CBL Insurance Limited (in liquidation) - [2018] NZHC 2547

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IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2018-404-001667

[2018] NZHC 2547

UNDER Section 284 of the Companies Act 1993

IN THE MATTER OF

CBL INSURANCE LIMITED (IN LIQUIDATION)

IN THE MATTER OF

An application by KARE JOHNSTONE and ANDREW GRENFELL for directions in

relation to the interim liquidation of CBL INSURANCE LIMITED (IN INTERIM LIQUIDATION)

Hearing: 24-25 September 2018

Appearances:

I J Thain and A E Murray for Interim Liquidators

A S Ross QC and J E M Lethbridge for Elite Insurance N S Gedye QC for Reserve Bank

R B Stewart QC, M Kersey and A J Nelder for LBC Holdings D M Salmon and J P Cundy for CBL Insurance

J Anderson QC and J A MacGillivray for Alpha Insurance

Judgment:

28 September 2018

Reissued:

1 October 2018

JUDGMENT OF COURTNEY J

This judgment was delivered by Justice Courtney on 28 September 2018 at 3.30 pm
pursuant to R 11.5 of the High Court Rules Registrar / Deputy Registrar
Date………………………..

RE CBL INSURANCE LTD (IN LIQ) [2018] NZHC 2547 [28 September 2018]

Introduction

[1] This is an application by the interim liquidators of CBL Insurance Ltd (CBLI) for directions under s 284 of the Companies Act 1993. They wish to enter into a compromise with CBLI’s largest creditor, Elite Insurance Ltd (Elite) and seek a direction that they have the power to do so.

[2] The agreement that the Interim Liquidators have negotiated with Elite would extinguish CBLI’s liabilities to Elite in return for a mixture of cash and non-cash assets (the commutation agreement). The Interim Liquidators say that the agreement would benefit all of CBLI’s creditors, not just Elite. They wish to execute the commutation agreement now, even though the substantive liquidation application is to be heard in November 2018, only seven weeks away. It is said that if the agreement is not executed immediately the same terms are unlikely to be available again.

[3] As filed, the application sought a number of directions that would have seen the Court sanction the terms of the proposed agreement itself. However, Mr Thain, for the Interim Liquidators, acknowledged that the merits of the proposal were not a matter on which the Court could form a view. I am concerned only with the scope of the Interim Liquidators’ powers; the exercise of those powers is a matter for the commercial judgment of the Interim Liquidators. The argument therefore proceeded on the basis that the only direction sought was one: “that the Interim Liquidators, acting on behalf of CBLI, have the power to enter into the transaction with Elite”.

[4] The Reserve Bank of New Zealand (RBNZ), which is CBLI’s regulator under the Insurance (Prudential Supervision) Act 2010 (IPSA), consents to the application.1 There is, however, strenuous opposition from CBLI’s second largest creditor, Alpha Insurance Ltd (Alpha), CBLI itself (acting through two of its directors) and CBLI’s shareholder, LBC…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2018] NZHC 2547
Decision Date: 28 September 2018

CaseChat Overview and Summary

The interim liquidators of CBL Insurance Limited sought a direction from the High Court of New Zealand to allow them to enter into a compromise with the company's largest creditor, Elite Insurance Ltd. The interim liquidators argued that the agreement would benefit all of CBL Insurance Limited's creditors, not just Elite Insurance Ltd, and that if the agreement was not executed immediately, the same terms would be unlikely to be available again. The Reserve Bank of New Zealand supported the application, but CBL Insurance Limited, Alpha Insurance Ltd, and LBC Holdings Ltd opposed it. The court considered whether the power to compromise a creditor's claim fell within the scope of the Interim Liquidators' power under s 246 of the Companies Act 1993. The court concluded that the commutation agreement was beyond the scope of the Interim Liquidators' powers as it was not intended to maintain the value of specific assets but, rather, to crystallise and eliminate CBL Insurance Limited's net liability to Elite. The court also noted that the agreement would result in the disposition of a number of the company's assets, including most of its cash, whereas it was generally for the liquidator to realise the company's assets for the benefit of all creditors. The application for directions was dismissed.

Orders