In the Application of United Medical Protection Limited (No 2) [2007] FCA 714

FEDERAL COURT OF AUSTRALIA

In the Application of United Medical Protection Limited (No 2) [2007] FCA 714

INSURANCE – amalgamation of insurance business – confirmation of scheme – principles to be applied CORPORATIONS – scheme of arrangement – amalgamation of companies – approval – principles to be applied Corporations Act 2001 (Cth), s 411, 413 Insurance Act 1973 (Cth Alabama, New Orleans, Texas & Pacific Junction Railway Company, In re [1891] 1 Ch 213 applied In the Application of United Medical Protection Limited [2007] FCA 631 IN THE APPLICATION OF UNITED MEDICAL PROTECTION LIMITED, THE MEDICAL DEFENCE ASSOCIATION OF VICTORIA AND SEVENTY-FIFTH JONESTOWN VID 1392 of 2006 PROFESSIONAL INDEMNITY INSURANCE COMPANY AUSTRALIA PTY LIMITED AND AUSTRALASIAN MEDICAL INSURANCE LIMITED VID 346 of 2007

FINKELSTEIN J

11 MAY 2007

MELBOURNE

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY

In the application of United Medical Protection Limited, the Medical Defence Association of Victoria and Seventy-fifth Jonestown VID 1392 of 2006 UNITED MEDICAL PROTECTION LIMITED, THE MEDICAL DEFENCE ASSOCIATION OF VICTORIA AND SEVENTY-FIFTH JONESTOWN

Plaintiffs

VID 376 of 2007 PROFESSIONAL INDEMNITY INSURANCE COMPANY AUSTRALIA PTY LIMITED AND AUSTRALASIAN MEDICAL INSURANCE LIMITED

Plaintiffs

JUDGE: FINKELSTEIN J

DATE: 11 MAY 2007

PLACE: MELBOURNE

REASONS FOR JUDGMENT 1 A brief description of the two schemes for which approval is now sought is to be found in what I said when ordering the convening of the scheme meetings: see In the Application of United Medical Protection Limited [2007] FCA 631. The duty of the court when acting under s 411(6) of the Corporations Act 2001 (Cth) has been explained more than once. Nothing is served by going over old ground. It will be sufficient to refer to two short passages from the leading case: In re Alabama, New Orleans, Texas & Pacific Junction Railway Company [1891] 1 Ch 213. First there is the passage from Lindley LJ 238-239. He said: What the Court has to do is to see, first of all, that the provisions of that statute have been complied with; and, secondly, that the majority has been acting bona fide. The Court also has to see that the minority is not being overridden by a majority having interests of its own clashing with those of the minority whom they seek to coerce. Further than that, the Court has to look at the scheme and see whether it is one as to which persons acting honestly, and viewing the scheme laid before them in the interests of those whom they represent, take a view which can be reasonably taken by business men. The Court must look at the scheme, and see whether the Act has been complied with, whether the majority are acting bona fide, and whether they are coercing the minority in order to promote interests adverse to those of the class whom they purport to represent; and then see whether the scheme is a reasonable one or whether there is any reasonable objection to it, or such an objection to it as that any reasonable man might say that he could not approve of it. 2 The other passage is from Fry LJ who at 247 said: Then the next inquiry is – Under what circumstances is the Court to sanction a resolution which has been passed approving of a compromise or arrangement? I shall not attempt to define what elements may enter into the consideration of the Court beyond this, that I do not doubt for a moment that the Court is bound to ascertain that all the conditions required by the statute have been complied with; it is bound to be satisfied that the proposition was made in good faith; and, further, it must be satisfied that the proposal was at least so far fair and reasonable, as that an intelligent and honest man, who is a member of that class, and acting alone in respect of his interest as such a member, might approve of it. What other circumstances the Court may take into consideration I will not attempt to forecast. 3 These passages make clear that the court does not simply act on the views of members. On the other hand, if the members are acting with full knowledge and complete information and, also, are acting honestly, they are in a far better position than a judge to decide what is in their best interests. 4 As regards these schemes, the meetings have been properly convened, the members have been given adequate information to enable them to make an informed judgment and in voting in favour of the schemes they are acting honestly, as far as I can see. Moreover the resolutions approving the schemes have been carried by very large majorities. 5 In these circumstances I should not adopt a view of the schemes that is different from the view of the members not unless I could see that something was amiss. Nothing has been brought to my attention that suggests prejudice. 6 The two conditions in s 411(17) being satisfied, I will make orders approving the schemes along with consequential orders under s 413 to give effect to the transfer of the undertaking and property of MDAV to United. 7 It is also necessary to deal with the application under the Insurance Act 1973 (Cth) to confirm the scheme for the transfer of the assets of Australasian Medical Insurance Limited to Professional Indemnity Insurance Company Australia Pty Ltd. In substance the transfer of an insurance business from one insurer to another to create a merged and larger operation. The statutory requirements for the transfer have been satisfied and it is appropriate that the scheme be confirmed. The transfer is an essential element of the schemes to merge the operations of MDAV and United and in the absence of the transfer of the insurance option the principal scheme could not go proceed. 8 It has often been pointed out that the Insurance Act fails to specify what, apart from compliance with the statutory conditions, must be shown to obtain the court's confirmation of a scheme. This is notwithstanding that the interests of policy holders must be kept uppermost in mind and if there were likely to be prejudice to policy holders the scheme would not be allowed. Here the position of all policy holders is that they are adequately protected. Indeed, their position will be enhanced by the implementation of the proposal. 9 I will make orders in accordance with the minutes submitted by the parties with the changes I suggested during the course of today's hearing. I certify that the preceding nine (9) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein.