CBL Insurance Ltd ((in Liquidation))

• Jurisdiction: New Zealand
• Judge: Courtney J
• Judgment Date: 01 October 2018
• Neutral Citation: [2018] NZHC 2547
• Docket Number: CIV-2018-404-001667
• Court: High Court
• Date: 01 October 2018

Under Section 284 of the Companies Act 1993

In the Matter of CBL Insurance Limited (In Liquidation)

In the Matter of An application by Kare Johnstone and Andrew Grenfell for directions in relation to the interim liquidation of CBL Insurance Limited (In Interim Liquidation)

[2018] NZHC 2547

CIV-2018-404-001667

IN THE HIGH COURT OF NEW ZEALAND

AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA

TĀMAKI MAKAURAU ROHE

Companies, Insolvency — application for a direction under s284 Companies Act 1993 (“CA”) (Court supervision of liquidation) that the interim liquidators had the power to enter into a compromise with the company's largest creditor — whether a declaration was a direction under s284 CA — scope of interim liquidators powers

Appearances:

I J Thain and A E Murray for Interim Liquidators

A S Ross QC and J E M Lethbridge for Elite Insurance

N S Gedye QC for Reserve Bank

R B Stewart QC, M Kersey and A J Nelder for LBC Holdings

D M Salmon and J P Cundy for CBL Insurance

J Anderson QC and J A MacGillivray for Alpha Insurance

JUDGMENT OF Courtney J

Introduction

1 This is an application by the interim liquidators of CBL Insurance Ltd (CBLI) for directions under s 284 of the Companies Act 1993. They wish to enter into a compromise with CBLI's largest creditor, Elite Insurance Ltd (Elite) and seek a direction that they have the power to do so.

2 The agreement that the Interim Liquidators have negotiated with Elite would extinguish CBLI's liabilities to Elite in return for a mixture of cash and non-cash assets (the commutation agreement). The Interim Liquidators say that the agreement would benefit all of CBLI's creditors, not just Elite. They wish to execute the commutation agreement now, even though the substantive liquidation application is to be heard in November 2018, only seven weeks away. It is said that if the agreement is not executed immediately the same terms are unlikely to be available again.

3 As filed, the application sought a number of directions that would have seen the Court sanction the terms of the proposed agreement itself. However, Mr Thain, for the Interim Liquidators, acknowledged that the merits of the proposal were not a matter on which the Court could form a view. I am concerned only with the scope of the Interim Liquidators' powers; the exercise of those powers is a matter for the commercial judgment of the Interim Liquidators. The argument therefore proceeded on the basis that the only direction sought was one: “that the Interim Liquidators, acting on behalf of CBLI, have the power to enter into the transaction with Elite”.

4 The Reserve Bank of New Zealand (RBNZ), which is CBLI's regulator under the Insurance (Prudential Supervision) Act 2010 (IPSA), consents to the application. 1 There is, however, strenuous opposition from CBLI's second largest creditor, Alpha Insurance Ltd (Alpha), CBLI itself (acting through two of its directors) and CBLI's shareholder, LBC Holdings Ltd (in administration) (LBC). They say that the creditors as a whole would not be better off as a result of the commutation agreement and that the Interim Liquidators do not have the power to enter into it.

Confidentiality and access to court documents

5 Both the liquidation application (CIV-2018-404-306) and the present directions application are subject to confidentiality orders made on 27 February and 9 August 2018 respectively. The confidentiality order in the present proceeding prohibits publication of confidential information submitted to the Court in relation to the application, save for the notice to creditors published on the McGrathNicol website, and prevents any search of the Court file except by application on three days' notice.

6 A member of the media was present in court on the first day of the hearing and for a short time on the second day. There were conflicting views as to whether the confidentiality orders should be continued and the extent to which there should be publication of the evidence and argument relating to the application. Because of the limited time available, I directed that the confidentiality orders would continue for the duration of the hearing and permitted counsel to file submissions on the point later.

