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FOCUS
INSOLVENCY
April 2007
SCHEMES OF ARRANGEMENT:
CAN FUTURE ASBESTOS
CLAIMANTS BE BOUND BY
A SCHEME?
Partner Michael Quinlan and Senior Associate Christopher Prestwich discuss a
recent Federal Court decision on a proposed scheme of arrangement that sought
to transfer liability for future asbestos-related claims from one group company
A recent Federal to another, along with the benefit of associated insurance policies, enabling the
original company to be deregistered.
Court decision will
have important
ramifications HOW DOES THIS INTRODUCTION
for insurance, AFFECT YOU? In Stork ICM Australia Pty Ltd v Stork Food
Systems Australia Pty Ltd [2006] FCA 1849,
insolvency and • According to this recent decision, future Justice Lindgren considered a scheme that
liability for future asbestos claims may be sought to transfer the present, contingent and
product liability transferred from one company to another, future liabilities of a company, including claims
along with the benefit of insurance policies by by future personal injury claimants who were not
stakeholders way of a scheme of arrangement. presently ill, to another group company. Justice
• The Federal Court’s decision is in contrast Lindgren held that future asbestos claims were
to an earlier ruling by the New South Wales capable of being made the subject of an order
Court of Appeal, which found that future under s413(1) of the Corporations Act 2001
asbestos claims do not amount to a ‘claim’ in (Cth), and approved the proposed scheme.
a liquidation. Future personal injury claimants without an
accrued cause of action would be bound by this
scheme of arrangement.
THE PROPOSED THE DECISION
SCHEME OF OF THE FEDERAL
ARRANGEMENT COURT
Stork ICM Australia Pty Ltd (Stork ICM) had Creditors’ scheme or a members’ scheme?
sold its business assets in 2003 and had not The proposed scheme involved the transfer of
carried on business since that time. It had been the whole of the assets and liabilities of one
named as a defendant in a number of asbestos- group company to another. Justice Lindgren
related personal injury claims and had the held that it was settled law that a scheme of this
benefit of various insurance policies in respect type is a members’ scheme alone. The scheme
of such claims. The only ‘business’ of Stork ICM would only be voted on by members, although
was dealing with claims arising out of its the position of creditors was a factor that the
earlier business. court would take into account when considering
whether to approve the scheme at the second
Stork ICM sought to enter into a scheme of
court hearing.
arrangement whereby its property and liabilities
would be transferred to another group company,
TRANSFERRING LIABILITY
Stork Food Systems Australia Pty Ltd (Stork
FSA). Stork ICM would then be deregistered FOR PERSONAL INJURY
and, upon that deregistration, the group’s CLAIMS THAT HAVE NOT
ultimate Dutch parent would be able to claim
ACCRUED
the benefit of tax losses attributable to its
Section 413(1)(a) of the Corporations Act
investment in Stork ICM.
enables the court to permit the transferral
In September 2006, the court had convened of property and liabilities from one company
meetings of the shareholders of Stork ICM. The to another. The question here was whether
shareholders (all being members of the same future asbestos claims constituted a ‘liability’.
group) had approved the proposed scheme. The original drafting of the term ‘claim’ in
The court then considered whether the scheme the scheme broadly reflected s553 of the
should be approved. The issues included Corporations Act in terms of the types of claims
the following: that would be compromised by the scheme.
• was the proposed scheme a members’ scheme Justice Lindgren held that, for the purposes of
or a creditors’ scheme? s413(1)(a), claims for future asbestos-related
• could the court make an order that had the diseases did fall with the meaning of ‘liability’
effect of making Stork FSA rather than Stork and could be transferred to Stork FSA. His
ICM liable to potential creditors? decision relied on the High Court’s decision
• could the court make an order that assigned in Crimmins v Stevedoring Industry Finance
Stork ICM’s right of insurance indemnity to Committee [1999] HCA 0059. In Crimmins,
Stork FSA? it was held that the meaning of ‘liability’ in
the Stevedoring Industry Acts (Termination)
Act 1977 (Cth) could include contingent or
potential liabilities, including exposure to
asbestos, even though the injury was suffered
after the vesting under the relevant Act took
place. The definition of the term ‘claim’ in the
scheme was broadened to include claims that
might only accrue in the future.
The question of whether future personal injury Justice Lindgren expressed his view that such
claimants who have been exposed to asbestos policies could nevertheless be transferred
but who are not presently ill are ‘contingent without consent and that such a transfer would
creditors’, and thus have a ‘claim’, has been not impact upon the nature of the insurer’s
considered in other cases: obligation. As Stork ICM was not engaging in
any new business and the insurance policies
• in Edwards v Attorney-General1, the New did not apply to its ongoing business, any claim
South Wales Court of Appeal held that such would be in respect of claims where ‘all those
individuals did not then have an accrued circumstances have already occurred, even
cause of action and were not contingent though they have not yet crystallised in the
creditors in an Australian winding up; and form of a notified claim’. The transfer of liability
• in T&N Limited and Others2, the English would not impact upon the content of the
High Court held that such individuals were insurer’s obligation and it would be immaterial
contingent creditors in an English scheme of to the insurer whether a claim was brought by
arrangement and could be bound by Stork ICM or Stork FSA.
a scheme.
Neither of these cases are mentioned in
Justice Lindgren’s judgment.
IMPACT OF THE
ASSIGNING THE BENEFIT
FINDINGS
The decision in this case addressed the issue
OF AN INSURANCE POLICY
of whether the future liability for future asbestos
WITHOUT CONSENT claims could be transferred from one company
As part of the proposed scheme of arrangement, to another, along with the benefit of
Stork ICM’s right to indemnity would be insurance policies.
transferred to Stork FSA. A number of Stork
ICM’s insurance policies contained ‘no Justice Lindgren’s finding that asbestos
assignment without consent’ provisions. Justice claims by personal injury claimants who were
Lindgren considered whether the court was able not presently ill constitute a ‘liability’ of the
to make an order vesting the contractual right to company for the purposes of s413(1)(a) is in
enforce a right of insurance indemnity in Stork contrast to the position of the New South Wales
FSA in place of Stork ICM, and whether such an Court of Appeal in Edwards in relation
order would change the content of the to liquidation.
insurer’s obligation.
The cases of Edwards and T&N Limited and
Justice Lindgren held that he did not need to Others illustrate the different approaches that
determine these issues, as Stork ICM could courts have taken in Australia and England in
be deregistered without transferring all of its the past in considering whether individuals who
property - the benefit of any insurance policies have been exposed to asbestos but have not
that the insurer had not consented to transfer yet suffered an injury have a ‘claim’ against
could be excluded from the transfer. However, the company for the purposes of schemes of
arrangement and a liquidation.
1. [2004] NSWCA 272 – see pp 63-65 of the
Allens Arthur Robinson Annual Review of Insolvency &
Restructuring Law 2004.
2. [2006] EWHC 1447 (Ch) –
see http://www.aar.com.au/pubs/insol/foinsaug06.htm.
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CONTACTS
Michael Quinlan Oscar Shub Clint Hinchen
Partner, Sydney Partner, Sydney Partner, Melbourne
Ph: +61 2 9230 4411 Ph: +61 2 9230 4305 Ph: +61 3 9613 8924
Michael.Quinlan@aar.com.au Oscar.Shub@aar.com.au Clint.Hinchen@aar.com.au
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Hanoi
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