Financial System Legislation Amendment (Financial Claims Scheme and Other Measures) Act 2008 (105 of 2008)
Schedule 3 Other measures: general insurance
Part 1 Main amendments
Insurance Act 1973
11 After Part VA
Insert:
Part VB - Judicial management, other external administration and winding up
Division 1 - Judicial management of general insurers
62K Application for order for judicial management
(1) APRA may apply to the Federal Court for an order that a general insurer be placed under judicial management.
(2) Subject to subsection (3), a general insurer may apply to the Federal Court for an order that the general insurer be placed under judicial management.
(3) A general insurer may only apply if it has given APRA at least one month’s notice in writing of its intention to apply.
(4) On an application by APRA, the general insurer is entitled to be heard.
(5) On an application by the general insurer, APRA is entitled to be heard.
62L Order for judicial management after investigation
On an application under section 62K, the Federal Court may make an order that a general insurer be placed under judicial management if the Court is satisfied:
(a) that the insurance business of the general insurer has been investigated under Part V; and
(b) that, having regard to the results of the investigation, it is in the interests of policyholders of the general insurer that the order be made.
Note: This Division does not apply to management of insurance business carried on outside Australia by a foreign general insurer: see section 62ZO.
62M Order for judicial management on other grounds
On an application under section 62K, the Federal Court may make an order that a general insurer be placed under judicial management if the Federal Court is satisfied:
(a) that:
(i) the general insurer is, or is likely to become, unable to meet its policy or other liabilities as they become due; or
(ii) the general insurer is a foreign general insurer and is, or is likely to become, unable to meet, from its assets in Australia, its liabilities in Australia other than pre-authorisation liabilities as they become due; or
(iii) the general insurer has failed to comply with a prudential standard; or
(iv) the general insurer has failed to comply with a direction under section 104; or
(v) there are reasonable grounds for believing that the financial position or management of the general insurer may be unsatisfactory; and
(b) that the time needed to make or complete an investigation of the insurance business of the general insurer under Part V would be likely to be such as to prejudice the interests of policyholders of the general insurer.
Note 1: This Division does not apply to management of insurance business carried on outside Australia by a foreign general insurer: see section 62ZO.
Note 2: Section 116A deals with assets and liabilities in Australia.
62N Commencement of judicial management
The judicial management of a general insurer commences:
(a) at the time specified in the order for judicial management as the time at which the judicial management is to commence; or
(b) if no time is so specified, when the order is made.
62P Stay of proceedings during judicial management
(1) While a general insurer is under judicial management, a proceeding in a court against the general insurer or in relation to any of its property cannot be commenced or proceeded with, except:
(a) with the judicial manager’s written consent; or
(b) with the leave of the Federal Court and in accordance with such terms (if any) as the Federal Court imposes.
(2) Subsection (1) does not apply to a proceeding in respect of an offence or a contravention of a provision of a law for which a pecuniary penalty (however described) may be imposed.
(3) A judicial manager is not subject to any liability in respect of a refusal to give a consent for the purpose of subsection (1).
62Q No judicial management except in accordance with this Act
A general insurer is not to be judicially managed except in accordance with this Act.
62R Appointment of judicial manager
(1) If the Federal Court orders the judicial management of a general insurer the Court must, by its order, appoint a judicial manager of the general insurer.
(2) The Federal Court may at any time cancel the appointment of a judicial manager and appoint another person as judicial manager.
62S Remuneration of judicial manager
(1) The Federal Court may give directions about:
(a) the remuneration and allowances that a judicial manager is to receive; and
(b) who is to pay the remuneration and allowances.
(2) The Federal Court may charge the judicial manager’s remuneration and allowances on the property of the general insurer under judicial management in such order of priority in relation to any existing charges on that property as the Court thinks fit.
62T Management vests in judicial manager
(1) Subject to subsections (2) and (3), if the Federal Court has made an order placing a general insurer under judicial management, then, at the time the judicial management commences:
(a) any person vested with the management of the general insurer immediately before that time is divested of that management; and
(b) the management of the general insurer vests in the judicial manager appointed by the Court.
