CH an CATCHWORDS Health - winding up of health benefit fund conducted by Friendly Society - approval of scheme for winding up of fund - notice to contributors - statutory formula adopted for scheme, as if fund had not achieved registration. National Health Act 1953, s. 73AA, s.822G(1), s. 82ZGA(3) Health Leqislation Amendment Act 1983 Friendly Societies Act 1912 IN THE MATTER of the NATIONAL HRPALTH ACT 1953 (as amended) AND IN THE MATTER of an application by THE MANCHESTER UNITY INDEPENDENT ORDER OF ODDFELLOWS FRIENDLY SOCIETY IN NEW SOUTH WALES No. G 43 of 1984 Morling J. 10 February 1984 Sydney IN THE FEDERAL COURT OF AUSTRALIA ) ) NEW SOUTH WALCS DISTRICT REGISTRY ) No. G 43 of 1984 ) ) GENERAL DIVISION JUDGE MAKING ORDER DATE OF ORDER WHERE MADE IN THE MATTER OF THE NATIONAL HEALTH ACT 1953 (AS AMENDED) AND IN THE MATTER OF Ai APPLICATION BY THE MANCHESTER UNITY INDEPENDENT ORDER OF ODDFELLOWS FRIENDLY SOCIETY IN NEW SOUTH WALES ORDER Morling J. Pry Pry 10 February 1984 3 Sydney THE COURT ORDERS THAT: 1. 2. That the requirements of Order 55 rule 4 ve dispensed with. That the Health Benefits Fund conducted by The Manchester Unity Independent Order of Oddfellows Friendly Society in New South Wales be wound up in accordance with the scheme set out in the First Schedule to this order. That the costs of the applicant herein be paid out of the Fund. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUIH WALES DISTRICT REGISTRY No. G 43 of 1984 wee GENERAL DIVISION IN THE MATTER OF THE NATIONAL HEALTH ACT 1953 (AS AMENDED } AND _IN THE MATTER OF AN APPLICATION BY THE MANCHESTER UNITY INDEPENDENT ORDER OF ODDFELLOWS FRIENDLY SOCIETY IN NEW SOUTH WALES MORLING J. 10 February 1984 REASONS FOR JUDGMENT This is an application pursuant to subs. 822G(1) of the National Health Act 1953 ("the Act") for an order that the health benefits fund conducted by the Manchester Unity Independent Order of Odcfellows Friendly Society in New Nw South Wales ("the Soc1rety") be wound up with effect from 1 February 1984 in accordance with a proposed scheme to which I shall presently refer. The Society is a friendly Society registered under the Friendly Societies Act 1912, New South Wales. It has been a registered medical benefits organization and a registered hospital benefits organization in respect of the State of New South Wales pursuant to the provisions of the Act as in force prior to 1 October 1983 and has conducted a medical benefits fund known as the Medical Services Fund and a hospital benefits fund known as the Voluntary Hospital Fund in accordance with those provisions. The Society is also a registered health benefits organization in respect of the State of New South Wales pursuant to the provisions of the Act as in force from l October 1983 and is authorised to conduct a health benefits fund in accordance with those provisions. As a consequence of the registration of the Society as a health benefits organisation pursuant to the provisions of s.73AA of the Act as inserted by the Health Legislation Amendment Act 1983 the assets of the said medical benefits fund and the said hospital benefits fund formerly conducted by the Society as and from lst February 1984 constitute the assets of the said health benefit fund. The accounts of the Medical Services Fund and the Voluntary Hospital Fund reveal an anticipated surplus of approximately $1,750,258 in the Voluntary Hospital Fund and an anticipated deficit of approximately $2,126,319 in the Medical Services Fund. The precise amounts of surpius and deficit will not be known for some time as management expenses, interest earnings and actual contribution income are at this stage uncertain. The hospital fund has approximately 69,000 contributors and the medical benefits fund has approximately 63,000 contributors. More than 90% of contributors to the medical services fund are contributors to the voluntary hospital fund. The policy of the Department of Health has been to permit surpluses in either the hospital fund or the medical fund of registered organisations to be used to balance deficits in the other. On this basis the combined position of the funds at 31 December 1983 was a deficit of approximately $1,050,061. It is not possible having regard to current uncertainties in relation to the introduction of the new health scheme to estimate what the actual position of the funds are at this dale. In 1983 the Registrar of Friendly Societies approved the transfer of an amount up to $750,000 from the general funds of the Society to meet any outstanding liability in the health benefits fund. The amount of $750,000 remains available to be applied towards any deficiency in the fund. From 1 February 1984, following the amendments to the Act