FEDERAL COURT OF AUSTRALIA Sphere Drake Insurance Limited, in the matter of Sphere Drake Insurance Limited [2008] FCA 2012 SPHERE DRAKE INSURANCE LIMITED, IN THE MATTER OF SPHERE DRAKE INSURANCE LIMITED NSD1881 of 2008 EMMETT J 12 DECEMBER 2008 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD1881 of 2008 IN THE MATTER OF SPHERE DRAKE INSURANCE LIMITED, SPHERE DRAKE INSURANCE LIMITED ARBN 001 263 001 Plaintiff JUDGE: EMMETT J DATE OF ORDER: 12 DECEMBER 2008 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. Pursuant to section 17C(5) of the Insurance Act 1973 (the Act), the need for the applicant to comply with section 17C(2)(c) of the Act is dispensed with provided that the Applicant complies with Orders 2, 3, 4 and 5 below. 2. The Applicant, before the scheme for the transfer of insurance business from the Applicant to Gordian Runoff Limited (the Scheme) is released for public inspection under order 4 below, cause a copy of a summary of the Scheme approved by the Australian Prudential Regulation Authority (APRA) to be sent by pre-paid post to: (a) all policyholders of the Applicant's Australian branch that the Applicant has identified from its records and from the publicly available sources consulted by it, as described in the affidavit of Leslie Byrne sworn on 5 December 2008, for which the Applicant has an address; (b) each broker known by the Applicant to have placed or administered any Transferring Policy (as defined in the Scheme) at its registered address or last known address maintained upon the records of the Applicant; (c) each insurance company authorised by APRA to carry on general insurance business in Australia at the address specified on APRA's mailing list as at 25 January 2008, as described in the affidavit of Leslie Byrne sworn on 5 December 2008 or such other address that APRA may subsequently notify the Applicant in writing; (d) each of Workcover WA, Workcover SA, Northern Territory Worksafe, ACT Work Cover, WorkCover Tasmania, Victorian WorkCover Authority, Q-COMP (Queensland) and WorkCover NSW at its last known address according to a widely recognised public telephone directory in circulation in the relevant State of Territory. 3. The Applicant cause an advertisement providing notification of the proposed Scheme (in a form approved by APRA) to be placed in the Gazette and newspapers, approved by APRA, circulating in each State and Territory of Australia and the following additional publications: (a) Financial Times International Edition; and (b) Insurance Day. before the Scheme is released for public inspection under order 4 below. 4. The Applicant make a copy of the Scheme and any actuarial report upon which it is based available for inspection for a period of at least 15 business days (between the hours of 9.00am and 5.00pm Monday to Friday), prior to the date on which the Scheme is to be confirmed by the Court, at locations approved by APRA under Prudential Standard GPS 410 in each State and Territory in which an affected policyholder resides and at the offices of RiverStone Management Limited in London and Brighton in the United Kingdom. 5. Upon request by a policyholder of the Applicant who resides outside of Australia or the United Kingdom, the Applicant make available a copy of the Scheme and any actuarial report upon which it is based for public inspection by the relevant policyholder for a period of at least 15 business days (between the hours of 9.00 am and 5.00 pm) prior to the date on which the Scheme is to be confirmed by the Court at an office of Ernst & Young with closest geographic proximity (as determined by the Applicant) to the address at which the relevant policyholder ordinarily resides 6. The proceeding be listed for hearing on 27 February 2009. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD1881 of 2008 IN THE MATTER OF SPHERE DRAKE INSURANCE LIMITED, SPHERE DRAKE INSURANCE LIMITED ARBN 001 263 001 Plaintiff JUDGE: EMMETT J DATE: 12 DECEMBER 2008 PLACE: SYDNEY REASONS FOR JUDGMENT 1 The applicant, Sphere Drake Insurance Limited (the Company), is authorised under the Insurance Act 1973 (Cth) (the Act) to conduct a run off business. The insurance portfolio of the Company is comprised of policies written by five different entities, Vester Griffin AS, Vester Reinsurance Company of Australia Limited, Skandia Insurance Company Limited, INSA Insurance Corporation and Sphere Drake Insurance Limited. The Company has applied to the Court for orders under Part 3, Division 3A, of the Act in relation to a proposed scheme. The scheme involves the transfer of all of the general insurance reinsurance business of the Australian branch of the Company to another company, Gordian Runoff Limited (Gordian). 2 Section 17B of the Act provides that no part of the insurance business of a general insurer may be transferred to another general insurer or amalgamated with the business of another general insurer except under a scheme confirmed by the Court. Section 17C(2)(c) relevantly provides that an application for confirmation of a scheme may not be made unless an approved summary of the scheme has been given to every affected policyholder. 