(2) A general insurer may not issue policies without the leave of the Federal Court if the company is under judicial management.
(3) To avoid doubt, if the general insurer is a foreign general insurer:
(a) paragraphs (1)(a) and (b) do not apply to the extent that the management of the foreign general insurer relates to insurance business carried on outside Australia by the foreign general insurer; and
(b) subsection (2) does not apply to the issue of policies in the course of insurance business carried on outside Australia by the foreign general insurer.
Note: Subsection (3) reflects the effect of section 62ZO.
62U Effect on external administrator of judicial manager managing general insurer
(1) The appointment of an external administrator of a general insurer is terminated when the management of the general insurer vests in the judicial manager appointed by the Federal Court.
(2) An external administrator of a general insurer must not be appointed while the management of the general insurer is vested in the judicial manager appointed by the Federal Court.
(3) If:
(a) a person who ceased to be the external administrator of a general insurer under subsection (1); or
(b) a purported external administrator of a general insurer appointed in contravention of subsection (2);
purports to act in relation to the general insurer’s business while the management of the general insurer is vested in a judicial manager, the purported act is invalid and of no effect.
(4) As soon as possible after the Federal Court orders the judicial management of a general insurer and appoints a judicial manager, the judicial manager must inform the external administrator (if any) of the general insurer that the management of the general insurer vests in the judicial manager when the judicial management commences. However, failure to inform the external administrator does not affect the operation of this section.
62V Judicial manager being in control not ground for denying obligation
(1) This section applies if the general insurer is party to a contract, whether the proper law of the contract is Australian law (including the law of a State or Territory) or law of a foreign country (including the law of part of a foreign country).
(2) The vesting in the judicial manager of the management of the general insurer does not allow the contract, or any other party to the contract, to do any of the following:
(a) deny any obligations under that contract;
(b) accelerate any debt under that contract;
(c) close out any transaction relating to that contract.
62W Continued application of other Parts of Act
The appointment of a judicial manager under this Part does not affect the continued operation of other Parts of this Act or the operation of the Financial Sector (Collection of Data) Act 2001 in relation to a general insurer or the obligation of a general insurer to comply with provisions of other Parts of this Act or the provisions of the Financial Sector (Collection of Data) Act 2001.
62X Federal Court’s control of judicial manager
(1) A judicial manager is subject to the control of the Federal Court.
(2) In addition to duties imposed by this Part, a judicial manager has such duties as the Federal Court directs.
(3) A judicial manager may apply to the Federal Court at any time for instructions:
(a) as to the way in which the judicial management should be conducted; or
(b) in relation to any matter arising during the judicial management.
(4) Before applying to the Federal Court for instructions, the judicial manager must:
(a) inform APRA that he or she intends to make the application; and
(b) give APRA written details of the application.
(5) APRA is entitled to be heard on the application.
62Y Powers of judicial manager
(1) The judicial manager of a general insurer has the following powers:
(a) to bring or defend any legal proceedings in the name and on behalf of the general insurer;
(b) to appoint a legal practitioner to help him or her in the performance of his or her duties;
(c) to appoint an actuary (other than the actuary appointed for the purposes of section 39) to help him or her in the performance of his or her duties;
(d) to sell or otherwise dispose of all or any of the property of the general insurer;
(e) to do all acts and execute in the name and on behalf of the general insurer all deeds, receipts and other documents;
(f) for the purpose of paragraph (d), to use the general insurer’s common or official seal;
(g) subject to the Bankruptcy Act 1966, to prove in the bankruptcy of any debtor of the general insurer or under any deed executed under that Act;
(h) to draw, accept, make and endorse any bill of exchange or promissory note in the name and on behalf of the general insurer;
(i) to obtain credit, whether on the security of the general insurer or otherwise;
(j) to take out letters of administration of the estate of a deceased debtor, and to do anything necessary for obtaining payment of any money due from a debtor, or his or her estate, that cannot conveniently be done in the name of the general insurer;
(k) to appoint an agent to do anything that it is not practicable for the judicial manager to do personally or that it is unreasonable to expect him or her to do personally;
(l) such other powers as the Federal Court directs.
