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International Corporate Rescue Clayton Utz Special Issue 1 Long Tail Personal Injury Liabilities: The Australian Response Karen O’Flynn 5 Solvent Schemes of Arrangement in the Australian Reinsurance Industry Nicholas Mavrakis and Peter Mann 10 High Court of Australia Holds Failed Airline Accountable to Global Airline Clearing House Paul James and Polat Siva 14 Litigation Funding in Australia Karen O’Flynn 22 Creditors’ Claims against Third Parties Karen O’Flynn 26 Biting the Hand that Feeds You Karen O’Flynn 31 Creditors versus Shareholders: Primus Inter Pares? David Cowling 38 Insolvent Unit Trusts in Australia Jennifer Ball 42 An Administrator’s Power to Compulsorily Transfer Shares Cameron Belyea Editor-in-Chief Publishers Mark Fennessy, Proskauer Rose LLP, London Chase Cambria Company (Publishing) Ltd Publisher 4 Winifred Close Sasha Radoja, Travers Smith LLP, London Barnet, Arkley Editorial Board Hertfordshire EN5 3LR Emanuella Agostinelli, Curtis, Mallet-Prevost, Colt & Mosle United Kingdom LLP, Milan Scott Atkins, Norton Rose Fulbright, Sydney Annual Subscriptions James Bennett, KPMG, London Prof. Ashley Braganza, Brunel University London, Uxbridge A hardcopy subscription is EUR 730 / USD 890 / GBP 520; Dan Butters, Deloitte, London online: EUR 730 / USD 890 / GBP 520; and hardcopy + online: Geoff Carton-Kelly, FRP Advisory, London EUR 840 / USD 1045 / GBP 625. Rates per additional hardcopy or online user are: EUR 165 / USD 220 / GBP 145. 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ARTICLE Long Tail Personal Injury Liabilities: The Australian Response Karen O’Flynn, Partner, Litigation & Dispute Resolution, Clayton Utz, Sydney, Australia Asbestos and other dust diseases are not a new issue. 60 The distinction is vital because whilst contingent Nevertheless, events over the last few years have cata- or prospective creditors are taken into account in pulted them to the forefront of community and political assessing solvency, possible future claims that might debate in Australia. crystallise are not. The great probabilities are that if Interestingly, a combination of factors has resulted [the group companies] were to go into provisional in this personal injury issue being increasingly viewed liquidation now, then the only claims that would be through the prism of company law. This has resulted in paid by the liquidator would be those which have some radical company law reform proposals. crystallised and, after paying the doubtless heavy ex- penses of liquidation, there would be a distribution of surplus funds to the shareholder MRCF which would 1. Background be used for the purpose of the alleged charitable fund. The future creditors would get nothing and this may The James Hardie group was an Australian-domiciled very well be the case even if the claim matured the manufacturer of asbestos products. In 2001, long day after the liquidation commenced.’1 after it had ceased to manufacture asbestos products, it relocated to Holland (for tax reasons). It left behind Australia has a federal system of government. Respon- in Australia the group companies which had been sibility for workplace health and safety rests with State the manufacturers of asbestos products; those group legislatures, while the Federal legislature has authority companies were hived off from the rest of the group over corporate law (including corporate insolvency). and placed under the control of a standalone company The New South Wales State Government commis- under the terms of a trust. The purpose of this trust ar- sioned an inquiry into the James Hardie situation. That rangement was to use the assets of the former group committee released its report in September 2004. The companies to provide for the payment of claims for report recognised the legal position identified by the asbestos-related illnesses from Australians. Supreme Court and commented that: ‘unless some It subsequently emerged that the quantum of claims general reform is enacted that permits [corporate insol- would outweigh the funds available. The trustee ap- vency law] to deal with long tail liabilities, future cases plied to the NSW Supreme Court for directions as to the will arise that will have to be the subject of ad hoc leg- 2 appropriate course of action. In the course of dealing islative solution, if serious injustice is to be avoided’. with that application, the Court held that many persons injured through exposure to James Hardie’s asbestos products would have no standing as creditors should 2. The mass future claim proposal the former group companies be placed in liquidation: In October 2005, the Federal Government announced ‘58 On current authority, persons injured through its response to the issues identified by the NSW Supreme exposure to asbestos manufactured or supplied by Court and the inquiry report. It asked the Corporations [the group companies] do not have a completed and Markets Advisory Committee (CAMAC) to con- cause of action until damage is suffered and that sider and report on a detailed legislative proposal that usually involves manifestation of the disease … . the Government had prepared. Under that proposal, 59 This type of liability must be distinguished from companies, liquidators and voluntary administrators the case