FEDERAL COURT OF AUSTRALIA Atradius Credit Insurance N.V., in the matter of Atradius Credit Insurance N.V. [2016] FCA 1107 File number: NSD 475 of 2016 Judge: ALLSOP CJ Date of judgment: 7 September 2016 Catchwords: INSURANCE – application for transfer of general insurance business – application for dispensation from requirements of s 17C(2)(c) of the Insurance Act 1973 (Cth) – where applicant appears to have complete details for all its policyholders, but is not certain those details are current – dispensation orders made Legislation: Insurance Act 1973 (Cth), s 17C Insurance Contracts Act 1984, s 54 Cases cited: AAI Ltd, Application under the Insurance Act 1973 (Cth) [2015] 452 Application of Gordian RunOff Ltd under the Insurance Act 1973 (Cth) [2013] FCA 983 QBE Insurance (Australia) Ltd, in the matter of Division 3A of Part IIIA of the Insurance Act 1973 (Cth) [2015] FCA 1223 WR Berkley Insurance (Europe) Ltd, In the matter of Division 3A of Part III of the Insurance Act (1973) [2016] FCA 374 Date of hearing: 7 September 2016 Registry: New South Wales Division: General Division National Practice Area: Commercial and Corporations Sub-area: Commercial Contracts, Banking, Finance and Insurance Category: Catchwords Number of paragraphs: 16 Counsel for the Applicant: Mr M Izzo Solicitor for the Applicant: Clyde & Co Solicitor for the Australian Prudential Regulation Authority: Ms S Neumueller of Australian Prudential Regulation Authority ORDERS NSD 475 of 2016 In the matter of Atradius Credit Insurance N.V. (ABN 72 099 372 595) ATRADIUS CREDIT INSURANCE N.V (ABN 72 099 372 595) Applicant JUDGE: ALLSOP CJ DATE OF ORDER: 7 SEPTEMBER 2016 THE COURT ORDERS THAT: 1. The need for the applicant to comply with s 17C(2)(c) of the Insurance Act 1973 (Cth) be dispensed with, other than by undertaking the steps in orders 2 to 8 below, and provided that the applicant complies with orders 2 through 8 below; 2. The applicant, before the Scheme is released for public inspection under order 8 below, cause a copy of the summary of the Scheme approved by the Australian Prudential Regulation Authority (Approved Summary) to be sent: (a) by email to each of the policyholders identified in the Current Policies list and the Cancelled Policies list of the Final Policyholder Register as described in the affidavits of Sharon James, sworn 1 and 6 September 2016 (the James affidavits). Where a policy of insurance has co-insureds, the email to the primary named insured being the policyholder identified in the Current Policies list must include, in the accompanying correspondence, details of the identity of the co-insureds under that policy, requesting the policyholder to provide a copy of the Approved Summary to each co-insured; (b) by registered post to each of the policyholders identified in the Current Policies list and the Cancelled Policies list in the Final Policyholder Register for which Atradius receives notification of a failed email delivery; (c) by email to each of the brokers listed in the Broker Register, as described in the James affidavits; and (d) by registered post to all financiers to whom the proceeds of an Atradius insurance policy has been assigned as listed in the Assignees for Current Policies list in the Final Policyholder Register. 3. The applicant endeavour to have the Approved Summary included on IGrain's online platform. 4. The applicant cause a page to be created on its website (accessible at www.atradius.com.au) that will contain a statement indicating that an application has been made to the Court for the approval of the Scheme and a link to the following documents: (a) the Notice of Intention to make the application as required under APRA Prudential Standard GPS 410, Transfer and Amalgamation of Insurance Business for General Insurers (July 2002) (in the form approved by APRA) (Approved Notice) (b) the Scheme, as described in the James Affidavits; (c) the Approved Summary; and (d) the Actuarial Report, as described in the James affidavits with such page to be available from before the Scheme is released for public inspection under order 7 below until the conclusion of that public inspection. 5. The applicant cause the following documents to be posted on Serv@Net (the Platform) as described in the James affidavit: (a) the Notice of Intention. as described in the James affidavits; (b) the Scheme as described in the James affidavits; (c) the Approved Summary; and (d) the Actuarial Report, as described in the James affidavits 6. The applicant, before the Scheme is released for public inspection under order 7 below, cause a copy of the approved notice to be published in the following publications: (a) The Government Gazette; and (b) The Australian, being a newspaper circulating in each State and Territory in which an affected policyholder resides; and (c) the following metropolitan newspapers: (i) Sydney Morning Herald; (ii) The Age; (iii) The Canberra Times; (iv) The Mercury; (v) The Advertiser; (vi) The Northern Territory News; (vii) The West Australian; and (viii) Courier Mail. 7. The applicant make a copy of the Scheme, Approved Summary and Actuarial Report available for public inspection from 9.00am to 5.00pm (local time) every day, except weekends and public holidays, for a period of at least 15 days at locations approved by APRA in each State and Territory in which an affected policyholder resides; 8. The applicant provide a copy of the Scheme on request to any affected policyholder free of charge. 9. The applicant provide a copy of the Approved Summary to proposed policyholders with any offers for new business, or offers of renewal which are made from the date of the dispensation hearing until the transfer effective date (as defined in the Scheme); 10. The legal costs of APRA be paid by the applicant to be assessed, if not agreed, by the parties. 11. These orders be entered forthwith. THE COURT NOTES: 1. The capitalised definitions in the orders are to be taken from the affidavits of Ms James and, in particular, the definition of the Scheme in paragraph 3 of her affidavit of 1 September 2016. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT (Revised from the transcript) ALLSOP CJ: 1 This is an application seeking orders under section 17C(5) of the Insurance Act 1973 (Cth) for dispensation from the need for full compliance with s 17C(2)(c) of the Act. 2 Section 17C is in the following terms: 17C Steps to be taken before application for confirmation (1) In this section: affected policyholder means the holder of a policy affected by a scheme. approved summary means a summary approved by APRA. (2) An application for confirmation of a scheme may not be made unless: (a) a copy of the scheme and any actuarial report on which the scheme is based have been given to APRA in accordance with the prudential standards; and (b) notice of intention to make the application has been published by the applicant in accordance with the prudential standards; and (c) an approved summary of the scheme has been given to every affected policyholder. (3) Without limiting the provision that may be made by the prudential standards for the purposes of paragraph (2)(b), the notice referred to in that paragraph must include, in relation to each body corporate affected by the scheme, details of the place and time at which an affected policyholder may obtain a copy of the scheme. (4) An affected policyholder is entitled, on the person's request, to be provided by the company with one copy of the scheme free of charge. (5) The Federal Court may dispense with the need for compliance with paragraph (2)(c) in relation to a particular scheme if it is satisfied that, because of the nature of the scheme or the circumstances attending its preparation, it is not necessary that the paragraph be complied with. 3 There is a proposed scheme for the transfer of all the insurance business of the Australian branch of the applicant (Atradius) to the Australian branch of Compañia Española de Seguros y Reaseguros de Crédito y Caución, S.A. (CYC). 4 Both Atradius and CYC ultimately are subsidiaries of a Netherlands' holding company, Atradius Insurance Holdings N.V., which is owned by a Spanish parent, the insurer Grupo Catalana Occidente S.A.. 5 The structure of the transfer set out in the actuarial report is straightforward. Atradius, the transferor, has total assets of $147.2 million and total liabilities of $109.7 million, leading to net assets of $37.5 million. The transferee, CYC, is a clean company, if I may use that expression, which has present capital of $6.5 million, that being total assets with no liabilities. 6 What is envisaged is the total transfer of all the assets and liabilities of Atradius to CYC with the exception of $6.5 million in assets, such that the financial position of the companies will be inverted. Thus, in effect, CYC will have the same balance sheet and financial characteristics that Atradius has now. 7 It is against that background that I look to the question of dispensation. The affidavits, sworn 1 September 2016 and 6 September 2016, of Ms Sharon James, who has been the Senior Controller of the applicant since 2003, make it tolerably plain that the records of Atradius are in good order to identify affected policyholders. 8 Atradius has carried on business since 2003 in Australia writing trade credit insurance. The evidence of Ms James indicates that the bulk of the business is business brought to the company by brokers, but there is also a proportion of the business which is direct to Atradius. The evidence reveals that there is information found in the IT system of the Atradius group called Symphony, which records and captures all details and aspects of the applicant's business, including but not limited to, policyholder names, policyholder addresses, contact emails, customer relationship and account management, policy issuing, pricing, claims, document storage and the maintenance of policyholder organisation details. 9 Ms James' affidavit, sworn 1 September 2016, identifies the way in which that system has been interrogated for the identification of all policyholder information and how that information has been cross-checked manually and otherwise by account managers in respect of the direct business and through brokers for the intermediated broker derived business. There is the potential gap in the broker derived business, in that, in the very verification process not all brokers have responded to the communication sought to double-check the information in Atradius' information technology systems. 10 However, the brokers providing the bulk of the business to Atradius, namely AON, Marsh and National Credit, have responded. The response from 25 brokers, who act for a total of 665 policyholders of the applicant, means that 90 per cent of the total number of intermediated policies of insurance issued by the applicant have been cross-checked in this way. Steps have been taken to identify policyholders under cancelled policies of insurance less there be open claims. The cut-off date of 1 January 2015 has been identified for cancelled policies. 11 Some underlying insurance would have credit terms of 180 days, the longest likely credit term. The policies contained a requirement for notification of claims within six months and, therefore, subject to the operation of provisions such as s 54 of the Insurance Contracts Act (1984) (Cth), it would be anticipated that any claims from the cancelled policies that originated in events covered by the policies prior to 1 January 2015 would have become evident by now. 12 There are policies with co-insureds. The evidence is to the effect that those co-insureds are invariably related companies to the primary holder of the policy and it is intended that the notification to the primary holder of the policy request that co-insureds have been informed by it. 13 There has also been identification of financiers to whom proceeds of insurance policies issued by the applicant have been assigned and that information has been able to be obtained through the process identified in Ms James's affidavit. There is one policy for which the identity of persons who may be policyholders cannot be identified. A policy was issued in relation to a grain trading platform operated by IGrain. The policy is designed specifically for the grain industry and the policy is for the benefit of sellers who use the grain trading platform. And as part of the terms and conditions of the operation of that grain trading platform, IGrain has taken a group insurance policy against certain payment defaults by buyers. 