THE CORPORATIONS LAW

CHAPTER 5 - EXTERNAL ADMINISTRATION

PART 5.6 - WINDING UP GENERALLY

Division 6 - Proof and ranking of claims

Subdivision D - Priorities

SECTION 562A   APPLICATION OF PROCEEDS OF CONTRACTS OF REINSURANCE  

562A(1)  [Application of section]  

This section applies where:

(a)  a company is insured, under a contract of reinsurance entered into before the relevant date, against liability to pay amounts in respect of a relevant contract of insurance or relevant contracts of insurance; and

(b)  an amount in respect of that liability has been or is received by the company or the liquidator under the contract of reinsurance.

562A(2)  [Amount received in reinsurance exceeds amounts payable by company]  

Subject to subsection (4), if the amount received, after deducting expenses of or incidental to getting in that amount, equals or exceeds the total of all the amounts that are payable by the company under relevant contracts of insurance, the liquidator must, out of the amount received and in priority to all payments in respect of the debts mentioned in section 556, pay the amounts that are so payable under those contracts of insurance.

562A(3)  [Calculation where sec 562A(2) does not apply]  

Subject to subsection (4), if subsection (2) does not apply, the liquidator must, out of the amount received and in priority to all payments in respect of the debts mentioned in section 556, pay to each person to whom an amount is payable by the company under a relevant contract of insurance an amount calculated in accordance with the formula:

              Particular amount owed
              ----------------------  x  Reinsurance payment
                Total amount owed

          

Where:

``Particular amount owed'' means the amount payable to the person under the relevant contract of insurance;

``Total amount owed'' means the total of all the amounts payable by the company under relevant contracts of insurance;

``Reinsurance payment'' means the amount received under the contract of reinsurance, less any expenses of or incidental to getting in that amount.

562A(4)  [Court may order payment of different amount]  

The Court may, on application by a person to whom an amount is payable under a relevant contract of insurance, make an order to the effect that subsections (2) and (3) do not apply to the amount received under the contract of reinsurance and that that amount must, instead, be applied by the liquidator in the manner specified in the order, being a manner that the Court considers just and equitable in the circumstances.

562A(5)  [Matters to be considered by Court]  

The matters that the Court may take into account in considering whether to make an order under subsection (4) include, but are not limited to:

(a)  whether it is possible to identify particular relevant contracts of insurance as being the contracts in respect of which the contract of reinsurance was entered into; and

(b)  whether it is possible to identify persons who can be said to have paid extra in order to have particular relevant contracts of insurance protected by reinsurance; and

(c)  whether particular relevant contracts of insurance include statements to the effect that the contracts are to be protected by reinsurance; and

(d)  whether a person to whom an amount is payable under a relevant contract of insurance would be severely prejudiced if subsections (2) and (3) applied to the amount received under the contract of reinsurance.

562A(6)  [Insured person's rights unaffected]  

If receipt of a payment under this section only partially discharges a liability of the company to a person, nothing in this section affects the rights of the person in respect of the balance of the liability.

562A(7)  [Agreements to contrary ineffective]  

This section has effect despite any agreement to the contrary.

562A(8)  [``relevant contract of insurance'']  

In this section:

``relevant contract of insurance'' means a contract of insurance entered into by the company, as insurer, before the relevant date.