King & Wood Mallesons

Asia-Pacific 100 position: 3

Some are more equal than others: giving priority to insurance creditors under s562A

As a (very) general rule, debts and claims rank equally in a company winding up. One of the exceptions to this rule applies where the company being wound up is an insurer. Where the company has entered into reinsurance contracts which cover it in respect of certain insurance contracts, money paid under the reinsurance contracts must be applied to satisfy amounts payable under those insurance contracts. This exception, which gives priority to insurance creditors over general creditors, is provided for in s562A Corporations Act 2001 (Cth).

Section 562A provides that, ordinarily, reinsurance proceeds are to be applied equally to allrelevant insurance contracts and in priority to the general priority payments’ regime in relation to a winding up under section 556, unless the court considers it just and equitable to order otherwise. Amaca Pty Limited v McGrath [2012] NSWSC 1523 was the third application made by companies in the James Hardie group for orders that reinsurance proceeds be paid to them, and not applied equally to all relevant insurance creditors…

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Overview

Level 61, Governor Phillip Tower
1 Farrer Place
Sydney
NSW 2000
Australia
http://www.kwm.com

Jurisdiction: PRC/Australia
No. of offices: 20
No. of qualified lawyers: 1,252