(2) The powers conferred by this section are in addition to powers conferred on a judicial manager by any other provision of this Part.
62Z Judicial manager’s additional powers to facilitate recapitalisation
Powers
(1) A judicial manager of a general insurer that is a company that has a share capital and is registered under the Corporations Act 2001 may do one or more of the following acts on terms determined by the judicial manager:
(a) issue shares, or rights to acquire shares, in the company;
(b) cancel shares, or rights to acquire shares, in the company;
(c) reduce the company’s share capital by cancelling any paid-up share capital that is not represented by available assets;
(d) sell shares, or rights to acquire shares, in the company;
(e) vary or cancel rights or restrictions attached to shares in a class of shares in the company.
Note: Before doing such an act, the judicial manager will usually need to get and consider a report on the fair value of each share or right concerned (see section 62ZA), and will need to report to the Federal Court and obtain the court’s order for the act (see sections 62ZI and 62ZJ).
Giving company members notice of exercise of powers
(2) As soon as practicable after doing an act described in paragraph (1)(a), (b), (c) or (e) or subsection (3), the judicial manager must give written notice to the persons who were members (under section 231 of the Corporations Act 2001) of the company just before the act, identifying the act and explaining its effect on their interests as members.
(3) One of the acts to which subsection (2) relates is the offering of shares, or rights to acquire shares, in the company for sale under paragraph (1)(d).
Exercise of powers despite other laws etc.
(4) A judicial manager may do an act under subsection (1) despite:
(a) the Corporations Act 2001; and
(b) the company’s constitution; and
(c) any contract or arrangement to which the company is party; and
(d) any listing rules (as defined in section 761A of the Corporations Act 2001) of a financial market (as defined in that section) in whose official list the company is included.
62ZA Considering report before acting under section 62Z
Getting and considering report on fair value of shares or rights
(1) Before determining terms for an act under subsection 62Z(1), the judicial manager must:
(a) obtain a report meeting the requirements in subsection (2) of this section on the fair value of the shares or rights concerned from an expert who is not an associate of the judicial manager, or of the company, under Division 2 of Part 1.2 of the Corporations Act 2001; and
(b) consider the report;
unless APRA determines under subsection (8) that this subsection does not apply in relation to that act relating to those shares or rights.
Content of report
(2) The report must set out:
(a) the amount that is, in the expert’s opinion, the fair value for each share or right concerned; and
(b) the reasons for forming the opinion; and
(c) any relationship between the expert and any of the following persons:
(i) the judicial manager;
(ii) a person who is an associate of the judicial manager under Division 2 of Part 1.2 of the Corporations Act 2001;
(iii) the company;
(iv) a person who is an associate of the company under Division 2 of Part 1.2 of the Corporations Act 2001;
including any circumstances in which the expert gives them advice, or acts on their behalf, in the proper performance of the functions attaching to the expert’s professional capacity or business relationship with them; and
(d) any financial or other interest of the expert that could reasonably be regarded as being capable of affecting the expert’s ability to give an unbiased opinion in relation to the matter being reported on.
Determining fair value of shares
(3) In determining for the purposes of paragraph (2)(a) the amount that is, in the expert’s opinion, the fair value for each share concerned, the expert must:
(a) first, assess the value of the company as a whole, in accordance with the assumptions (if any) notified to the expert by the Minister for the valuation of the company; and
(b) then allocate that value among the classes of shares in the company that either have been issued or that the judicial manager proposes to issue (taking into account the relative financial risk, and voting and distribution rights, of the classes); and
(c) then allocate the value of each class pro rata among the shares in that class that either have been issued or that the judicial manager proposes to issue (without allowing a premium or applying a discount for particular shares in that class).
Assumptions for valuation of company
(4) The Minister may give the expert written notice of assumptions for the valuation of the company. The Minister may, by further written notice given to the expert, revoke, but not vary, notice of the assumptions. A notice under this subsection is not a legislative instrument.