14 In WR Berkley Insurance (Europe) Ltd, In the matter of Division 3A of Part III of the Insurance Act (1973) [2016] FCA 374 at paragraphs 17 to 18, I noted that an approach that was taken in that application to treat persons entitled to cover under group policies as policyholders as a sensible and wise course. The parties are aware of that decision and have taken the course that does not require me to make a decision as to whether beneficiaries under group policies are policyholders. But they have taken the course of seeking to have IGrain notify such beneficiaries by including a copy of the approved summary on IGrain's online platform for notification to sellers. 15 The Australian Prudential Regulation Authority (APRA) is represented before the Court today. It does not oppose the making of the dispensation orders and has been involved in understanding the steps being taken. 16 In circumstances of clear identification of the policyholders revealed in the evidence and having regard to the importance of notification and the regime set out in section 17C discussed in Application of Gordian RunOff Ltd under the Insurance Act 1973 (Cth) [2013] FCA 983, and as reiterated in other cases such as AAI Ltd, Application under the Insurance Act 1973 (Cth) [2015] 452 and QBE Insurance (Australia) Ltd, in the matter of Division 3A of Part IIIA of the Insurance Act 1973 (Cth) [2015] FCA 1223, I am prepared to make orders in relation to dispensation upon certain conditions. Those orders are as follows: (1) The need for the applicant to comply with s 17C(2)(c) of the Insurance Act 1973 (Cth) be dispensed with, other than by undertaking the steps in orders 2 to 8 below, and provided that the applicant complies with orders 2 through 8 below; (2) The applicant, before the Scheme is released for public inspection under order 8 below, cause a copy of the summary of the Scheme approved by the Australian Prudential Regulation Authority (Approved Summary) to be sent: (a) by email to each of the policyholders identified in the Current Policies list and the Cancelled Policies list of the Final Policyholder Register as described in the affidavits of Sharon James, sworn 1 and 6 September 2016 (the James affidavits). Where a policy of insurance has co-insureds, the email to the primary named insured being the policyholder identified in the Current Policies list must include, in the accompanying correspondence, details of the identity of the co-insureds under that policy, requesting the policyholder to provide a copy of the Approved Summary to each co-insured; (b) by registered post to each of the policyholders identified in the Current Policies list and the Cancelled Policies list in the Final Policyholder Register for which Atradius receives notification of a failed email delivery; (c) by email to each of the brokers listed in the Broker Register, as described in the James affidavits; and (d) by registered post to all financiers to whom the proceeds of an Atradius insurance policy has been assigned as listed in the Assignees for Current Policies list in the Final Policyholder Register. (3) The applicant endeavour to have the Approved Summary included on IGrain's online platform. (4) The applicant cause a page to be created on its website (accessible at www.atradius.com.au) that will contain a statement indicating that an application has been made to the Court for the approval of the Scheme and a link to the following documents: (a) the Notice of Intention to make the application as required under APRA Prudential Standard GPS 410, Transfer and Amalgamation of Insurance Business for General Insurers (July 2002) (in the form approved by APRA) (Approved Notice) (b) the Scheme, as described in the James Affidavits; (c) the Approved Summary; and (d) the Actuarial Report, as described in the James affidavits with such page to be available from before the Scheme is released for public inspection under order 7 below until the conclusion of that public inspection. (5) The applicant cause the following documents to be posted on Serv@Net (the Platform) as described in the James affidavit: (a) the Notice of Intention. as described in the James affidavits; (b) the Scheme as described in the James affidavits; (c) the Approved Summary; and (d) the Actuarial Report, as described in the James affidavits (6) The applicant, before the Scheme is released for public inspection under order 7 below, cause a copy of the approved notice to be published in the following publications: (a) The Government Gazette; and (b) The Australian, being a newspaper circulating in each State and Territory in which an affected policyholder resides; and (c) the following metropolitan newspapers: (i) Sydney Morning Herald; (ii) The Age; (iii) The Canberra Times; (iv) The Mercury; (v) The Advertiser; (vi) The Northern Territory News; (vii) The West Australian; and (viii) Courier Mail. (7) The applicant make a copy of the Scheme, Approved Summary and Actuarial Report available for public inspection from 9.00am to 5.00pm (local time) every day, except weekends and public holidays, for a period of at least 15 days at locations approved by APRA in each State and Territory in which an affected policyholder resides; (8) The applicant provide a copy of the Scheme on request to any affected policyholder free of charge. (9) The applicant provide a copy of the Approved Summary to proposed policyholders with any offers for new business, or offers of renewal which are made from the date of the dispensation hearing until the transfer effective date (as defined in the Scheme); (10) The legal costs of APRA be paid by the applicant to be assessed, if not agreed, by the parties. (11) These orders be entered forthwith. I certify that the preceding sixteen (16) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Chief Justice Allsop. Associate: Dated: 14 September 2016