FEDERAL COURT OF AUSTRALIA Mercantile Mutual Insurance (Australia) Limited [2002] FCA 1632 CORPORATIONS – solvent schemes of arrangement proposed in England for Australian insurance company and four related Dutch insurance companies in combination – schemes designed to accelerate crystallisation and satisfaction of reinsurance claims – order previously made in Australia for scheme meeting of Australian company to be held in London in combination with scheme meetings of the Dutch companies– alterations made to scheme for Australian insurance company prior to dispatch to potential reinsurance claimants – each scheme meeting for each insurance company held separately in London – resolutions separately passed in relation to each respective scheme – subsequent approval by this Court of the scheme involving Australian insurance company – leave granted for administration of Australian Scheme in London. Corporations Act 2001 (Cth) ss 411 and 1322 Companies Act 1985 (UK) s 425 Re Mercantile Mutual Insurance (Australia) Ltd (2002) 43 ACSR 128 cited Chief Commissioner of Pay-Roll Tax v Group Four Industries Pty Ltd [1984] 1 NSWLR 680 cited Re NRMA Ltd (2000) 33 ACSR 595 referred to Australian Co-operative Foods Ltd (2001) 38 ACSR 71 referred to N 3052 of 2002 CONTI J 24 DECEMBER 2002 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 3052 OF 2002 IN THE MATTER OF MERCANTILE MUTUAL INSURANCE (AUSTRALIA) LIMITED MERCANTILE MUTUAL INSURANCE (AUSTRALIA) LIMITED ACN 35 000 456 799 APPLICANT JUDGE: CONTI J DATE OF ORDER: 20 DECEMBER 2002 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. Pursuant to section 411(4)(b) of the Corporations Act, the Scheme of Arrangement, which is annexed to the orders and marked "A", be approved. 2. Pursuant to section 411(12) of the Corporations Act, the Applicant be exempted from compliance with section 411(11) of the Corporations Act. 3. Pursuant to section 411(7) of the Corporations Act, to the extent necessary, leave be granted to Andrew Crouchman, Thomas Bond, Peter Matthews, Craig Kline and Anton Eisdel, to administer the Scheme of Arrangement. 4. These orders be entered forthwith. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 3052 OF 2002 IN THE MATTER OF MERCANTILE MUTUAL INSURANCE (AUSTRALIA) LIMITED MERCANTILE MUTUAL INSURANCE (AUSTRALIA) LIMITED ACN 35 000 456 799 APPLICANT JUDGE: CONTI J DATE: 24 DECEMBER 2002 PLACE: SYDNEY REASONS FOR JUDGMENT 1 In conformity with the orders of this Court made on 17 October 2002 and reproduced in my reasons for judgment of that date (Re Mercantile Mutual Insurance (Australia) Limited (2002) 43 ACSR 128), being orders made pursuant to s 411(1) of the Corporations Act 2001 (Cth) ("the Act"), a meeting of scheme creditors (as defined) of Mercantile Mutual Insurance (Australia) Limited ("MMIA") took place on 11 December 2002 at the Chartered Insurance Institute in London to consider the giving of approval to the scheme of arrangement proposed to be made between MMIA and the MMIA scheme creditors. 2 The holding of the scheme meeting had been earlier advertised in Australia on 30 October 2002 in the Australian Financial Review and The Australian. 3 Prior to 7 November 2002, there had been sent to MMIA scheme creditors, and to brokers, agents and intermediaries of the MMIA scheme creditors, by airmail, post or courier, the following named documents assembled together as a single scheme booklet: (i) "Important Notice"; (ii) "Table of Contents of Explanatory Statement"; (iii) "Key Dates and Expected Timetable"; (iv) "Key Definitions for Explanatory Statement"; (v) "Letter from the Scheme Companies"; (vi) "Explanatory Statement" containing the material itemised in Order 8 made by the High Court of Justice on 15 October 2002; (vii) "Scheme of Arrangement" bearing date 28 October 2002; (viii) "Notice of Scheme Meetings" for MMIA and each of the Scheme Companies. 4 A number of alterations were made to the text of the explanatory statement and scheme of arrangement, subsequent to my making of the orders on 17 October 2002, but prior to the same being printed and dispatched to potential creditors or claimants. None of the alterations so made were of a radical nature, such as to require any reconsideration of or modification to my earlier reasons for judgment of 17 October 2002 given in the proceedings. As senior counsel for MMIA pointed out, it has often been the case that a court's approval of a scheme of arrangement has been forthcoming, without the need for specific reference to, and adoption of, changes made to the wording of the scheme, after the making of the prior orders for meetings to be convened, but before the dispatch of the scheme and explanatory memorandum to creditors etc, and it has not been the practice to apply in those circumstances to the court for remedial orders pursuant to s 1322 of the Act. I was referred in that context to Chief Commissioner of Pay-Roll Tax v Group Four Industries Pty Ltd [1984] 1 NSWLR 680 at 684, where McLelland J (as he then was) observed generally as follows: "This Court is a superior court of record, from which it follows first, that no subsisting order made by the court can be treated as void or invalid…and secondly, that the court has power to determine the existence of the conditions upon which its jurisdiction to make an order in any particular case depends without any such determination or any such order being open to collateral challenge (ie challenge otherwise than by appeal). The making by the court of a particular order is an implicit determination that the conditions exist upon which its jurisdiction to make that order depends." 