Determining fair value of rights
(5) In determining for the purposes of paragraph (2)(a) the amount that is, in the expert’s opinion, the fair value for each right concerned, the expert must act in accordance with the assumptions (if any) notified to the expert by the Minister for the valuation of the right.
Assumptions for valuation of rights
(6) The Minister may give the expert written notice of assumptions for the valuation of the rights concerned. The Minister may, by further written notice given to the expert, revoke, but not vary, notice of the assumptions. A notice under this subsection is not a legislative instrument.
Contravention does not invalidate act
(7) A contravention of subsection (1), (2), (3), (5) or (9) does not affect the validity of anything done under section 62Z.
Exemption from subsection (1)
(8) APRA may determine in writing that subsection (1) does not apply in relation to an act relating to shares or rights if APRA is satisfied that delaying the act to enable compliance with that subsection in relation to the act would detrimentally affect:
(a) policyholders of the general insurer concerned; and
(b) financial system stability in Australia.
(9) APRA must:
(a) publish a copy of a determination under subsection (8) in the Gazette; and
(b) give a copy of a determination under subsection (8) to the judicial manager concerned.
(10) A determination made under subsection (8) is not a legislative instrument.
62ZB Act under section 62Z not ground for denying obligation
(1) This section applies if a general insurer is party to a contract, whether the proper law of the contract is Australian law (including the law of a State or Territory) or law of a foreign country (including the law of part of a foreign country).
(2) The fact that a judicial manager does an act under subsection 62Z(1) relating to the general insurer does not allow the contract, or a party to the contract, to do any of the following:
(a) deny any obligations under that contract;
(b) accelerate any debt under that contract;
(c) close out any transaction relating to that contract.
62ZC Application by APRA for instructions to judicial manager
(1) APRA may apply to the Federal Court for an order that the Court give instructions to the judicial manager relating to the conduct of the judicial management of a general insurer.
(2) The judicial manager is entitled to be heard on the application.
62ZD Request by APRA for information
(1) APRA may ask a judicial manager to give APRA information about one or more of the following in a reasonable time specified in the request:
(a) the conduct of the judicial management;
(b) the financial position of the general insurer under judicial management.
(2) The judicial manager must comply with APRA’s request.
62ZE Duration of judicial management
If the Federal Court orders that a general insurer be placed under judicial management, the general insurer remains under judicial management until:
(a) the judicial management is cancelled; or
(b) the Court orders that the general insurer be wound up.
62ZF Cancellation of judicial management
(1) A judicial manager appointed to manage a general insurer may apply to the Federal Court for an order cancelling the judicial management.
(2) Any other interested person may apply to the Federal Court for an order cancelling the judicial management of a general insurer.
(3) On an application under subsection (1) or (2), the Federal Court may cancel the order for the judicial management of the general insurer if it appears to the Court:
(a) that the purpose of the order has been fulfilled; or
(b) that for any reason it is undesirable that the order remain in force.
(4) Before applying to the Federal Court under subsection (1) or (2), the judicial manager or interested person must:
(a) inform APRA that he or she intends to make the application; and
(b) give APRA written details of the application.
(5) At the time when an order cancelling the judicial management of the general insurer comes into force:
(a) the judicial manager is divested of the management of the general insurer; and
(b) the management of the general insurer vests in the board of directors or other governing body of the general insurer.
(6) APRA is entitled to be heard on any application made under subsection (1) or (2).
62ZG How judicial manager is to manage
The judicial manager of a general insurer must conduct the judicial management as efficiently and economically as possible.
62ZH Disclaimer of onerous property
Division 7A (Disclaimer of onerous property) of Part 5.6 of the Corporations Act 2001 applies in relation to the disclaimer of property of a general insurer by a judicial manager of the general insurer as if:
(a) the general insurer were a company for the purposes of that Division; and
(b) the judicial manager were the liquidator of the company; and
(c) a reference in that Division to the Court were a reference to the Federal Court; and
(d) subsection 568(10) of the Corporations Act 2001 were omitted; and
(e) the policyholders of the general insurer were the company’s creditors for the purposes of subsections 568B(3) and 568E(5) of the Corporations Act 2001.