7 The Interim Liquidators, CBLI and LBC seek (to varying degrees) to maintain confidentiality orders in relation to both access to the court file and publication of matters addressed during the hearing. RBNZ considers that the confidentiality orders should be lifted. Elite and Alpha are content to see the confidentiality orders lifted.

8 The starting point, naturally, is the principle of open justice. In relation to access to the court file, the principle of open justice is accorded greater weight during the substantive hearing than either before or after. 2

9 In Erceg v Erceg the Supreme Court said, in relation to reporting on court proceedings: 3

… The principle means not only that judicial proceedings should be held in open court, accessible by the public, but also that media representatives should be free to provide fair and accurate report of what occurs in court. Given the reality that few members of the public will be able to attend particular hearing, the media carry an important responsibility in this respect …

10 There can be no doubt that the present proceeding and the liquidation proceeding raise matters of considerable public interest. The potential failure of a

substantial insurer, which is subject to regulatory oversight by RBNZ, is a matter in which the public generally has an interest. It is also significant that there are a number of smaller creditors who have not participated in the proceedings to date but stand to be affected by them

11 The Interim Liquidators seek to maintain orders prohibiting the publication of confidential information, but acknowledge that a question arises as to what amounts to confidential information. They say that the only truly confidential information is that concerning the amount of the consideration provided for under the commutation agreement and the break-down of that consideration (particularly the cash component and the value ascribed to the various assets for the purposes of the agreement). They also consider that supporting schedules referring to the consideration or to the effect on creditors is confidential. The Interim Liquidators are concerned that publication of this information could prejudice the interests of both CBLI and its creditors in relation to future negotiations (whether or not the commutation agreement with Elite proceeds).

12 CBLI does not consider that the Interim Liquidators' proposal as to how to demarcate confidential information from that which could be published is workable. It is concerned that there is extensive confidential material beyond that which the Interim Liquidators are concerned about, and also notes that evidence filed in the liquidation proceedings that is (and continues to be) suppressed was referred to in this application. That material includes serious allegations made against individuals within CBLI which are disputed and to which the individuals concerned have yet to respond.

13 LBC's position is that it filed its evidence in this proceeding (and in the liquidation proceeding) on the basis of the confidentiality orders in place, and accordingly included information in reliance on those orders. In particular, it says that information contained in the evidence of Mr Gibson, Mr Christer and Mr Jones is commercially sensitive and includes information about the proposed Deed of Company Arrangement (DoCA) originally provided on a confidential and without prejudice basis. It seeks to maintain the confidentiality orders pending further consideration of this judgment, with a view to a redacted version of this judgment being published.

14 Mr Gedye, for RBNZ, does not consider there to be any ongoing justification for the confidentiality order. He sees nothing in the commutation agreement that warrants confidentiality. He does not regard the draft Scheme of Arrangement and draft DoCA recently put forward as requiring confidentiality. He considers that the principle of open justice should prevail so that smaller creditors and the public may be apprised of the proceedings.

15 My views are as follows. There is genuine public interest in the nature of the application for directions, the outcome and the reasons for that outcome. My decision does not contain much in the way of information that (in my view) could fairly be described as commercially sensitive. This judgment may be circulated only among counsel and parties until 12pm, Monday 1 October 2018. Counsel may file memoranda by 10 am on Monday 1 October 2018 advising of any redactions sought. I will determine the extent to which the decision should be redacted and the judgment (in redacted form if necessary) will be available for publication after 3 pm on 1 October 2018.

16 I am, however, satisfied that much of the actuarial and financial analysis contained in the evidence is potentially commercially sensitive. This is particularly so, given that the liquidation application is soon to be determined and, in the event a liquidator is to be appointed, it would be undesirable to take any step now that may compromise his or her desired approach. I am also conscious that efforts are being made by all parties to find a way forward that will be to the benefit of creditors generally. Whether that ultimately takes the form of a scheme of arrangement or a DoCA, parties should have the freedom to negotiate frankly without the risk of commercially sensitive material finding its way into the public arena. The existing confidentiality orders will continue in relation to submissions made and material filed in...