Reported Decision : (1999) 32 ACSR 418 New South Wales Supreme Court CITATION : NC Re Capital Limited (Vol. Admin. Apptd.) & 2 Ors [1999] NSWSC 625 CURRENT JURISDICTION : Equity FILE NUMBER(S) : 2827/99 HEARING DATE(S) : 21/06/99, 23/06/99 JUDGMENT DATE : 23 June 1999 NC Re Capital Limited (Voluntary Administrator Appointed) (ACN 081 937 031) (First P) PARTIES : New Cap Reinsurance Corporation Limited (Voluntary Administrator Appointed) (ACN 081 937 073) (Second P) John Raymond Gibbons in his capacity as voluntary administrator of NC Re Capital Limited (Voluntary Administrator Appointed) and New Cap Reinsurance Corporation Limited (Voluntary Administrator Appointed) (Third P) JUDGMENT OF : Santow J COUNSEL : B A Coles, QC (Ps) ex parte SOLICITORS : Ebsworth & Ebsworth (Ps) ex parte CATCHWORDS : CORPORATIONS — Voluntary administrator's duty when winding-up not imminent in case of reinsurance company; Is administrator justified in not taking account of s116(3) of the Insurance Act 1973 (Cth) and s562A of the Corporations Law as applicable after winding-up; Duty to creditors. ACTS CITED : Corporations Law Pt 5.3A, Pt 5.6 s435A, s436B, s447D, s513C, s562A Insurance Act 1973 (Cth) s116(3) CASES CITED : Re Spargold Enterprises Pty Limited: ex parte Geoffrey David McDonald & Anor [1999] NSWSC 623 DECISION : Advice that Administrator justified to act without regard to s116(3) of the Insurance Act and s562A of the Corporations Law NC.23June99 — 24 June, 1999: NC Re Capital Limited (Vol. Admin. Apptd.) & 2 Ors 5 REVISED — 24 June, 1999 IN THE SUPREME COURT OF NEW SOUTH WALES IN EQUITY SANTOW J No. 2827/99 NC RE CAPITAL LIMITED (Voluntary Administrator Appointed) (ACN 081 937 031) First Plaintiff NEW CAP REINSURANCE CORPORTATION LIMITED (Voluntary Administrator Appointed) (ACN 081 937 073) Second Plaintiff JOHN RAYMOND GIBBONS in his capacity as voluntary administrator of NC RE CAPITAL LIMITED (Voluntary Administrator Appointed) and NEW CAP REINSURANCE CORPORTATION LIMITED (Voluntary Administrator Appointed) Third Plaintiff JUDGMENT - ex tempore 23 June 1999 INTRODUCTION 1 In this matter the Administrator of the First and Second Plaintiff seeks directions on an entirely novel situation so far as case law is concerned. This is, speaking very generally, as to whether the Administrator is justified in not taking account in his administration, of two statutory regimes applicable only once winding-up begins, to reinsurance liabilities within and outside Australia. These directions are sought pursuant to s447D of the Corporations Law which is to be found in Pt 5.3A. The directions are in terms of paragraphs 1 and 2 of the Summons of 21 June 1999, namely: "1. In carrying on the business and managing the property and affairs of the First Plaintiff the Third Plaintiff as the duly appointed Administrator is justified in not taking into account the following matters: (a) the rights of any claimant in accordance with section 116(3) of the Insurance Act 1973. (b) the rights of any claimant under a contract of reinsurance to be paid an amount in respect of the relevant contract of insurance or relevant contracts of insurance in accordance with section 562A of the Corporations Law . 2. In carrying on the business and managing the property and affairs of the Second Plaintiff the Third Plaintiff as the duly appointed Administrator is justified in not taking into account the following matters: (a) the rights of any claimant in accordance with section 116(3) of the Insurance Act 1973. (b) the rights of any claimant under a contract of reinsurance to be paid an amount in respect of the relevant contract of insurance or relevant contracts of insurance in accordance with section 562A of the Corporations Law ." BACKGROUND 2 A chronology of the relevant events provided by the Plaintiffs is as follows: Date Event 30.08.96 New Cap Reinsurance Holdings formed in Bermuda Oct 96 New Cap Holdings capitalised by $US 150M private placement and a subsequent $US12M in December 1996 04.11.96 New Cap Reinsurance Holdings listed on ASX 14.04.99 New Cap Australia reports to APRA and the Bermuda Registrar of Companies 21.04.99 John Gibbons appointed by board resolutions as voluntary administrator of the First and Second Plaintiffs 23.04.99 APRA issues notice to New Cap Australia prohibiting dealing in certain assets 19.05.99 John Gibbons appointed provisional liquidator of New Cap Bermuda and New Cap Holdings DIRECTIONS SOUGHT 3 Essentially what is sought is a direction that the Administrator is justified, in circumstances where winding up is not yet conceived as inevitable in not taking into account certain