CBL Insurance directors’ Peter Harris and Alistair Hutchison were described by Justice Courtney as lacking commercial probity, manipulating information provided to the Reserve Bank as insurance regulator.
CBL Insurance was a licensed insurer with barely one per cent of cover written on New Zealand risks. Most of its exposure was as reinsurer of builders’ warranty insurance in France. Concern about CBL Insurance’s financial stability led to appointment of interim liquidators in February 2018. Full liquidation followed nine months later on two grounds: first, proof CBL Insurance was balance sheet insolvent, and secondly on grounds that it was ‘just and equitable’ to put the company into liquidation, as evidenced by manipulation of solvency data supplied to the Reserve Bank as regulator.
The High Court was told of directors misrepresenting the status of a $20 million deposit CBL Insurance had placed with National Bank of Samoa. A March 2015 letter drafted by Mr Harris, with the involvement of Mr Hutchison, represented the Samoa deposit as being unencumbered and able to be returned to CBL Insurance at any time. In fact, the deposit was security for a loan and the deposit was seized when interim liquidators were appointed. If the true status of the deposit had been revealed, it would have put CBL Insurance’s solvency ratio below 100 per cent. This at a time when CBL Corporation was being prepared for public float. Mr Harris and Mr Hutchison sold significant parcels of shares on the float. There were also allegations of CBL Insurance purporting to improve solvency in September 2017 by selling overdue receiveables and backdating the transaction to satisfy Reserve Bank solvency requirements. Solvency returns were required on a six-monthly basis. The transaction was cancelled five months later. The Reserve Bank also queried the status of an investment in a Peruvian goldmine: El Toro. Email communications between Mr Harris and other interested parties indicate the El Toro shareholding was owned by CBL Insurance, the Reserve Bank claims. Dividends totalling US$600,000 paid by El Toro never made their way to CBL Insurance. Clouding the issue is Reserve Bank concerns that El Toro may have been part of a money-laundering operation. It wants answers as to whether CBL Insurance directors were aware of this.
There was differing evidence over the extent of CBL Insurance’s balance sheet insolvency; a measure of its ability to meet ‘long-tail’ insurance claims, potentially stretching out ten years. One actuary assessed liabilities exceeding assets by $98.4 million as at December 2017. Updated figures as at June 2018, put balance sheet insolvency at between $122.8 million and $274.8 million. This alone was grounds to put CBL Insurance into liquidation, Justice Courtney ruled.
Reserve Bank v. CBL Insurance Ltd – High Court (16.11.18)
19.002