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In re Workers Mutual Insurance (PNG) Ltd [2009] PGNC 17; N3651 (5 March 2009)

N3651

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

MP 252 OF 2005

IN THE MATTER OF THE
COMPANIES ACT

AND:

IN THE MATTER OF WORKERS MUTUAL
INSURANCE (PNG) LIMITED

AND:

BANK OF PAPUA NEW GUINEA
First Petitioner

AND:

SIMON FRASER as the STATUTORY MANAGER OF
WORKERS MUTUAL INSURANCE (PNG) LIMITED
Second Petitioner

AND:

WORKERS MUTUAL INSURANCE
(PNG) LIMITED
Third Petitioner

Waigani: Hartshorn J.
2009: 6th February,
: 5th March

COMPANIES ACT - Application by Liquidator for Directions – s.332 Companies Act – whether funds received after Company Insolvent and under Statutory Management are assets of Company or are held in trust – inference of intention to create a trust

Facts:

The Liquidator of Workers Mutual Insurance (PNG) Limited (WMI) seeks directions as to the beneficial ownership of money received by WMI from policyholders during the period in which the company was insolvent and under statutory management.

Held:

1. An intention to create a trust can be inferred by considering the purpose for which the funds were given and how and in what circumstances the funds were dealt with once they were received.

2. It would be unconscionable and inequitable not to return the contributions in full to policyholders who had paid contributions under the misapprehension that WMI was a going concern and in circumstances where for reasons not of their making, those policyholders could not be told to stop paying contributions.

3. Premium payments received by Workers Mutual Insurance (PNG) Limited from its policyholders between the dates of 5th July 2005 and 19th July 2006 are held on trust for the respective policyholders in proportion to their contributions, shall be refunded to the respective policyholders and are not available to satisfy the claims of the general creditors of the company.

Cases cited:

Papua New Guinea Cases

Nil

Overseas Cases:

OT Computers Ltd (in administration) v. First National Tricity Finance Ltd [2003] EWHC 1010
Re Australian Home Finance Pty Ltd [1955] VicLawRp 45; [1956] VLR 1
Re Kayford Ltd (in liquidation) [1975] 1 WLR 279

Counsel:

Mr. V. Bull, for the Liquidator

5 March, 2009

1. HARTSHORN J: The Liquidator of Workers Mutual Insurance (PNG) Limited (WMI) seeks directions as to the beneficial ownership of money received by WMI from policyholders during the period in which the company was insolvent and under statutory management (contributions).

2. The application is made pursuant to s. 332 Companies Act.

Issue

3. Whether the contributions are part of the assets of WMI and are therefore available for distribution to creditors or are held in trust for those policyholders who paid the contributions and must be refunded to them.

Factual background

4. On 17th March 2005, the Bank of Papua New Guinea appointed a statutory manager to WMI pursuant to its powers under the Life Insurance Act. WMI remained under statutory management until 19th July 2006 when an interim liquidator was appointed. In June 2005 the statutory manager determined that WMI was insolvent. The statutory manager was unable to cause WMI to cease trading as would normally have been done because of an order of this Court made on 28th April 2005 (April Order) which amongst others, restricted him to making decisions on the normal day-to-day operations of WMI and restrained him from making any major decisions that affected the finances and staff of WMI and in respect of the liquidation of WMI.

5. As a consequence of the April Order the statutory manager was obliged to continue accepting payments made by policyholders, notwithstanding that WMI was insolvent, unless he obtained leave of this Court. The statutory manager and Bank of Papua New Guinea applied to this Court on 11th July 2005 for the urgent appointment of an interim liquidator. On 13th and 14th July 2005 this Court heard a judicial review application and the application for an interim liquidator to be appointed. Regrettably, this Court did not deliver its decision until 19th July 2006 when it dismissed the review application and appointed an interim liquidator.

6. Consequently, about 12 months had elapsed from the time that the statutory manager had determined that WMI was insolvent, to the appointment of an interim liquidator.

7. The statutory manager, having determined that WMI was insolvent, but required to comply with the April Order, deposited the contributions in interest-bearing deposit accounts and then accounted for all of them separately from WMI’s other accounts. In addition, notwithstanding that the contributions were dealt with separately, each contribution was posted as a credit to the account of the relevant policyholder and interest continued to be credited to those accounts by the statutory manager.

Law

8. There are cases in the Courts of England and Australia where it has been held that funds received by a company in certain circumstances, before the company is placed into liquidation, have been held in trust for the persons who paid the funds and were therefore unavailable to the liquidator for distribution to the company's creditors. The cases of Re Australian Home Finance Pty Ltd [1955] VicLawRp 45; [1956] VLR 1, Re Kayford Ltd (in liquidation) [1975] 1 WLR 279 and OT Computers Ltd (in administration) v. First National Tricity Finance Ltd [2003] EWHC 1010(Ch) were cited in this regard. These cases are persuasive in this jurisdiction.

9. To my mind, these cases are in essence authority for the proposition that a Court can infer an intention to create a trust by considering the purpose for which the funds were given and how and in what circumstances the funds were dealt with once they were received.

10. Here, although it can be argued that the effect of the April Order was to require WMI to continue trading, that the contributions were received in the ordinary course of business and that therefore they are assets of WMI available for distribution to creditors, I am of the view that the actions of the statutory manager are such that they give rise to an intention to create a trust.

11. The statutory manager knew that WMI was insolvent but he could not direct the policyholders not to send their contributions to WMI. Knowing what he did, I venture to suggest that the statutory manager thought it was quite inequitable for WMI to continue to receive the contributions from policyholders who did not know the circumstances of WMI and could not be told to stop their contributions. As a consequence the manager placed most of the contributions into separate accounts. He then accounted for all of them separately from WMI’s other accounts.

12. It can be argued however, that by crediting the payments to the policyholders accounts plus interest, the statutory manager displayed an intention of dealing with the contributions in the ordinary course of business. It has to be remembered though that the statutory manager was constrained by the terms of the April Order which in effect required him to continue the day-to-day operations of WMI without making any major decisions.

13. I am satisfied that in the circumstances of this case this Court can infer an intention to create a trust by the statutory manager in respect of the contributions.

14. It may be that the administrative costs involved in returning the contributions to the policyholders will be considerable, but I am of the view that it would be unconscionable and inequitable not to return the contributions in full to those policyholders when they had paid their contributions under the misapprehension that WMI was a going concern when it was not, and for reasons not of their making those policyholders could not be told to stop paying their contributions.

Orders

15. It is ordered that premium payments received by Workers Mutual Insurance (PNG) Limited from its policyholders between the dates of 5th July 2005 and 19th July 2006 are held on trust for the respective policyholders in proportion to their contributions, shall be refunded to the respective policyholders and are not available to satisfy the claims of the general creditors of the company.

________________________________________

Allens Arthur Robinson: Lawyers for the Liquidator