Note: One effect of this is that the judicial manager of a general insurer has essentially the same powers and duties relating to the disclaimer of property as a liquidator of a company.
62ZI Report by judicial manager
(1) As soon as possible after starting to manage a general insurer, a judicial manager must file with the Federal Court a report that:
(a) recommends the course of action listed in subsection (2) that is, in his or her opinion, most advantageous to the general interest of the policyholders of the general insurer while promoting financial system stability in Australia; and
(b) sets out the reasons for that recommendation.
(2) The following are the possible courses of action:
(a) to transfer the business of the general insurer to another general insurer under Division 3A of Part III (whether the policies issued by the general insurer continue for the original sums insured, with the addition of bonuses that attach to the policies, or for reduced amounts);
(b) to allow the general insurer to carry on its business after a period of judicial management (whether the policies issued by the general insurer continue for the original sums insured, with the addition of bonuses that attach to the policies, or for reduced amounts);
(c) to do one or more of the acts described in subsection 62Z(1) (which is about various measures to recapitalise the general insurer), if that subsection applies to the general insurer;
(d) to wind up the general insurer;
(e) to take such other course of action as the judicial manager considers desirable, which may, for example, be a course of action that includes either or both of the following:
(i) altering the constitution, rules or other arrangements for governance of the general insurer, if it is registered under the Corporations Act 2001, to enable or facilitate the performance of the judicial manager’s functions and duties, the exercise of the judicial manager’s powers or a course of action described in paragraph (a), (b), (c) or (d);
(ii) one or more of the courses of action described in paragraphs (a), (b), (c) and (d).
(3) A report may recommend different courses of action in respect of different parts of a general insurer’s business.
(4) If the Federal Court makes an order under section 62ZJ giving effect to a course or courses referred to in paragraph (2)(a), (b), (c) or (e) of this section, the judicial manager may file with the Court a further report or further reports dealing with matters to which a report under subsection (1) of this section may relate.
(5) A report under subsection (4) must set out the reasons for any recommendation made in the report.
(6) As soon as possible after filing a report under this section, the judicial manager must:
(a) give a copy of it to APRA; and
(b) apply to the Federal Court for an order to give effect to the course or courses of action stated in the report.
(7) A report, or a copy of a report, under this section must be available for inspection by any person:
(a) at the Registry of the Federal Court in which the report is filed during the business hours of that Registry; and
(b) at such other place (if any) as APRA determines.
62ZJ Order of Federal Court on report of judicial manager
(1) On an application for an order to give effect to a course or courses of action recommended in a report under section 62ZI:
(a) APRA and any other person interested is entitled to be heard; and
(b) the Federal Court may make an order giving effect to such course or courses of action as it considers in the circumstances to be most advantageous to the general interest of the policyholders of the general insurer concerned, while promoting financial system stability in Australia.
(2) The course or courses of action to which an order may give effect may be one or more of the following:
(a) one or more of the courses of action set out in subsection 62ZI(2);
(b) one or more other courses of action.
(3) An order under this section:
(a) is binding on all persons; and
(b) takes effect despite anything in any of the following:
(i) the Corporations Act 2001;
(ii) the constitution or other rules of the general insurer;
(iii) any contract or arrangement to which the general insurer is party;
(iv) any listing rules (as defined in section 761A of the Corporations Act 2001) of a financial market (as defined in that section) in whose official list the general insurer is included.
62ZK Transfer of business to another general insurer
(1) If the Federal Court orders the transfer of the business of a general insurer to another general insurer, the judicial manager must prepare a scheme for the transfer in accordance with Division 3A of Part III.
(2) Until the Federal Court confirms the scheme under that Part, the management of the general insurer continues to be vested in the judicial manager.
62ZL Resignation
A judicial manager appointed under this Division may resign the appointment as judicial manager by filing with the Federal Court a signed notice of resignation.
62ZM Immunity
A judicial manager is not subject to any liability to any person in respect of anything done, or omitted to be done, in good faith in the exercise or performance of powers, functions or duties conferred or imposed on the judicial manager by this Act.