3 An approved summary is a summary approved by Australian Prudential Regulation Authority (APRA). An affected policyholder is a holder of a policy affected by a scheme. Policies affected by the scheme are those which are transferred pursuant to the scheme. While the policies of the transferee are not affected by the scheme in that way, the consequences on the policies of transferees may be a matter to be taken into account by the Court in the exercise of its discretion to confirm a scheme (see Re Insurance Australia Limited (2004) 139 FCR 450, at [18] to [25]). 4 The Company has become the repository of the policies of the various companies to which I have referred by a series of transactions over a number of years. That has led to difficulties in identifying the affected policyholders for the purpose of the Act. I have had regard to the evidence of affidavits sworn by Lesley Byrne and Luke Tanzer of 5 December 2008 concerning the steps that have been taken to identify affected policyholders. The steps deposed to by Mr Byrne suggest that, after various duplications have been eliminated, there were 1,649 policyholders requiring investigation. Of the 1,649 policyholders identified, some 295 were identified as being closed companies where, for example, the policyholder has been deregistered or dissolved. Another five identified as policyholders were shown not ever to have been policyholders at all. Of the remaining 1,349 policyholders, addresses were found for 1,345 of those policyholders. 5 Because of the difficulties in being certain as to the identity of affected policyholders, the Company has applied for dispensation from the need for strict compliance with s 17C(2)(c). Under s 17C(5), the Court may dispense with strict compliance if it is satisfied that, because of the nature of the scheme or the circumstances attending its preparation, it is not necessary that s 17C(2)(c) be complied with. 6 The Company has informed APRA of the steps that it has taken and has provided to APRA the affidavits to which I have referred. APRA has confirmed that it is satisfied with the methods used by the Company to identify policies to be transferred to Gordian. Further, APRA has confirmed that it is satisfied that the Company has made all reasonable attempts to identify policyholders whose policies are proposed to be transferred to Gordian. In the circumstances, APRA supports the Company's application to the Court for an order not to send the approved summary to persons who cannot be identified or whose address details are unknown. 7 The Company proposes to send a copy of the approved summary to all of the policyholders for whom the Company has identified an address. It will also send a copy of the approved summary to each of the 131 general insurers authorised by APRA to carry on general insurance business in Australia, which are included on APRA's mailing list, and to each insurance broker and intermediary known to the Company to have administered or placed Australian business of the Company, as well as to each of the workers' compensation authorities in Australia. The brokers and intermediaries will be asked to pass on a copy of the scheme summary to any policyholder of the Company who held a policy that will be transferred to Gordian. The workers' compensation authorities will be asked on to pass on information to any affected policyholder from whom a query might be received in the future. 8 The Company will also ensure that a copy of the proposed scheme and any actuarial report upon which it is based will be made available for public inspection at appropriate places in Australia and in the United Kingdom. Upon request by a policyholder of the Company who resides outside Australia or the United Kingdom, the Company will provide a copy of the scheme and any actuarial report upon which it is based available at a place geographically approximate to the address of the policyholder. The Company will also publish notice of the proposed scheme, in a form approved by APRA, in the Australian Government Gazette and in newspapers approved by APRA circulating in each state and territory of Australia, as well as in the London Financial Times international edition and a publication known as Insurance Day. The Company will make the scheme and any actuarial report upon which it is based available for inspection at locations approved by APRA. 9 Subject to the Company's complying with those requirements, I consider that it is appropriate to accede to the Company's request to dispense with strict compliance with s 17C(2)(c) of the Act. I certify that the preceding nine (9) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett. Associate: Dated: 27 January 2009 Counsel for the Applicant: Mr N J Owens Solicitor for the Applicant: Allens Arthur Robinson Date of Hearing: 12 December 2008 Date of Judgment: 12 December 2008