statutory provisions in any dealings by the Administrator. These statutory provisions are only after winding up is begun or a liquidator appointed, as follows: (a) after the relevant insurance business "is begun to be wound up" s116(3) of the Insurance Act 1973 (Cth) precludes the discharge of non-Australian liabilities prior to discharge of all Australian liabilities and may override any State or Territory law to the contrary, and (b) where a liquidator has been appointed and reinsurance liabilities arise, s562A of the Corporations Law requires, speaking generally, that reinsurance amounts received be applied to the corresponding liability and so that in the event of a shortfall, application is rateably between such liabilities, subject to the possibility of an order to the contrary by reference to certain statutorily specified matters. 4 The Administrator of the two Plaintiffs who carry on reinsurance business is not able at this point to conclude one way or the other as to whether those companies will be wound up or instead may be resuscitated following a deed of company arrangement if one proves feasible. The Administrator recognises that his duty, acting as he does in substitution for the board of directors in a company which is, or is likely to become insolvent (s436B) though at present not inevitably so as salvage remains a possibility under a DCA, is to have regard to the interests of the creditors as a whole and not act contrary to them nor act other than impartially as between creditors (see Re Spargold Enterprises Pty Limited: ex parte Geoffrey David McDonald & Anor [1999] NSWSC 623), in entering into commutation and other arrangements of the kind described generally in his affidavit of 17 June 1999. It is apparent that those arrangements may in some respects produce a different outcome than from the statutory regimes that would apply were the two Plaintiffs now to be wound up; see 3 above. This will be simply as a result of the beneficial conduct of the administration in which, acting impartially as between creditors in the interests of the companies and their creditors as a whole, debts may be compromised or commuted or other dealings made. 5 Were the Administrator precluded from entering into these arrangements, creditors as a whole would be disadvantaged, undermining the very purposes of the administration, reflected in s435A of the Corporations Law. In circumstances where a winding up was imminent, or where there was a deliberate attempt to reorganise a company's assets so as to achieve a result diametrically opposed to that of the statutory regimes post-winding-up, it may be that the Administrator's duty could not be expressed in unqualified terms to the effect that the Administrator would be justified in disregarding those statutory regimes. However I do not need to determine that issue at this stage. I simply note that the Administrator has recognised that, should a winding up become imminent, it would seek further directions. He has also confirmed, through Counsel, that there is no intention to reorganise the assets in the manner I have described. 6 I should note in passing that the provisions concerning insolvent transactions in Pt 5.6, insofar as they relate to "unfair preferences" or "uncommercial transactions" prior to the relation back day, would not be applicable to the Administrator having regard to s9 in its definition of "relation back day" and the relevant provisions of Pt 5.6 including s513C. CONCLUSION 7 The present application is made in the absence of precedent, though the guiding principles are clear enough. There are presently no binding statutory provisions precluding the transactions which the Administrator has in mind, as described in general terms in his affidavit of 17 June 1999. Until such time as winding-up begins, or perhaps, is imminent, the Administrator is simply bound by the same general law obligation as would its displaced board, being of a company which faces the prospect of insolvency albeit not yet imminent, namely: to act in the interests of the relevant companies and, thus not to act contrary to the interests of creditors as a whole and to act as between creditors impartially for the benefit of creditors as a whole. When insolvency does become imminent, the matter must be reviewed. ORDERS 8 I make orders in terms of paragraphs 1 and 2 of the Plaintiffs' Summons of 21 June 1999, such orders to be read in the context of my earlier reasons including the need for further directions in the circumstances there referred to. ********** Last Modified: 06/24/1999 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.