Re HIH Casualty & General Insurance Ltd [2001] NSWSC 415

New South Wales Supreme Court

CITATION : Re HIH Casualty & General Insurance Ltd [2001] NSWSC 415 CURRENT JURISDICTION: Equity Division Corporations List FILE NUMBER(S) : SC 1810/2001 HEARING DATE(S) : 26, 27 April, 1, 9 May 2001 JUDGMENT DATE : 26 April 2001

PARTIES : Anthony Gregory McGrath and Alexander Robert Mackay Macintosh (P) JUDGMENT OF : Young CJ in Eq

COUNSEL : B A Coles QC (P) SOLICITORS : Blake Dawson Waldron (P) CATCHWORDS : CORPORATIONS [257]- Applications to Court by liquidators for advice- Role of Court- Evidence required- Practice. LEGISLATION CITED : Corporations Law, s 477(2B) DECISION : See paras 11, 17 and 18.

THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST

YOUNG CJ in Eq

THURSDAY 26 APRIL 2001

1810/01 - RE HIH CASUALTY & GENERAL INSURANCE LTD

JUDGMENT

1 HIS HONOUR: This is an interlocutory application made under s 477(2B) of the Corporations Law by the provisional liquidators of what might be loosely called the HIH Insurance Group. The application was made this afternoon, being Thursday afternoon, ex parte. The provisional liquidators seek authorisation to enter into agreements to retain existing staff which will enure for over three months. The evidence consists of a short affidavit by a chartered accountant employed by the liquidators together with an affidavit which exhibits one hundred or so pages in more or less identical form. 2 The problems for the provisional liquidators are that the liquidation will involve a long period of time and it is essential, according to the affidavit that was filed, that some certainty be given to the staff. What is proposed is that each staff member be given a letter headed "Continuing Employment" which will say, inter alia, "your services will be required until at least" followed by a date. Various dates are inserted up to three years. 3 The basis of the application sounds a sensible one. However, I have a number of concerns. The first is that this is an ex parte application. It is hard to know how there can be any proper contradictor. However, it is commonly supposed in the financial press that these companies will have a substantial deficiency. If that be so, any excess moneys paid out to employees will have a deleterious effect on the ordinary unsecured creditors. Accordingly, the court, although it ordinarily does not interfere with the commercial judgment of the provisional liquidators, needs to be assured that they have taken a balanced approach to the competing claims of the employees and the unsecured creditors. 4 It is all very well to say that it would be advantageous to keep the employees, and that they continue to provide their services, but one needs to balance this desire against the interests of other stakeholders. 5 The next problem is that these employees are being offered an incentive payment, as well as their ordinary salary. If the situation were that they were all in the position where they could easily get another job, that may be justifiable. However, with hundreds of employees leaving the industry, one would have thought, without evidence, that it would be hard to justify an incentive payment. There is nothing in the affidavit filed which goes to this. 6 A fortiori are the incentive payments being offered to people who are already earning over six figure sums in the upper echelon of the company. It seems very hard to justify retaining such people at a substantial bonus, at least without some evidence. 7 Next, the evidence at the moment is simply this; the provisional liquidators wish to retain key personnel; they consider that that is essential to the continuation of the business, and that they need to assuage the insecurity of the employees. 8 All that, I understand, but then the affidavit goes on to say: "In deciding which employees are the 'key personnel', I have engaged in discussions with one of the provisional liquidators ... In consultation with (that liquidator) I have decided who those key personnel are." 9 Although the court does not substitute its commercial judgment for that of the liquidator, it does, at least, need to know the criteria on which the decisions were made as to who were the key personnel. Furthermore, it would seem that the provisional liquidators have delegated the making of their decision to a person who is a chartered accountant, but does not appear, on the affidavits, to have any substantial qualifications for deciding who is a key person in an insurance company. Either the provisional liquidators themselves should indicate that they have made the decision, or else the delegate should say what the consultation process involved and what experience he has in the operation of an insurance company, or like business. 10 The evidence is skimpy in the extreme. It is boosted by about 100 letters in almost identical form. Although the court is not usurping the commercial judgment of the provisional liquidators, it is basically in the position of a Chief Executive Officer of a corporation who needs to sign off on a proposal put by the executive who has an obligation to make a recommendation and report. Just as a Chief Executive Officer would expect to see in an executive summary the reporting officer showing a precis of the material facts and circumstances and the real reasons as to why the decision has been reached, the Supreme Court expects no less. A bare statement that an assistant has made a decision and a bundle of 100 letters is not enough. 11 Accordingly, I am not at this stage prepared to make the order. 12 I should add that the Equity Duty list is getting harder and harder to operate. There has been a tendency in the past, it would seem from the point of view of the Judges, for provisional liquidators, and liquidators generally, to move the court on half an hour's notice, on a day other than Monday, with quite complicated ex parte applications. The court's duty list is not for corporation matters, unless they are so urgent that they cannot be dealt with on the usual day that the Corporations List Judge sits, that is Monday. 13 In case there be any confusion, I should make it clear that genuinely urgent cases which could not reasonably have been ready for the previous Monday and which are not able to wait for the following Monday should be put into the Duty Judge's list. 14 In future it can be expected that, unless there is clear demonstration that the matter is so urgent that it cannot be properly dealt with in the following Monday's list, the Duty Judge will merely transfer it to the Corporations Judge and, in the worst cases, order the solicitors personally to pay the costs for approaching the Duty Judge. 15 Whilst what I have just said is principally to ensure the smooth running of the lists, it is also said because this policy ensures, as much as possible, consistency of decision, in that the Corporations List Judges will decide all like matters in like manner. 16 The order I make is the interlocutory process may be filed in court, returnable forthwith. I adjourn it part heard to my list at 9.50 am Friday 27 April 2001. 17 27.4.2001 - 9.50 am. On further evidence I make some orders. I am not yet satisfied as to the balance. 18 27.4.2001 - 4.30 pm. The evidence is now sufficient to make orders in respect of the employees in PX02. However a further batch of letters has just been handed to me. I had had the impression that PX01 and PX02 contained the names of all employees being retained. I do not consider that I should be asked to deal with this matter piecemeal. I stand it over to 1 May 2001 at 2 pm.