5 Placed before me at the hearing of the application for this court's consideration in Australia was the following duly verified documentation: (i) The petition for order for the sanction of the MMIA scheme of arrangement under s 425 of the Companies Act 1985 (UK). (ii) Witness Statement of the London solicitor having the carriage of the proceedings in the High Court of Justice in England. (iii) Witness Statements of an analyst in the Business Recovery Services Department of PricewaterhouseCoopers in London. (iv) Witness Statement of an IT Executive in the same Department. (v) Witness Statement of a Customer Services Manager in the employ of the Imprina de Bussy in London. (vi) Report by Mr Schwarzmann of PricewaterhouseCoopers in London in relation to the resolution of the scheme creditors in favour of each of the schemes of arrangement for the five companies involved, including MMIA. (vii) Scrutineer's report setting out the poll results in respect of the five resolutions. 6 Each of the 5 schemes of arrangement duly received approval by a substantial majority of votes at each meeting, both in terms of the number of creditors present and voting in person or by proxy, and in terms of quantification of the claims made. Thus in the MMIA scheme of arrangement meeting : (i) The same was attended in person or by proxy by 27 scheme creditors whose claims against MMIA amounted in the aggregate to US$5,065,002.10; no persons abstained from voting at the meeting. (ii) 2 proxy forms, each naming the same specified person as proxy, and representing claims amounting to US196,741.25, and each directing that person to vote in favour of the MMIA scheme, were not used, because the proxy named by the scheme creditor was not present at the meeting. (iii) 26 scheme creditors in person or by proxy, with claims amounting in the aggregate to US$4,924,884.05, voted in favour of the scheme, and 1 scheme creditor attending by proxy with claims amounting to US140,118.05 voted against the scheme. 7 Thus the majorities required by s 411(4)(a)(i) of the Act were duly satisfied by the outcome of the MMIA meeting, that is to say, a majority in number of the creditors present and voting in person or by proxy, being a majority whose debts or claims against MMIA amounted in the aggregate to at least 75% of the total amounts of the debts and claims of the creditors present and voting in person or by proxy. The 26/27 majority in number in relation to creditors present at the meeting and voting in favour of the MMIA scheme represented a statutory majority of 96.29%. The US$4,924,884.05 majority claim value in favour of the MMIA scheme, as against the US$140,118.05 minority claim value against the MMIA scheme, represented a statutory majority by value of 97.16%. 8 Mr Schwarzmann further reported by affidavit that he was present throughout the hearing in the High Court of Justice in London on 16 December 2002, at which that court's sanction or approval was sought and obtained in respect of the MMIA scheme of arrangement, and no dissentient appeared at that hearing. The court's sanction or approval was documented on 17 December 2002 under the seal of the High Court of Justice, which document purported to relate to "the Scheme of Arrangement as set forth in the Schedule to the said Petition and in the Schedule thereto." That scheme of arrangement, as so formally sanctioned, was described as the "Scheme of Arrangement between such companies and their Scheme Creditors". 9 In the context of the orders for approval made by the High Court of Justice, senior counsel for MMIA pointed out that strictly speaking, there was constituted a separate scheme of arrangement between each of the five insurance companies involved (that is to say of course, MMIA and the four Dutch companies) and their respective reinsurance creditor, although each scheme provides nevertheless for a common method of administration. I was referred to Re NRMA Ltd (2000) 33 ACSR 595 where at [51], Santow J observed that "[f]or each company (Association and Insurance) there is a single scheme document which embodies several separate arrangements." Earlier at [20] incidentally, his Honour cited authority for the width of meaning that has been extended to the statutory expression "arrangement". Subsequently in Australian Co-operative Foods Ltd (2001) 38 ACSR 71, Santow J observed at [1] and [15] that placed before him were two interdependent schemes of arrangement for the restructure of a cooperative, being a members' scheme and a creditors' scheme, the same being placed in the one document, though separated within that document. Particularly in the light of those authorities, the characterisation of the MMIA scheme of arrangement advanced by senior counsel as a separate scheme of arrangement must be correct. 10 In my opinion, MMIA has advanced a compelling case for the court's approval to the scheme of arrangement for MMIA pursuant to s 411(4)(b) of the Act, and I have made orders accordingly, including the order sought for the administration of the scheme of arrangement in London. I certify that the preceding ten (10) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Conti. Associate: Dated: 24 December 2002 Counsel for the applicant: M Oakes SC Solicitor for the applicant: Clayton Utz Date of Hearing: 20 December 2002 Date of Judgment: 24 December 2002