by a member of the AMP Limited group to the holding company of GIO. In that proceeding, allegations are made that conduct was engaged in, in connection with the takeover offers, that was misleading or deceptive. Other allegations are also made.
21 Mr Burnside contended that former shareholders of GIO companies have standing in relation to the application presently before me. Having regard to the provisions of s 190, the life insurance business of GIO cannot be disposed of, except with the benefit of a scheme that has been confirmed by the Court. However, once that business has been transferred in exchange for the consideration that I have briefly described, the assets of GIO will be much more liquid and capable of being disposed of. Those for whom Mr Burnside appears claim, in effect, to be creditors of GIO. Some may also be owners of policies that are the subject of the scheme. However, Mr Burnside made no claim that the terms of the scheme were in any way prejudicial to any policy holder, qua GIO as policy holder. Nevertheless, Mr Burnside indicated that he wished to oppose the making of orders, except on appropriate terms.
22 After a brief adjournment during the course of the morning, I was informed by Mr Dermot Ryan SC, who appears for AMP and GIO, and Mr Burnside that a compromise had been reached concerning the matters that were to be the subject of dispute in that regard. One of the terms of the compromise is that an undertaking is to be proffered to the Court by GIO that it will not reduce its share capital by any means, and will not register any transfer of any shares in its share capital at any time before the hearing and determination of the other proceeding to which I have referred, without first giving 14 days prior notice of such capital reduction or share transfer registration to the solicitors for the applicants in that other proceeding.
23 The undertaking is in the nature of a Mareva order to preserve the assets of GIO against any possible verdict that may be obtained in the other proceeding. I am satisfied that the Court has jurisdiction, either to make an order in such terms or to receive, in lieu of an order, an undertaking in such terms. However, I did express some reservation about receiving the undertaking in the present proceeding. I am mindful of the observations of the High Court in Thomson Australian Holdings Pty Limited v Trade Practices Commission (1981) 148 CLR 150 that, when a specific statute, which invests the Court with jurisdiction in matters of a particular class, does so in such a way as to limit the power of the Court to grant relief of a particular kind, there is no basis for transcending that limitation by recourse to any general provisions of the Federal Court of Australia Act 1976 (Cth). The Federal Court has power to accept an undertaking at an interlocutory stage, when the undertaking is reasonably related to the orderly procedure of the Court or to the subject matter of the litigation, even though it may not be in a form that falls within the ultimate final order the Court could make. However, that does not justify a conclusion that the Court has power to accept an undertaking by way of final disposition of a case when the Court lacks power to make a final order in that form, and the effect of the undertaking is to restrain conduct that the Court has no power to restrain - see Thomson (above) at 161 and 165.
24 I am by no means satisfied that, if the only matter before the Court were the application under s 193 of the Act, the Court would have power either to make an order or to receive an undertaking in the terms proposed. However, I am aware of the proceeding before Moore J. Further, the order is one that it may be possible to make on the compromise of the matter that is before me. I have not heard argument on the question, and therefore do not express any view, as to whether or not creditors, or former shareholders, of GIO actually have standing on the hearing of the application. That is a question that it would have been necessary for me to resolve, but for the compromise to which I have referred. It may be that I could have been persuaded that, as a term of confirming the scheme, an undertaking in the terms proposed could have been required. Accordingly, there is a possible additional basis of jurisdiction for the Court to receive the undertaking that has been proffered.
25 The Australian Prudential Regulation Authority ("the Authority") is, under s 193(3), entitled to be heard on the hearing of an application for confirmation of a scheme. The Authority has been represented in the hearing before me and it does not wish to oppose the making of the orders sought by GIO and AMP. I have been informed by Mr Murray, who has appeared for the Authority, that those instructing him are satisfied that all of the procedural requirements of the Regulations have been complied with, except to the extent to which I have already referred.
26 A number of GIO policy holders have forwarded communications both to GIO and to the Court indicating some opposition to the scheme. GIO has responded to each of those policy holders. The Authority has been furnished with a copy of the correspondence, and I have been informed by Mr Murray that there is nothing in that correspondence that prompts the Authority to take a different attitude to that which I have just described.
27 I am satisfied, from the joint actuarial report, that there is no material detriment likely to be suffered by the owner of any scheme policy. I am also satisfied that there is not likely to be any material detriment to any owner of any policy in any of the AMP statutory funds. Accordingly, I am satisfied that I should confirm the proposed scheme, without modification, pursuant to s 194(a) of the Act.
28 Proposed orders have been propounded on behalf of AMP and GIO. They have been furnished to Mr Burnside and to Mr Murray and I understand they do not wish to be heard in opposition to those orders. Accordingly, I will make orders in the terms propounded.
I certify that the preceding twenty-eight (28) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett.