Political promises of consultation are often empty words: consult then ignore. The Reserve Bank is flexing its regulatory muscle. It takes a more prescriptive approach to consultation in its prudential supervision of the financial sector as evidenced in litigation over CBL Insurance: consult then obey.
Earlier this year, the High Court appointed interim liquidators to CBL Insurance Ltd following a Reserve Bank request. Amongst other grounds, Reserve Bank alleged CBL was insolvent. This claim has since been dropped. The primary ground for liquidation is now an allegation CBL failed to comply with directions made under the Insurance (Prudential Supervision) Act.
CBL Insurance is not in liquidation. The need for liquidation and the identity of a potential liquidator is hotly contested by existing management and CBL’s sole shareholder: LBC Holdings. Behind the scenes there is a flurry of activity with confidential proposals to hive off some of CBL’s underwriting activities.
Grounds for Reserve Bank intervention were spelt out in a preliminary court application by CBL directors Peter Harris and Alistair Hutchison asking to see information held by the Bank.
Liquidation proceedings were triggered by CBL’s alleged failure to comply with Bank directions. In January 2018, CBL was instructed that it must ‘consult’ with the Reserve Bank before making any payments exceeding five million dollars. The Bank’s directive defined ‘consult’ as: [CBL] providing the Bank with sufficient information for the Bank to form an informed view on the proposed transaction; receiving feedback from the Bank and [CBL then] having regard to that feedback before entering into the transaction.
The Reserve Bank alleges three subsequent CBL transactions with United Specialty Insurance, each under the five million threshold, but collectively totalling nearly $15 million dollars breach this directive together with a $42 million payment to Danish Alpha Insurance.
Reserve Bank v. CBL Insurance Ltd – High Court (18.05.18)
18.109