Insurance and Superannuation Commissioner v Occidental Life Insurance Company of Australia Ltd Insurance

[1990] FCA 658

JUDGMENT NO. ' h S " &

THE FEDERAL COURT OF AUSTRAL14 )

)

VICTORIA DISTRICT REGISTRY	1	V. No. G.316 of 1990
)
B E T W E E N :

I

Applicant

and

Q Q

Respondent

TRALIA	)
) V. No. G.317 of 1990
)

B	-	S	)
B E T W E E N :

INSURANCE AND SUPERANNUATION COMMISSIONER

Applicant

and

REGAL LIFE INSURANCE LIMITED

Respondent

There are two applications before the Court, V. No. 6.316
of 1990 and V. No. 6.317 of 1990 in which the Insurance and Life Insurance Company of Australia Limited is the respondent Superannuation Commissioner is the applicant and Occidental

NORTHROP J.	RECEIVED
7 NOVEMBER 1990	FERERAL CWRT OF

AUSTRAUA

MELBOURNE	PRINCIPAL
REOlSTRY

EX-TEMPORE REASONS FOR JUDGMENT

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in one and Regal Life Insurance Limited is respondent in the other. The facts giving rise to each application are, for present purposes, identical. The two applications were heard together and a consideration of the matter in which the Occidental Life Insurance Company is respondent is sufficient to decide both applications.

Each application was issued on 31 October 1990 and the first directions hearing was on 2 November 1990. On that occasion the directions hearing was adjourned until today. In each matter the Battery Group Limited had given a notice that it would move the Court that it is a person entitled to be heard in connection with the application and that Battery have leave to be heard in connection with the application. There was no motion that Battery be joined as a party and although submissions were made by counsel on behalf of Battery, it is not a party. The submissions were allowed to be put to assist the Court and by way of an indulgence to Battery without the right to make the submissions. It should be noted that the

submissions were made and regard has been had to them.

The application is brought pursuant to the Life Insurance

m 1945 and in particular 8.59 of that Act. Part I11 of that

Act contains provisions relating to companies and Division 7 relates to investigations by the Commissioner and Division 8 relates to the judicial management and winding up of companies. For present purposes it is sufficient to say that under the Life Insurance Act, companies are defined to mean

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companies which carry on life insurance businesses and are required to be registered with the Commissioner. The Commissioner is appointed under the Insurance and, -uation Commission Acc 1987 is required to administer matters arising under the Life Insurance Act.

I am informed that this is the first case where an application has been made to the Court, which is defined in the Act as the Federal Court, that a company be placed under judicial management. The scheme of the Act in this regard

appears to be that Division 7 of Part 111, commencing at 8.54 empowers the Commissioner to investigate the affairs of a life insurance company and for that purpose to exercise very extensive powers of examining books and making inquiries concerning the activities of such a company. There is a provision in 8.57 to the effect that persons exercising those powers are required to treat what is discovered as confidential and not to disclose what is discovered to any other person except for the purposes of the Act.

Section 59 is the section under which the application is

made. Section 59 is in Division 8 and sub-section 59(1)
provides:-

"59.(1) If the Commissioner, by reason of the conclusions arrived at by him as a result of an investigation under Division 7 in respect of any company 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 or any part of the business of the company be wound up."

There is a power given by sub-section (2) to enable a company to apply for such an order. In the present case what is being sought by the Commissioner is an order that the company be placed under judicial management, not wound up.

"59.(5) Where an application is made under this section for an order in respect of any company, all actions and the execution of all writs, summonses and other processes against the company shall, by virtue of this section, be stayed and shall not be proceeded with without the leave of the Court first obtained or unless the Court otherwise directs. "

Section 60 contains a number of provisions relating to what is to flow from an order being made.	Sub-sections 60(1)
and	(2) provide:-
"60. (1) An order for the judicial management made after the hearing of an application under of a company or of part of the business of a company section 59 shall be subject to the provisions of this section and of sections 61, 62, 63, 64, 65 and 66.
(2) The Court shall appoint a judicial manager who shall receive such remuneration as the Court directs, and the Court may at any time cancel the appointment and appoint some other person as judicial manager."

