Capita Financial Group Limited & MLC Life Ltd v Insurance and Superannuation Commissioner

[1990] FCA 734

JUDGMENT No. .13k/..r02

IN THE FEDERAL COURT OF AUSTRALIA )

)

NEW SOUTH WALES DISTRICT REGISTRY ) No NG 426 of 1990

1

GENERAL DIVISION )

IN THE MATTER of the Life Insurance Act 1945

THE APPLICATION of

CAPITA FINANCIAL GROUP LIMITED and

MLC LIFE LIMITED

Applicants

INSURANCE AND SUPERANNUATION COMMISSIONER

Respondent

=AM:  HILL J -..-....... RECEIVED

PLACE : i3XUNBX

DATED :  4 OCTOBER 1990

REASONS FOR JUDGMENT

Before the Court is an application by Capita Financial Group Limited ("Capita") and MLC Life Limited ("MLC") for an order confirming the amalgamation of the life insurance businesses of each of those companies in accordance with s.73 of the Life Insurance Act 1945 ("the Act") and pursuant to the scheme under Division 9 of Part 3 of the Act which scheme is fully set out as annexure A to the affidavit of Mr Vinson of 2 October 1990.

various matters. I have considered the evidence which has

By virtue of the provisions of s.75 of the Act,
before an application is made for confirmation by the Court of
the scheme, it is necessary that the Court be satisfied of

been read in the proceedings and am satisfied:

1.   That a copy of the scheme has been lodged with the Insurance and Superannuation Commissioner, who is the respondent to the present application, together with a copy of the actuarial report prepared by Mr Vinson, the Chief Actuary of MLC, and Mr Dours, the Chief Actuary of Capita, being the report upon which the scheme was

founded .

1. I am further satisfied that notice of the intention to

   make the present application was not less than one month after it had been lodged with the Insurance Commissioner on 2 August 1990, published in the Gazette and in

,	newspapers approved by the Commissioner, circulating in each state and territory in which both companies claim to operate registries. In this connection evidence was placed before me of the registries so operated.
publication of the notice, the scheme was open to I am further satisfied that for a period of 15 days after
inspection at each of these registries by any policy holder, policy owner or shareholder affected by the scheme.

3. I am satisfied that the respondent commissioner has formed the view that no report on the scheme should be made by an independent actuary, and accordingly the provisions of s.75(l)(c) of the Act have no application.

4.   No specific directions were given by the Court with respect to the scheme as to publication of advertisements and the giving of notices and the like. However, on 24 August 1990, the applicants undertook to place advertisements in the form set out in an annexure to the short minutes of order made by me on that day, in the newspapers listed in the annexure to that order and the in the Gazette. I am satisfied that this undertaking has been complied with.

5. On 24 August 1990 I ordered, pursuant to s.75(l)(e) of the Act that the applicants not be required to transmit copies of the scheme and other material to policy owners of Capita, or policy owners of MLC, having regard to material that was then put in evidence before me, and accordingly the provisions of s.75(l)(e) have no application.

By virtue of the provisions of s.75(2), (3) and (4), it is clear that the application to the Court for confirmation, while it may be confirmed or not by the Court, requires consideration of the effects of the scheme in a case such as the present, upon both of the companies concerned in it; the effects of the scheme upon policy holders of each of those companies, and the effect of the scheme upon persons who are shareholders or otherwise members of the company concerned. Matters such as the effect upon creditors, if any, and the national interest, or for that matter the effect upon employees, may in a particular case, also be relevant.

In the present case no submission has been made by the respondent Commissioner that the scheme should not be approved. To the contrary, it has been indicated that the Commissioner approves of the scheme. This, of course, does not relieve me of the responsibility of determining whether, having regard to the terms of the scheme, it is in the best interests of those who may be affected by it.

