Estimates and disclosure of contingent risks are front and center these days in various contexts. Thus, asbestos-specific estimates and disclosures are prominently mentioned in a new Australian appellate decision in CSR. The opinion was issued at the end of last week, and provides some narrow guidance on solvent schemes of arrangement for companies facing asbestos claiming. A prior post here describes the
What a great legal term of art – "scheme of arrangement." The term has multiple but related nuanced meanings and applications because "schemes" are essentially corporate law opportunities to end or alter the business life or structure of a corporation. Depending on the nation and the particular use, schemes may have varying outcomes when used in the diverse ways that are possible in the various nations that arise from the former British Empire.
This post focuses on an attempted "scheme" under Australian corporate law. In this instance, the scheme consists of the efforts of a public company, CSR, to move forward with a "demerger" (a "spin-off" in the US) that would split one public company into two "more focused" public companies. Only one of the emerging companies would, they hope, be liable for asbestos bodily injury or property damage claims that will or may arise from past ownership of a crocidolite mine and sales of various asbestos-containing products. Thus, by dividing the company into two pieces. the proposed demerger would reduce the amount of corporate assets available to pay the current and potential future asbestos claims that arise from past business operations. The opinion explains the numbers as follows: "In its financial statements for the half year ended 30 September 2009 CSR has recognised a provision of A$446.8 million for current and future asbestos liabilities. This comprises 10% of CSR’s total assets as at 30 September 2009 but, based on the pro forma balance sheet produced by CSR as at 30 September 2009, would comprise 18% of New CSR’s assets at that date."
A scheme of arrangement is a UK term that applies to a variety of legal proceedings, including proceedings in which a solvent insurer seeks to end its operations – for its convenience – and to put an end to the life of insurance policies that pay claims based on an “occurrence.” Occurrence policies…