AFG Insurances Ltd [2002] NSWSC 803

New South Wales Supreme Court

CITATION : AFG Insurances Ltd [2002] NSWSC 803 CURRENT JURISDICTION: Equity Division Corporations List FILE NUMBER(S) : SC 4365/02 HEARING DATE(S) : 02/09/02 JUDGMENT DATE : 2 September 2002

PARTIES : AFG Insurances Limited (Voluntary Administrators Appointed) - First Plaintiff Keiran Hutchison and John Raymond Gibbons - Second Plaintiffs JUDGMENT OF : Barrett J

COUNSEL : Mr D R Pritchard - Plaintiffs SOLICITORS : Henry Davis York - Plaintiffs CATCHWORDS : CORPORATIONS - voluntary administration - extension of convening period for second meeting - complexities of cross border insurance business warrant unusually long extension LEGISLATION CITED : Corporations Law 2001 (Cth) CASES CITED : Cawthorn v Keira Constructions (1994) 33 NSWLR 607 Strickland v Williamson as Administrators of Port Kennedy Resorts (2001) 19 ACLC 328 DECISION : Extension granted

- 5 - IN THE SUPREME COURT REVISED OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST

BARRETT J

MONDAY 2 SEPTEMBER 2002

4365/02 - AFG INSURANCES LIMITED (VOLUNTARY ADMINISTRATORS APPOINTED) & ORS

JUDGMENT

1 The plaintiffs are AFG Insurances Limited and its administrators, Mr Hutchison and Mr Gibbons, who were appointed pursuant to a resolution of the directors passed on 14 August 2002. The first meeting of creditors called for by Pt 5.3A of the Corporations Act 2001 (Cth) was held on 20 August 2002 in London, with a telephone connection allowing participation by persons in Sydney There were some 27 creditors represented at the meeting, if one counts separate Lloyds syndicates administered by a single entity as several creditors. 2 The meeting of creditors resolved to support an application by the administrators for an extension of the convening period for the second meeting of creditors for a period of up to six months or such further period as may be supported by the committee of creditors which was appointed by a separate resolution passed at the meeting. 3 The administrators now apply for an order pursuant to s.439A(6) extending the convening period for the second meeting to 3 February 2003, that is, for a period of five months. An extension of this length would, in ordinary circumstances, be regard as very long. 4 The whole thrust of Pt 5.3A is to ensure that administration is a relatively speedy process in which administrators take the helm and decide, with some dispatch, whether a course of action can be formulated to provide for creditors and, where relevant, shareholders an outcome calculated to be more favourable than the alternative of winding up. The administrators are given a free hand during this period and the enforcement rights of security holders and persons such as lessors are frozen, at least to the extent that those parties cannot exercise proprietary rights which would tend to dismantle the ongoing structure to the detriment of the process the administrators are to undertake. Likewise, creditors or persons having claims against the company may not resort to legal proceedings without the consent of the administrators or the leave of the Court, thus again ensuring that things are left largely intact while the administrators carry out their functions. This statutory moratorium is not intended to last for any extended period. 5 The plaintiffs in the present case candidly concede that an extension of five months for the convening period is long, but they point to circumstances which, it has been submitted, justify the discretion of the court being exercised in favour of such an extension. 6 The first matter to be mentioned is that the company has no current employees and no outstanding obligations in respect of employee entitlements. This is because the company ceased to write insurance business in the 1980s and has been in run-off mode since then. Likewise, the company has no outstanding obligations with respect to leases, licences or other forms of property. These matters appear from an affidavit of Mr Martin, the solicitor for the plaintiffs. He also deposes that no statutory demands or winding up applications have been served or issued. 7 In a separate and longer affidavit Mr Martin deposes to a number of matters which set this administration apart from what might be termed the general run of things. Of particular relevance is the fact that the company is an insurance company which operated largely, if not exclusively, in the London market or at least that the remaining assets and liabilities are centred on the London market. The administrators thus have to come to grips with a number of cross border issues. An Australian company, in administration in Australia, has significant interests in the United Kingdom. The administrators have to work out the best way of securing appropriate recognition and court orders in the United Kingdom to put in place some scheme of orderly administration. The company is already party to litigation in the United Kingdom and the administrators, or whoever follows them in conducting the affairs of the company, must come to grips with what appears to be a complex suit in another country. These factors combine to indicate that significant time will be needed for the administrators to prepare a report which will form a meaningful basis for consideration by creditors of the best way forward. 8 I canvassed with Mr Pritchard, counsel for the plaintiffs, the question whether, if the company is insolvent, it might be preferable to allow it to pass into liquidation and for the liquidator, in due course, to seek to propound a Pt. 5.1 scheme if it proves possible to propose some compromise which is of the general kind that in the administration context might become the subject of a deed of company arrangement. The answer was that the administrators foresee clear disadvantages in having the company go into liquidation. One of these arises from s.562A of the Corporations Act which applies to certain reinsurance circumstances and modifies the pari passu approach to winding up which generally applies under s.556. Another potential complication arises from the possible impact of insurance legislation concerning insolvent insurance companies. There is a desire to avoid those special statutory regimes unless and until it is seen that there is no realistic alternative. 9 Mr Pritchard has drawn my attention to some cases in which the second meeting of creditors in a Pt5.3A administration has occurred a significant time after the first meeting. In Cawthorn v Keira Constructions (1994) 33 NSWLR 607, Young J, in dealing with an application under s.447A, made orders which had the substantive effect of allowing the second meeting to be held and concluded some five months after the first meeting. In Strickland v Williamson as Administrators of Port Kennedy Resorts (2001) 19 ACLC 328, the convening period for a second meeting was extended by three months. Reference was also made to the case of Pasminco Limited, where the second meeting of creditors commenced on 15 July 2002 in the context of an administration which began on 19 September 2001; likewise Ansett Australia Limited, where it appears that there was an interval of some four months. 10 Those cases no doubt involved complexities. Those which are reported certainly did. To my mind, the complexities in the present case equal if not exceed those which appear on the face of the documents concerning the cases to which I have referred. 11 I am influenced particularly by four things: first, that there are no employees and others who will suffer unduly from continuation of the statutory moratorium; second, that on the face of things, the creditors appear to be, if not exclusively, at least overwhelmingly, creditors related to transactions in the insurance markets whose interests will be better served by a measured and considered approach to the complexities of this case; third, that the first meeting of creditors supports a lengthy extension; and, fourth, that this is an unusually complex case. Having regard to all those factors, I am prepared to make an order granting the extension sought. I do emphasise however that this is a special case with complications and difficulties which one would not expect to be encountered in the normal course and that every case must be approached on its merits, without any particular reliance on what has happened in others. 12 I make orders 1, 2, and 3 in the form of originating process which was filed in court today. **********