Australia and Asbestos - The James Hardie Saga, Its Asbestos Claim Payment Foundation - A Viable Alternative to Ch. 11 ?
Now it's west (from Chicago) to Australia, asbestos and the public company fiber cement business commonly known as James Hardie.
The short story is that James Hardie and its officers and directors have been through a wringer as several were convicted of securities violations in connection with information disseminated regarding "asbestos liabilities" and a foundation set up by various former Hardie entities to manage and pay asbestos claims. The convictions are on appeal. For more specifics on the past, look to the left for prior posts indexed under the topic "James Hardie."
Rapid Global Movement Makes Local Policy Hard to Enforce: Hardies actions are noteworthy for multiple reasons other than the securities convictions. For one, note that Hardie's recent global corporate "citizenship" translocations from Australia to The Netherlands and now Ireland, all in just 9 years. The point? Money and ownership will move to wherever financial engineering offers a material opportunity to avoid taxes, achieve tax benefits, or avoid or limit liabilities. This point needs to be understood by policy makers, tort claimants, tort case co-defendants and insurers because of its implications for tort claiming and risk spreading. Simply put, parochial local approaches to tort law may be politically attractive at times (e.g. take action to save local jobs) but one should expect the tort system will be gamed just as some financiers play games with states in the US for financial incentives to relocate - for a few years - the corporate headquarters or a manufacturing facility. The wills of state legislatures, the long term abstractions of tort law professors, and the opinions of slow moving appellate courts are all much less relevant when, as now, ownership, the corporate "home" and money, can all be moved in a matter of months. (One wonders when an enterprising tropical island will enact legislation favorable to companies facing long tail tort claims. One might look to the precedent set in the UK with FSA legislation that helped the "the names" and the Lloyds insurance market run away from their insurance obligations. Or, one might also consider states that set up rules considered unduly favorable to one side or another - some might say that West Virginia, Texas, New York, South Dakota, and Delaware all provide classic examples of this approach ... )
Private Tort Claim Foundation as an Alternative to Chapter 11 ? By any reasonable standard, current and former Hardie entities Hardie entities face claims for at least a billion or two of claims, and maybe much more, depending on how one defines claims (do overseas claims count; what about property damages claims). In the US, the now-defined answer would be to file one or two subsidiaries file a Chapter 11 case in Delaware or New York. Then, via the parent company chipping in some money and/or rights related to some "shared insurance," the parent and all subsidiaries likely would end up with an injunction purporting to protect them against a future claim anywhere in the world. Thanks to the rampant lack of due process and the resulting lack of objectors in chapter 11 cases (highlighted most recently by GM and Chrysler), most such plans succeed, at least in the sense that confirmation is obtained.
Hardie, however, did not pursue that path and instead set up a private foundation to manage and pay claims, backed by some conditional promises of future cash flow from Hardie entities. The foundation has now been in place for almost a decade. Future posts will explore some specific aspects of the Hardie foundation. For now, for 213 pages of Hardie facts and history as narrated by KPMG as advisors, go here and read/skim through a 2006 liability estimate.
While reading, note, among other things, that Hardie entities have been selling asbestos products since the early 1900s, owned a chryotile asbestos mine in Australia, sold products internationally, participated in various international joint ventures, and sold a wide range of asbestos-containing products. Sales included a asbestos-cement building materials, pipe insulation, and friction products, as well as sales of raw chrysotile asbestos fiber. Note also that some of Hardie's cement and insulation products included one or both of two types of the highly lethal amphibole fibers, which are crocidolite (apparently mined in Australia at Wittenoom) and amosite from Cape or others in South Africa (amosite being a sort of a contraction for "asbestos from the mines of South Africa").