Court accepts insurer's plan for insolvency

Photo / APN

The Reserve Bank, a Catholic bishop and an Anglican property trust were all represented in court yesterday as an earthquake-rattled insurer put forward a contingency plan for insolvency.

Ansvar Insurance appeared in the High Court at Auckland to get approval for the plan, formally known as a scheme of arrangement. Under the Companies Act, a scheme of arrangement needs to be cleared by a judge.

It would allow Ansvar, now called ACS (NZ), to have managers instead of liquidators take control if the company became insolvent.

According to ACS' lawyer, Michael Arthur, it would be easier under the scheme for the insurer to make payments to claimants than it would be in the event of a liquidation.

The scheme would also make an extra $22 million of reinsurance unconditionally available, Arthur told Justice Geoffrey Venning yesterday.

ACS directors would remain in control of the business and insurance payouts would continue unless insolvency was deemed inevitable.

The plan, approved by creditors last week, is part of the company's withdrawal from the New Zealand market because of soaring costs following the Christchurch earthquakes.

The company cancelled its policies in December last year, blaming the "prohibitive cost of reinsurance". Its business is now limited to managing its outstanding insurance claims, $700 million of which are quake related.

In approving the application yesterday, Justice Venning said the scheme provided the best opportunity for an "ordered and efficient" management of insurance claims.

"It is inevitable that if a liquidation was to occur, the liquidator would need some time to familiarise themselves with the operation of the company and would proceed on a cautious basis which would likely result in material delays when dealing with claims."

The company was New Zealand's largest insurer of churches and heritage buildings, and its creditors include Christchurch Catholic and Anglican cathedrals and the Arts Centre.

Lawyers for both the Catholic bishop of the Christchurch diocese and the church property trustees of the Anglican diocese were present in court yesterday. These parties supported the scheme after amendments were made to it. Although it did not oppose the scheme in court, the Reserve Bank, which supervises the insurance industry, did express some concerns. The bank's lawyer, Scott Barker, said a KPMG report presented doubts that the insurer could meet all its claims.

He also said the scheme could cause a "first-up, best-dressed scenario", in which there was a risk some creditors would get better treatment than others.

Justice Venning said he was satisfied the concerns had been adequately answered by ACS.