effected by the Health Legislation Amendment Act 1983, benefits for medical services (to be known as "Medicare benefits") will only be available under the Health Insurance Act 1973 through the Health Insurance Commission, trading as "Medicare"; health benefit organisations can only offer benefits for ancillary health services and hospital services. The Health Insurance Commission, also trading as Medibank Private, will offer such henefits and will have a considerable marketing advantage over other health benefits organisations. It will be ina position to offer "one stop shopping" where at one location contributors will be able to obtain Medicare benefits and health benefits, whereas contributors to other health benefit organisations will be obliged to attend a Medicare office in order to obtain Medicare benefits and then their hospital benefit organisation's office in order to claim health benefits. Health benefit organisations will need to offer very attractive rates to contributors to overcome these advantages. The Society believes that, having regard to the announced contribution rates of Medibank Private in New South Wales, the Health Benefits Fund of the society will 5. not be viable and if the said fund were to be conducted in accordance with the conditions of registration imposed by the provisions of the Act and by the Department of Health in ats letter of 9 January 1984, the fund would suffer substantial loss of membership resulting in an increased deficiency in the fund. The good risk contributors, with low claim rates and to whom the differences in contribution rates are significant, would leave the Society's fund and the bad risk contributors, with high claim rates and to whom the difference in contribution rates is less important, would remain so that claims would increase and contribution income would decrease. If the Society conducts a health benefits fund without having to meet the conditions of registration required under the Act, the Society can offer a family rate providing a combined basic and supplementary hospital table at $6-94 per week. Such a table will be competitive with Medibank Private and with other health benefits organisations and this will enable the fund to be conducted profitably whilst still offering adequate benefits for contributors. On 13 January 1984, rules comprising new General Rule 7203C for the conduct of a hospital fund ata family rate of $6-94 per week were registered under the Friendly Societies Act 1912. On 22 November 1983 at the annual conference of the Society the following resolution was duly passed: "That the Board of Directors be given authority to immediately introduce and seek registration of a Hospital Benefit Fund under the N.5.W. Friendly Society Act should the Society's application for re-registration as a Health Benefits Organisation under the National Health Act be refused or 1t is found that contribution rates are uncompetitive thus effecting the viability of the Fund." On 14 January 1983 the directors of the Society passed the following resolution: "That the Voluntary Hospital Fund of the Society conducted under Rule 203A and the Medical Fund of the Society conducted under Rule 233A he wound up and that application for such winding up to be effective from 3lst January, 1984, be made to the Federal Court of Australia in accordance with the provisions of the National Health Act, 1953." In January 1984 a letter was sent to all members of the Society who were as at 20 January recorded as contributors to either the Medical Benefits Fund or the Hospital Benefits Fund conducted by the Society. The letter unclude the following paragraphs: "With the introduction of the Federal Government's Medicare Scheme to commence from the ist February, 1984, shared ward accommodation in public hospitals without cost to the patient will be availabie when treatment is provided by doctors who are nominated by the hospital. If however on admission to a public hospital you wish to nominate and be treated by your own doctor, an accommodation charge of $80 per day for a shared ward or if available $130 per day 7. for a single room will be raised which will not be covered by Medicare. Medicare will not cover accommodation in a private hospital. Manchester Unity, to provide for its members who elect to retain freedom of choice in nominating their own doctor for treatment ina public hospital and also to provide cover for members who are admitted to a private hospital, has decided to introduce a new hospital fund to commence from 3lst January, 1984, whch will comprise a single table all inclusive hospital plan, providing benefits in respect of both public and private hospital charges. This new single table plan will replace the