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Reform proposal for long-tail liabilities

Reform proposal for long-tail liabilities

PEOPLE WITH a future personal injury claim against a financially troubled company may find their interests are only protected in instances where a mass claim against the company has already…

PEOPLE WITH a future personal injury claim against a financially troubled company may find their interests are only protected in instances where a mass claim against the company has already commenced.

The Corporations and Markets Advisory Committee (CAMAC) has released a discussion paper on the issue after being asked to examine a government proposal in the wake of the James Hardie special commission inquiry.

During that inquiry it was noted by David Jackson QC that: “Current laws do not make adequate provision for commercial insolvency where there are substantial long-tail liabilities, that is, liabilities that arise many years after the events or transactions that give rise to them.”

CAMAC executive director John Kluver said the circumstance in which any reforms would apply is sure to spark intense debate, with the current government proposal only applying where a mass claim against the company or similar companies is already underway.

“Whether we have a mass future claim threshold test — that is, whether the additional protections would apply only if there was a mass future claim afoot is the first question, he told Lawyers Weekly.

“The initial government proposal would limit these additional protections to those circumstances and there’re arguments for and against that so it’s a key initial question.”

The discussion paper looks at ways of addressing the challenges posed by balancing the ongoing management of a company in financial strife, the interests of ordinary creditors and the interests of future unascertained claimants.

Among the ideas in the paper is a suggestion that it could be worthwhile introducing an enabling provision, like in the US, so that if a company that is solvent can see that it might be pushed into insolvency as more claims emerge, it could go to the court and balance out the interests of the present claimants and future claimants to keep the company running.

Other issues in the discussion paper include whether a company in voluntary administration should make some sort of provision for these claimants on the basis that even though they don’t have claims at present, they will in the future.

It also asks whether schemes of arrangement would be appropriate where a company can identify the group from which its future personal injury claimants might come, such as the company’s employees. Where a company is being wound up, the discussion paper questions whether the liquidator should make some provision for future claimants among the available funds for unsecured creditors.

“As it stands at the moment under a liquidation you get nothing because unless you have your claim in by a certain day you can’t claim. And the problem, in particular with asbestos, is until the symptoms emerge you don’t know that you’ve got it,” Kluver said. “Therefore there will be people who won’t know until 10 years after the company has disappeared that they’ve got it and there won’t be any funds around.”

Ian Brown from the Australian Lawyers Alliance said his organisation was still wading through the discussion paper, but that personal injury claims should be accounted for in the liquidation process of a company and there should be anti-avoidance mechanisms to ensure that directors comply.

“We are looking for concrete reforms that will guarantee that a situation like what has occurred with James Hardie and numerous corporations in the US are not repeated,” he said.

“At the end of the day the rights of injured people have to be paramount and take precedent over shareholder interests. If a corporation does the wrong thing then everything else is secondary to the rights of those people injured as a result of the corporation’s actions.”

CAMAC is now calling for public submissions from interested parties to be delivered by 3 October.

“The discussion paper spells out the reasonable policy options and the implications of them because that’s one of the most important steps in the law reform process. So we are laying out the options and then after we get the submissions we will make the hard decisions and say which decisions we support,” Kluver said.

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Reform proposal for long-tail liabilities
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