Re HIH Overseas Holdings Ltd (in prov liq)

[2001] NSWSC 426

CITATION:	HIH Overseas Holdings [2001] NSWSC 426
CURRENT JURISDICTION:	Equity Division
FILE NUMBER(S):	SC 1811/01
HEARING DATE(S):	16/05/01
JUDGMENT DATE:	16 May 2001
PARTIES :	In the matter of HIH Overseas Holdings Limited (in provisional liquidation) Anthony Gregory McGrath and Alexander Robert Mackay MacIntosh (Provisional Liquidators) - Plaintiffs
JUDGMENT OF:	Barrett J

COUNSEL :	Mr B.A. Coles QC - Applicants Mr M. Murray (Solicitor) - APRA
SOLICITORS:	Blake Dawson Waldron - Applicants
CATCHWORDS:	CORPORATIONS - Winding up - Contract by provisional liquidator not to be performed within three months - Principles on which Court will give approval for such contract
LEGISLATION CITED:	Corporations Law s.477(2B)
CASES CITED:	Corporate Affairs Commission v ASC Timber Pty Ltd (1998) 29 ACSR 109 Re HIH Insurance Group Ltd [2001] NSWSC 308 Re G A Leasing & Maintenance Pty Ltd (1994) 15 ACSR 308
DECISION:	Order approving provisional liquidators entering into contract

THE SUPREME COURT REVISED
OF NEW SOUTH WALES
EQUITY DIVISION

BARRETT J

WEDNESDAY 16 MAY 2001

1811/01 - IN THE MATTER OF HIH OVERSEAS HOLDINGS LTD

JUDGMENT

HIS HONOUR :

1    Mr McGrath and Mr Macintosh, the provisional liquidators of HIH Overseas Holdings Ltd (which I shall call “HIH”), have committed HIH to a conditional contract entitled Stock Purchase Agreement between HIH as seller and QBE Insurance Group Ltd as purchaser. The agreement provides for the sale and purchase of a shareholding interest of 65 percent in an Argentine company called HIH Aseguredora de Riesgos del Trabajo SA.

2    The agreement is dated 11 May 2001 and, according to its terms, is to be completed on 30 May 2001. It is a term of the contract that HIH must obtain "approval for the sale of the shares from the Liquidation Court" which is defined as "the court with jurisdiction over the provisional liquidation" of HIH - in other words, this Court.

3 The need for the Court's approval in relation to the contract arises from s.477(2B) of the Corporations Law. That section says that, except with the approval of the Court, a liquidator may not enter into an agreement on a company's behalf if obligations of a party to the agreement may, according to the terms of the agreement, be discharged by performance more than three months after the agreement is entered into, even if the obligations may be discharged within that period of three months. Section 477(2B) of the Corporations Law is relevant in this case because the power the provisional liquidators of HIH are exercising and have exercised in connection with the agreement are the powers conferred by s.477(2)(c). They possess these powers by virtue of s.472(4)(b).

4 The agreement before the Court contains provisions which may not be discharged by performance for as long as 24 months from the completion date which, as I have said, is 30 May 2001. This means that the company may continue to be subject to financial commitments pursuant to the agreement until 30 May 2003. The commitments in question are the so-called indemnification commitments in article VIII of the agreement. They are spelt out in that provision.

5 There is no suggestion that the agreement represents anything other than an entirely arm's length transaction. The buyer is, of course, itself a leading and recognised company in the insurance field. I mention the arm’s length nature of the transaction in passing only, as I do not think that the function of the Court under s.477(2B) extends so far as to require the Court to review or be satisfied with the commercial desirability and commercial terms of the agreement in respect of which the approval of the Court is sought. The object of the section is, rather, to ensure that the Court has examined any departure from the general expectation that liquidation will proceed in an orderly and reasonably speedy fashion once it has commenced - or, as Austin J put it in Corporate Affairs Commission v ASC Timber Pty Ltd (1998) 29 ACSR 109, “to restrict the unfettered exercise of powers which may not be conducive to an expeditious and beneficial administration”. Hence the benchmark of three months in s.477(2B) and the requirement that the contract involving commitments extending beyond that period should be scrutinised.

6    In any event APRA, the Australian Prudential Regulatory Authority, was represented at the hearing of the application by Mr Murray, solicitor. He informed the Court that APRA had no objection to the transaction embodied in the contract. He explained that HIH is currently operating under certain directions imposed by APRA in exercise of its statutory powers as the regulator of insurance companies in Australia and that APRA has formed the view that the contract and the transaction to be consummated pursuant to it do not conflict with those directions and in that sense are consistent with the interests which APRA seeks by those directions to serve.

7 Reverting to the role of the Court, Mr Coles QC, who appeared for the applicants, referred me to the very recent decision of Hamilton J in Re HIH Insurance Group Ltd [2001] NSWSC 308 which involved a series of applications under s.477(2B) in respect of arrangements between various companies in the HIH group and companies in the NRMA group. The nature of the arrangements as described in the judgment of Hamilton J was such that they would continue for what was theoretically an indefinite time and in realistic terms could be years. They were arrangements for the provision of management services in relation to insurance claims.

8 Hamilton J granted approval under s.477(2B) in that case and in the course of so doing made what I regard to be pertinent and helpful statements about the purpose and effect of the section. I will not set them out in detail here. It is sufficient to say that he drew upon the decision of the present Chief Judge in Equity in Re G A Leasing & Maintenance Pty Ltd (1994) 15 ACSR 308 as well as other authority. The essence of Hamilton J's approach is summed up in the following passage in his judgment:

"I bear in mind the injunctions in the authorities that a liquidator's activities must be limited to those necessary for winding up the company and distributing its assets to those who are entitled to them. However, I also bear in mind the complication of the windings up of insurance companies which collapse with many, many policies outstanding. In this regard I particularly bear in mind the community interest which Young J in G A Leasing specifically says may be taken into account. There is here a community interest in having the administration of claims under the outstanding policies dealt with in an orderly way and orderly arrangements made for the provision of replacement and renewal insurance to policy holders who are left in effect without insurance by the company's collapse."

9 Those remarks apply here as well, particularly in light of the fact that the Argentine company the shares in which are the subject of the contract is itself in a somewhat parlous state. The insurance regulatory authority in Argentina has threatened to take certain action in relation to it unless its capital position is improved immediately - so immediately, in fact, that a capital injection is required within the next 36 to 48 hours. Such an injection will be made by QBE if the s.477(2B) approval is granted. That is the reason why this application is brought before the Court today as a matter of urgency.

10 To my mind the provisions of the agreement, the performance of which may extend beyond the period of three months referred to in s.477(2B) and indeed continue for as long as 24 months from 30 May 2001, are an ordinary commercial incident of a transaction of the kind embodied in that agreement. Moreover the benefit of the contract from the point of view of HIH and its creditors is clear and in that sense it is desirable that the Court grant the application which is now before it unless there is some clear reason not to do so. In light of the explanation of the purpose of the section drawn out by Hamilton J in the way I have just described, there is no such reason.

11    In those circumstances, the three month limit should not be allowed to stand in the way of the current transaction and the Court should approve the agreement which involves commitments extending until 30 May 2003. I therefore make the orders which the applicants seek in their interlocutory application. The orders may be taken out forthwith.

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Last Modified: 05/25/2001