basic and supplementary tables presently conducted under the National Health Act. Manchester Unity will cease registration under the National Health Act from 3lst January, 1984, and will wind up the existing hospital fund registered under that Act." On 20 January 1984 another letter was sent to members of the Society who were at that date contributors to the Hospital Benefit Fund of the Society and in respect of whom payments had been made by the Society from the re-insurance account maintained by the Society in accordance with s. 73BB of the Act. The letter included the following paragraph: "With the introduction of Medicare from lst February, 1984 and the announcement by Medibank Private of the contribution rates which will be payable by contributors to the basic hospital table, the Board of Directors of the Society has concluded that the Society is not able to offer to members a basic hospital table at a rate which will be competitive. Thus, although the Society has received the approval of the Commonwealth Department of Health to conduct a hospital table, we have decided not to proceed with this and as a consequence intend to discontinue registration under the National Health Act." 8. Since 1 February 1984 the Society has not accepted contributions to the registered health bensfits fund formerly conducted by it. The proposed scheme for the winding up of the Society's health benefit fund is as set out in the annexure to these reasons. The rules of the Federal Court make special provisions for applications for the winding up of a fund under the Act. Order 55 rule 4 provides as follows: "On a directions hearing pursuant to an application under sections 814, 822F, 82Z2G or 82ZH for the winding up or transfer of the business of a fund (but not the judicial manage- ment of a fund) unless the Court ora Judge otherwise orders - (a) evidence adduced by the applicant shall include whatever 15 necessary to enable the Court to order a meeting or meetings of the contributors or class of contributors or of the creditors or class of creditors or of any other persons or class of person where their interests may be affected, to be summoned in such manner as the Court directs; and (b) the evidence tendered by the applicant in support of the application ordinarily should include the following: - (i) aform or, if more than one, forms of notice of meeting; {ii) a form or, if more than one, forms of proxy; 9. (ini) a form of notice summoning the meeting or meetings by advertisement; (iv) any proposed scheme for the winding up or transfer of the business of a fund; (vy) a statement explaining the effect of the proposed scheme and stating the material interest of the directors or officers of the registered organization whether as directors, officers or as contributors or as creditors or otherwise and the effact thereon of the scheme insofar as it is different from the effect on the like interests of other persons; (vi) consent of the person proposed as the chairman of the meeting or meetings to act as chairman; and (vii) the most recent audited accounts and balance sheets of the fund." The Society seeks an order that the requirements of Order 55 rule 4 be dispensed with. Neither this application nor the substantive application that the fund be wound up is opposed by the Minister for Health who is the respondent to the application. As originally framed, paragraph (6) of the proposed scheme was in the following terms: "6. In the event that there is any surplus in the Fund at lst August 1984 after meeting all liabilities in accordance with Clause 5 and the proper costs of the administration of this Scheme, such surplus shall be 10. divided into as many units as is equal to four times the number of the contributors which such units shall be distributed as follows: (a) As to each contributor who is a member of the said medical benefits and hospital benefits funds of the Society at the family rate, four units. (b) As to each contributor who is a member of the said medical benefits and hospital benefits funds of the Society at the cingle rate, two units. (c) As to each contributor who is a member of the said medical benefits fund only at the family rate, two units. (d) As to each contributor who is a member of the said hospital benefits fund only at the family rate, two units. Ce) As to each contributor who is a member of the said medical benefits fund only at the single rate, one unit. (f) As to each contributor who is a member of the said hospital benefis fund only at the single rate, one unit." During the course of the argument I indicated to counsel for the applicant that I was not prepared to make the orders sought in the absence of some further notice to the contributors. I