62ZN Exceptions to Part IV of the Trade Practices Act 1974
For the purposes of subsection 51(1) of the Trade Practices Act 1974, the following things are specified and specifically authorised:
(a) the acquisition of assets in:
(i) a sale or disposal of property of a general insurer under this Division by a judicial manager of the general insurer; or
(ii) a transfer of insurance business of a general insurer under a scheme prepared by a judicial manager of the general insurer and confirmed (with or without modifications) by the Federal Court under Division 3A of Part III;
(whether the assets are shares in another body corporate or other assets);
(b) an agreement or deed for carrying out a transfer described in subparagraph (a)(ii);
(c) arrangements necessary to give effect to a scheme described in subparagraph (a)(ii);
(d) the acquisition of shares in a general insurer as a direct result of:
(i) the issue or sale of the shares under this Division by a judicial manager of the general insurer; or
(ii) the exercise of a right to acquire shares that was issued or sold under this Division by a judicial manager of the general insurer.
62ZO Limited application of Division to foreign general insurers
This Division does not apply in relation to:
(a) insurance business carried on outside Australia by a foreign general insurer; or
(b) the management of a foreign general insurer so far as the management relates to such business; or
(c) policyholders of a foreign general insurer so far as the policies held from the insurer relate to such business.
Division 2 - Extra provisions relating to external administration of general insurers
62ZP Relationship of this Division with Chapter 5 of the Corporations Act 2001
This Division applies in relation to a general insurer in addition to Chapter 5 of the Corporations Act 2001.
62ZQ Involving APRA in applications to appoint external administrators of general insurers
(1) Before a person (other than APRA) makes an application to a court under Chapter 5 of the Corporations Act 2001 for the appointment of an external administrator of a general insurer, the person must give APRA written notice that the person proposes to make the application.
(2) APRA is entitled to be heard on the application.
(3) After receiving the notice, APRA may request the person to provide details of the proposed application.
Offence
(4) A person (other than APRA) commits an offence if:
(a) the person makes an application to a court under Chapter 5 of the Corporations Act 2001 for the appointment of an external administrator of a general insurer; and
(b) before making the application, the person did not give APRA written notice indicating that the person proposed to make the application.
Penalty: 60 penalty units.
(5) An offence against subsection (4) is an offence of strict liability.
Note: For strict liability, see section 6.1 of the Criminal Code.
62ZR Involving APRA in applications by liquidator
(1) Before making an application to a court in relation to a matter arising under the winding-up of a general insurer, a liquidator must give APRA written notice that the liquidator proposes to make the application.
(2) The notice must include details of the proposed application.
(3) APRA is entitled to be heard on the application.
62ZS Application by APRA for directions
(1) APRA may apply to the Federal Court for directions regarding any matter arising under the winding-up of a general insurer (whether the winding-up occurs as a result of an application made under the Corporations Act 2001 or by APRA under Division 3 of this Part).
(2) APRA must give the liquidator written notice that APRA proposes to make the application.
(3) The notice must include details of the proposed application.
(4) The liquidator is entitled to be heard on the application.
62ZT APRA may request information from liquidator
(1) APRA may request a liquidator of a general insurer in writing to give APRA, within a reasonable time specified in the request, information in writing about the winding-up of the general insurer (whether the winding-up occurs as a result of an application made under the Corporations Act 2001 or by APRA under Division 3 of this Part).
(2) The liquidator must comply with the request.
Note: Action may be taken under the Corporations Act 2001 against a liquidator who does not comply with such a request.
Division 3 - Extra provisions for winding up general insurers
62ZU Order to wind up general insurer on APRA’s application
(1) After an investigation of a general insurer has been made under Part V, APRA may apply to the Federal Court for an order that the general insurer be wound up.
(2) The Federal Court may make the order if satisfied that it is in the interests of the general insurer’s policyholders.
62ZV Relationship with the Corporations Act 2001
(1) Section 62ZU applies in relation to a general insurer in addition to Chapter 5 of the Corporations Act 2001.
(2) The winding-up of a general insurer under an order made under section 62ZU is to be conducted in accordance with the Corporations Act 2001.