Sub-section (3) contains provisions directing how and by whom the remuneration, charges and expenses of the judicial manager shall be borne.

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Sub-section (4) and (5) are of importance, and are set

"60. (4) The management of the company, or of such part of the business of the company as the order -of the Court directs shall, as on-ana after a date specified in the order, vest in the judicial manager appointed by the Court, but, except with the leave of the Court, the judicial manager shall not issue but, except with the leave of the Court the judicial manager shall not issue any further policies (other than paid-up policies as required by this Act).

(5) As on and after the date so specified, any person vested with any such management immediately prior to that date shall be divested of that management."

Sub-section (6) enables the Court to give directions to the judicial manager as to his powers and duties. Sub-section

(7) provides:-

" 6 0 ( 7 ) The judicial manager shall act under

the control of the Court, and may apply to the Court at any time for instructions as to the manner in which he shall conduct the judicial management or in relation to any matter arising in the course of the

judicial management. ''

Under sub-sections (8) and (9) the judicial manager is required to give the Commissioner such information as the Commissioner requires and the Commissioner is entitled to be heard on any such application and in addition the Commissioner may make application to the Court with reference to the conduct of the judicial management.

A consideration of the nature of an order that a company

be placed under judicial management and the appointment of a

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judicial manager together with the powers of that manager have all the hallmarks of the company then being managed by the judicial manager, but without being wound up. This is made clear by the other provisions of section 5 9 ( 1 ) that there can

be an order that the company be wound up. But at the same

time, although the order is made, there is no doubt that continuing rights and duties continue and that the Court is to

be available to give directions as sought by the Commissioner

or the judicial manager. Thus under section 62 which is one of the sections which is to apply when such an order is made, the judicial manager is required to conduct the management in a certain way and as soon as possible, file with the Court a report stating which specified courses he suggests are in the best interests of the owners of the policies of the company and the Court then is required to make orders arising from that report. This again illustrates a continuing nature of the supervision by the Court. In many respects it can be said that the appointment of a judicial manager is similar to that of a court appointed receiver of an ordinary company.	Unfortunately, there are no Federal Court rules dealing with	this aspect of jurisdiction conferred upon it by the Life
Insurance Act and any applications which are to be made will need to be moulded to give effect to the Act in the absence of rules.
In this case, the applicant and the respondent in each case have requested that the matter be heard and determined today and the Court is prepared to accede to those submissions

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and to deal with the application itself. In many respects this would be the conclusion of the hearing and final orders would be made but from what I have said it is clear that continuing rights and duties continue under this type of judicial management and, in my opinion, it is appropriate that the matter, although concluded in one respect, remains alive to enable the Court to exercise the powers conferred upon it in the supervision of the judicial management.

In the result, the orders sought today are fairly limited in respect. It is sought firstly that an order be made under paragraph 50(l)(a) that the company be placed under judicial management. It is also sought that Richard John Grellman be appointed judicial manager. Under sub-section (4) of section 60, the management is to commence from a date specified by the Court and that date is agreed to be today's date, 7 November 1990. In addition, under 8.51 of the Federal Court Qf Australia Act, orders are sought in relation to confidentiality in relation to certain information contained

orders are sought in relation to a direction that the	in two exhibits relied upon in support of the application and
remuneration charges and expenses of the judicial manager shall be borne by the respondent and an order for costs of the application.
I do not propose to deal in any detail with the facts upon which the application is made. It is set out in the affidavit of Robert George Glading who is a Deputy

a,

Commissioner, Life Insurance, in the Insurance and Superannuation Commission. That evidence discloses that the

Commissioner - pursuant to the powers conferred by Division 7

of Part I11 of the Life Insurance Act had conducted an investigation into each of the two companies concerned. In so

doing, the Commissioner relied upon powers conferred by the Act. Under 8.55 the Commissioner, if it appears that certain facts are in existence, is empowered to take action in conformity with that section. In this case the Commissioner relied upon these facts set out in sub-section 55(1) namely paragraphs (a), (c) and (g) that:-

(a)	a company is, or is likely to become, unable to meet its obligations;
(c)	a company has failed to comply with a provision of the Act, a direction given to the company under the Act or a condition imposed on the company under section 20;
(g)	information in the possession of the Commissioner calls for an investigation into the whole or any part of the life insurance business of the company.

