HIH liquidator poised to pay out
Sydney Morning Herald
Thursday March 25, 2010
THE winding up of HIH Insurance was largely complete following the formal settlement of the last big lawsuit in the NSW Supreme Court, the liquidator Tony McGrath said yesterday.The liquidation "now moves into a more predictable phase of finalising claims, collecting reinsurance and paying dividends", he said.The remainder of his work will be governed by schemes of arrangement put in place four years ago and due to expire in 2013.Justice Patricia Bergin yesterday made orders finalising the pursuit of compensation for HIH's $300 million purchase of FAI Insurance in 1998. The judge was not told how much the defendants had agreed to pay HIH but it is believed to be about half the headline claim, which was the purchase price plus interest of about $250 million.At the heart of the case were two reinsurance policies taken out by FAI in 1998 - which, the court was told, were not "genuine contracts of reinsurance" but arrangements "with the object of allowing the FAI Group to recognise illusory profits to improve its reported results for that year".Mr McGrath's main targets were US companies: General Reinsurance, which sold one of the policies; Guy Carpenter & Co, which brokered the second policy; and Goldman Sachs, which advised the FAI board during the takeover.Individual defendants to the main claim and 39 cross-claims included the FAI executives Rodney Adler, Daniel Wilkie and Tim Mainprize, the FAI directors Geoff Hill and Ted Harris, the Goldman Sachs Australia executives Malcolm Turnbull and Russel Pillemer, and 117 former partners of FAI's auditor, Arthur Andersen.In a letter to the Herald, Mr Adler disputed the allegation that FAI was worthless when HIH bought it, arguing that subsequent investment sales raised $450 million and its general insurance business was sold for $325 million. "FAI did not bring down HIH," he wrote.The HIH royal commission found that the directly quantifiable loss to HIH of the FAI takeover was $591 million, taking into account the purchase price, the proceeds of asset sales, some trading losses and an estimated $705 million in underprovisioning for insurance claims.Mr McGrath, a partner of the insolvency firm McGrathNicol, said HIH creditors were likely to receive a further $1 billion in addition to the $1.2 billion already paid.He expects this to leave a deficiency of about $3.8 billion.
© 2010 Sydney Morning Herald