expressed the view that such notice could be given by an appropriate newspaper advertisement, rather than by separate notification to each member. I was reluctant to dispense entirely with the requirements of Order 55 rule 4 because I thought that members should have ll. some opportunity to object to clause (6) of the scheme as originally proposed. Whilst the provisions of that clause appear to me to be eminently suitable and fair I can imagine that some contributor might wish to contend otherwise. Because of the view which I expressed in the course of the argument the applicant reframed clause (6) of the scheme. As reframed, the clause is in the same terms as subs. 82 ZGA (3) of the Act as amended by the Health Legislation Amendment Act 1983. This last mentioned section makes provision for the winding up of funds conducted by registered organization which have not achieved registration under the amending legislation. The section makes quite detailed provision for what is to happen when such a fund is wound up and the applicant has incorporated those provisions in clause (6) of the scheme for which it now seeks approval. Whilst the present application is not, of course, made under subs. 822ZGA(3), the adoption of the statutory formula referred to in that subsection justifies the Court in dispensing ith the requirements of Order 55 rule 4. The applicant's proposal has been carefully examined by the Minister and through his counsel he has indicated that he does not oppose it. My own examination of the scheme leads me to the view that it ought to be approved and I am fortified in that opinion by the attitude taken by the Minister. 12. I would not have been preparcd to dispense with all the requirements of Order 55 rule 4 had clause (6) of the scheme stood in its original form. However, the inclusion of the new clause (6) so as to follow closely the provisions of s. 82 ZGA (3) makes it proper to exercise the power to dispense with the requirements of that rule. Accordingly, I propose to grant both the application that the requirements of Order 55 rule 4 be dispensed with and also the substantive application. I make orders as follows: 1. That the requirements of Order 55 rule 4 be dispensed with. 2. That the health benefits fund conducted by the Manchester Unity Independent Order of Oddfellows Friendly Society in New South Wales be wound up in accordance with the scheme set out in the schedule to these reasons. 3. That the applicant's cost of the application be paid out of the fund. Since the respondent Minister does not seek any order in respect of his costs, I make no order as to his costs. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION No. G43 of 1984 eee ee IN THE MATTER OF THE NATIONAL HEALTH ACT 1953 (AS AMENDED) AND IN THE MATTER OF AN APPLICATION BY THE MANCHESTER UNITY INDEPENDENT ORDER _ OF ODDFELLOWS FRIENDLY SOCIETY IN NEW SOUTH WALES FIRST SCHEDULE SCHEME FOR THE WINDING UP OF THE MANCHESTER UNITY INDEPENDENT ORDER OF ODDFELLOWS FRIENDLY SOCIETY WHEREAS IN NEW SOUTH WALES The Manchester Unity Independent Order of Oddfellows Friendly Society in New South Wales (hereinafter referred to as "the Society") is a friendly society registered under the Friendly Societies Act 1912 of New South Wales. The Society has been a registered medical benefits organisation and a registered hospital benefits organisation in respect of the State of New South Wales pursuant to the provisions of the National Health Act 1953 as in force prior to lst October, 1983 and has conducted a medical benefits fund and a hospital benefits fund in accordance with those provisions. The Society is a registered health benefits organisation in respect of the State of New South Wales pursuant to the provisions of the National Health Act 1953 as in force from lst October, 1983 and is authorised to conduct a health benefits fund in accordance with those provisions. As a consequence of the registration of the Society as a health benefits organisation as aforesaid, pursuant to the provisions of Section 73AA of the National Health Act 1953 as inserted by the Health Legislation Amendment Act 1983 the assets of the said medical benefits fund and the said hospital benefits fund formerly conducted by the Society as and from the lst February, 1984 constitute the assets of the said health benefits fund for which approval has been given as hereinbefore recited. The Board of Directors has resolved not to operate the said health benefits fund and has not operated such fund. The Society seeks to wind up the said health benefits fund in accordance with the provisions of this Scheme. THIS SCHEME for the winding up by the Society of the health benefits fund which it is authorised to conduct pursuant