The effect of the scheme upon policy holders and members of each of the companies is dealt with in some detail in the actuarial report to which I have already referred. That report, which was in one or two minor respects

various classes of persons who, to some extent, are affected	supplemented by oral evidence, indicates that there are
by the scheme. These persons are the Capita participating policy holders, the MLC participating policy holders, MLC's ultimate owner (Lend Lease Corporation Limited), and the Capita non-participating policy holders.
It is clear from the terms of the scheme and the background to the commercial arrangements which resulted in the scheme being brought before the Court that the scheme is likely to be of real benefit to Capita participating policy holders or to Capita policy holders generally. This is particularly so having regard to the ratio of free reserves, as that expression is used in the evidence, available in Capita.
To the extent that the scheme may have a deleterious effect upon the ultimate owner of MLC, and I do not suggest that it does, that is a matter which that company, not being a minority shareholder, has no doubt taken into account itself, and in the circumstances, does not require me to comment further upon. The report indicates that so far as the MLC participating policy holders are concerned, they will give up something, this being:

". . . accept ing an immediate diminution i n the

r a t i o o f free reserves backing t h e i r current

guaranteed b e n e f i t s . However the r e s u l t a n t

combined r a t i o i s expected t o be one of t h e

s t ronges t i n the i n d u s t r y . "

Evidence adduced orally before me indicates that

apart from the Colonial Mutual Life Insurance Company and the

AMP, the merger of the two applicants will result in MLC, as

the ultimate merged entity, becoming the third largest life insurance company in Australia, having free reserves of 24 per cent. This is greater than the reserves of four other companies to which reference is made in the evidence, which reserves extend from 20 per cent to 13 per cent.

The report indicates that the MLC participating

policy holders will gain:

' l . . .	l o n g e r	t e r m	s e c u r i t y	from	the	combined
company	b e i n g	c l e a r l y	the	t h i r d	l a r g e s t	l i f e

i n surance company i n the A u s t r a l i a n marke t .

T h i s w i l l r e s u l t i n there b e i n g a s i g n i f i c a n t

gap between the three l a r g e s t (AMP, Na t iona l

Mutual , and MLC/Capita) and the o t h e r companies

i n the i n d u s t r y . Fur the r , there w i l l be an

o p p o r t u n i t y for i n c r e a s e d bonus e x p e c t a t i o n s

due t o economies o f s c a l e and enhanced

i n v e s t m e n t o p p o r t u n i t i e s from the combined

o p e r a t i o n . "

The reference to the third largest life insurance company is a reference to companies by gross asset size. The evidence suggests that, in essence, economies of scale, together with a larger overall clientele, should lead to increased bonus potential in the combined operation.

A remaining class of persons is not dealt with in the report. These comprise five policy holders whose policies are not dealt with in accordance with the scheme. The policy holders in question are all companies related to MLC. The combined sum insured in respect of these policies is $50,000 and the policies are for a term of five years on the life of the persons who are apparently directors.

Although the scheme may have some impact upon these persons, it is clear that the policies have been effected having regard to the necessity of retaining five members of Capita, as one of the consequences of the scheme will be that other policy holders of that company will cease to be members of it.

I am satisfied, having regard to the report and other evidence before me, that, subject to the matters to which I have already referred, policy holders will not be affected in an adverse way and that the scheme is fair and reasonable as between the affected parties, and as between Capita and MLC policy holders as a whole and between different groups and generations of policy holders.

If it be relevant to consider matters of national interest in a particular case, there has been no suggestion in the evidence before me that there is likely to be any adverse effect on the national interest, and indeed, it may be

Capita may have had a greater effect on the national interest	inferred that the failure to take some steps on the part of
than the scheme which has subsequently been entered into. To the extent to which it is necessary to consider the effect on employees, it is clear that there will be some effect upon employees in terms of redundancy and rationalisation, but having regard to the evidence overall, the scheme, in my opinion, should be confirmed.
Accordingly, I would confirm without modification the scheme between Capita and MLC as set out in annexure A to the affidavit of Mr Peter L. Vinson, of 2 October 1990.

I direct that the exhibits be returned.

Obviously there is no order appropriate as to costs.

I certify that this and the

preceding (7) pages

are a true copy of the Reasons

for Judgment herein of his Honour

Mr Justice Hill.

Associate:

Date: 4 October 1990

Counsel and Solicitors	The Hon. Mr T.E.F. Hughes QC and
for Applicant (MLC):	Mr G.C. Lindsay instructed by Messrs Freehill Hollingdale & Page
Counsel and Solicitors	Mr J.D. Heydon QC and
for Applicant (Capita):	Mr J.A. Timbs instructed by
Messrs Murphy & Moloney

Dates of Hearing:  4 October 1990

Date Judgment Delivered:  4 October 1990