The events giving rise to the investigation and this application result from moves by which the apparent owners of the companies transferred their ownership or their shares in the company to another company or other persons in circumstances where some of the statutory funds of the company which are required to be kept separate and distinct under the provisions of the Life Insurance Act were paid into a bank account and then transferred from that bank account to two other banks in circumstances which, at the least, can be said to be unusual and which could well constitute a contravention of the provisions of the Life Insurance Act. This Court is not called upon to decide any issues of fact or make any finding of fact on those matters, in determining these applications. Section 59 does not specify what grounds the Court is required to consider before it makes an order. Having regard to the scheme of the Act, the provisions for the investigation by the Commissioner and the restrictions placed upon life insurance companies in relation to funds received by them and held by them pursuant to life policies, the Court is satisfied that the Commissioner has made the investigation as indicated and that there was material upon which he could have

come to that view that he should make those investigations. The results of those investigations justify the application under s.59 being made to this Court.

The effect of orders sought is that the affairs of the

company will be managed by the judicial manager who, in many

Court. In making the orders which are, in this regard, made	respects, is and has the attributes as an officer of the
by consent of the parties, it is my opinion that this is an appropriate case where the evidence justifies the making of the order under s.59. Accordingly, I propose to make the orders sought under sections 59 and 60.
Having looked at the contents of exhibits RGG9 and RGG12 to the affidavit of Mr Glading, I am satisfied that in the

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interests of justice there should be orders made as sought to
treat the material in those exhibits as confidential.

In each application I make the order upon the undertaking being given by counsel on behalf of each company that an appearance will be entered in each action pursuant to the rules of the Court. The appearance is to be entered as soon as practicable, today or tomorrow. This is a case where it is important that this procedural matter do be complied with for reasons were discussed in the course of submissions.

Accordingly, the following orders are made upon the

undertakings being given in each matter:

1.   That Occidental Life Insurance Company of Australia Limited (Regal Life Insurance Limited) pursuant to paragraph 59(l)(a) of the Life Insurance Act 1945, be placed under judicial management.

2.   That Richard John Grellman be appointed judicial manager of the company pursuant to 8.60 of the Life Insurance Act 1945.

3. That the specified date for the purposes of sub-section 60(4) of the Life Insurance Act 1945 be 7 November 1990.

4.   That the parties not give access to exhibits RGG9 and RGGl2 to the affidavit of Robert George Glading, sworn 31 October 1990, to any person other than their counsel and solicitors and the said Richard John Grellman.

5.    That the parties and their legal advisers shall not make use of the exhibits or disclose their contents for any purpose other than the conduct of the present proceeding and the judicial management of the company.

6. That the remuneration charges and expenses of the judicial manager are directed pursuant to sub-section 60(3) of the Life Insurance Act 1945 to be borne by the respondent.

7.    That the costs of this application except the costs of taking out these orders be taxed and paid by the respondent.

8.    The directions hearing be adjourned to a date to be fixed.

I make the additional orders in each of the matters V No.

6.316 of 1990 and V. No. 317 of 1990 that until further or
other orders:-

1.   Battery Group Limited and its directors not give access to exhibits RGG9 and RGGl2 to the affidavit of Robert George Glading sworn 31 October 1990 to any person other than counsel or solicitors for the said Battery Group.

2.   Battery Group Limited and its directors and legal advisers shall not make use of exhibits RGG9 and RGG12 to the affidavit of Robert George Glading sworn 31 October 1990 or disclose the contents of the said exhibits other than in the conduct of the present proceedings or in the conduct of the judicial management.

3.   That there be no publication of exhibits RGG9 and RGGl2 to the affidavit of Robert George

Glading sworn 31 October 1990 except to the parties to the present proceedings, Battery

Group Limited or its directors, officers or
legal advisers.

I certify that this and the ten

preceding pages are a true copy of the Reasons for Judgment herein of the Honourable Mr Justice Northrop

Dated:  7 November 1990