Interim liquidators of CBL Insurance did not have the power to cut a deal with Gibraltar-based Elite Insurance Ltd which would have seen some 85 per cent of CBL’s cash sent offshore to wind back CBL’s reinsurance obligations. Better that all CBL creditors get a say, Justice Courtney ruled.
CBL has been in limbo for most of the year after interim liquidators were appointed at the request of insurance regulator, the Reserve Bank. There has been feverish behind-the scenes activity with attempts to restructure CBL without it formally going into liquidation. Not all creditors have agreed with proposals put forward.
Interim liquidators Andrew Grenfell and Kare Johnstone from McGrathNicol asked the High Court whether they had power to approve a deal with Elite Insurance on behalf of CBL, without other creditors having to approve. Evidence was given that Elite is CBL’s biggest creditor. CBL is registered in New Zealand but its greatest exposure is as reinsurer of risks written in overseas jurisdictions. Much of that business is reinsurance of French construction industry risks underwritten by Elite. It was intervention by the Gibralar regulator in 2017, requiring Elite to wind down its business, that led to concerns in New Zealand about CBL’s financial stability. The court was told CBL’s ‘tail’ of reinsurance liabilities could run on for at least ten years. The interim liquidators proposed crystallising CBL’s potential liability to Elite by commuting the reinsurance contract; cash and other assets would be transferred to Elite and in return Elite would have no further claims against CBL. Details of the proposed commutation agreement were suppressed. Justice Courtney disclosed Elite is CBL’s largest creditor, accounting for about 68 per cent of its liabilities. The intended deal would see 85 per cent of CBL’s cash heading offshore, together with release of collateral held with US insurers and the National Bank of Samoa. Doubts were expressed about the possibility of getting any of this back if the commutation agreement were successfully challenged on CBL’s liquidation, given that Elite itself is in financial difficulty.
The normal role of interim liquidators is to preserve the status quo. The proposed commutation agreement sees some 85 per cent of CBL’s cash paid to the company’s largest creditor at a time when the impact on other creditors is unknown or, at least, disputed, Justice Courtney said. Creditors dispute the amount claimed by Elite and the value of assets intended to be transferred. The proposed commutation agreement went beyond what the Companies Act permitted interim liquidators to do, Justice Courtney ruled. Any deal should either be voted on by all creditors as part of a scheme of arrangement or be left to a liquidator should the company go into liquidation, she decided. Liquidators are required to act in the interest of all creditors.
Post judgment note: CBL Insurance was placed into liquidation in November 2018. Andrew Grenfell and Kare Johnstone from McGrathNicol were appointed liquidators.
re CBL Insurance Ltd – High Court (1.10.18)
18.194