to the provisions of the National Health Act 1953 in force from the lst October, 1983 provides:- 1. DEFINITIONS In this Scheme, "Act" means the National Health Act 1953 (as amended). "Court" means the Federal Court of Australia. "Contributors" means members of the Society who were on 3lst January, 1984 members of either the said medical benefits fund or the said hospital benefits fund conducted by the Society in accordance with the provisions of the National Health Act as in force prior to the lst October, 1983 and who were financial on that date. "Fund" means the health benefits fund which the Society is authorised to conduct pursuant to the provisions of the Act as in force from lst October, 1983. "Society" means the Manchester Unity Independent Order of Oddfellows Friendly Society in New South Wales. PERIOD OF SCHEME The scheme shall be deemed to have commenced on the lst February, 1984 and unless previously terminated, this scheme will continue until the Fund has been wound up in accordance with the provisions hereof. ADMINISTRATION During the period of this scheme:- (1) The Society shall operate and conduct the affairs of the Fund in accordance with this scheme and with the Act. (2) The Society shall not enrol members nor accept contributions to the Fund. (3) The Society shall not pay benefits in respect of medical or hospital services rendered on or after Ist February, 1984. NOTIFICATION TO MEMBERS The Socrety will within seven (7) days after the commencement date forward by pre-paid post to ail members of the Fund a notification of the winding up of the Fund in the form of the notification annexed hereto and marked with the letter "A", DISCHARGE OF LIABILITIES (1) (2) (3) Subject to paragraph (2) hereof the Society will pay and discharge all liabilities of the Fund from assets of the Fund, forthwith upon such liabilities becoming due for payment in accordance with the terms upon which they were incurred or contracted Pursuant to paragraph (1) hereof the Society shall meet out of the Fund all claims by contributors for services rendered prior to the lst February, 1984 received by the Society prior to lst August, 1984. The Society shall not be liable to any contributor in respect of any claim received after 3lst July, 1984. All contributions held on behalf of contributors to the said medical benefits fund and the said hospital benefits fund formerly conducted by the Society, in respect of a period or periods after 3lst January, 1984 shall be refunded to those contributors in priority to all other liabilities. (4) In the event that the assets of the Fund are insufficient to meet the liabilities of the Fund the Society shall, subject to such approvals as are required under the Friendly Societies Act 1912 of New South Wales, meet the liabilities to the extent of such insufficiency out of such of the general assets of the Society as shall be approved by the Registrar of Friendly Societies. DISTRIBUTION OF SURPLUS In the event that there is any surplus in the Fund at lst August, 1984 after meeting all liabilities in accordance with Clause 5 and the proper costs ot the administration of this Scheme, such surplus shaJjl be divided and distributed according to the mode of disposition prescribed by s.822GA(3) of the Act as if the Fund were being wound up under the provisions of that section PROVIDED THAT the expression "the relevant period" for the purposes of the application of s.82ZGA(3) shall mean the period from lst July, 1953 to 31st January, 1984. nat February, 1984 Dear Member Further to our January letter notifying you of the introduction from February 1, of a new Hospital Plan and the intention to wind up the existing Medical and Hospital Funds of the Society, I would advise that approval has this day been given by the Federal Court of Australia to the Society's scheme for the winding up of the Health Benefits Fund of the Society comprising the Medical Services Fund and the Voluntary Hospital Fund formerly conducted by the Society prior to the introduction of the new National Health Scheme known as Medicare. Under the Scheme for winding up of this Fund all unpresented claims for services rendered prior to lst February, 1984, are required to be lodged with the Society prior to lst August 1984, This Scheme also provides for members who paid -ontributions in advance of February 1, to receive a refund of those advance 'contributions. Members may however elect to have contributions paid in advance applied towards contributions payable by them under the Society's new Hospital Fund and/or Extended Health Services Fund, in which event you shoutd notify your Branch Secretary or Head Office to enable this adjustment to be made. R.G. ARCHIBALD Grand Secretary