CSR Demerger Effort To Go to the Next Step – Australian Appellate Court Opinion Provides Narr
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 trial court litigation regarding the efforts of CSR, an Australian business, to obtain judicial approval of a reduction of its its asset base when it faces admittedly significant current and future asbestos claims. The proposed reduction of assets would be accomplished through a "demerger" (in the US, we would call it a spinoff).
The federal appellate court opinion in CSR is worth reading for those interested in the social and legal policy issues involving tort claiming and corporate transactions. That said, the opinion is narrow. In short, the court did not approve the demerger, and did not find the demerger reasonable. Instead, it narrowly held that the trial court should allow the process to move forward to a meeting of creditors.
The future developments in CSR will be interesting. At present, CSR’s demerger efforts are opposed by asbestos claimants, AISIC (the Australian counterpart to the SEC), a regional government fund obligated to pay claims by persons suffering from asbestos-related diseases, and by a significant asbestos co-defendant, James Hardie. To date, the objectors have not cross-examined various actuaries who prepared estimates of the future asbestos payments by CSR. it will important and interesting to see the substance that emerges from cross-examination of actuaries, if it occurs. Cross-examination did not occur to date because the parties structured the proceedings that way and allowed much of the information to remain "confidential." The appellate court opinion seems to put the reasonableness of the actuarial reports squarely into play for cross-examination and argument during future proceedings. Thus, the appellate court explained:
" 56 As to the argument advanced on behalf of the James Hardie parties, the reports prepared by CSR’s actuaries purport to quantify the present value of CSR’s future long term exposure to asbestos claimants. There is nothing in these reports which suggests that any category of asbestos claimant has not been included in their actuarial assessment. There is, accordingly, force in CSR’s argument that the learned primary judge erred in treating the disclaimer in the Grant Samuel report as indicating that the assessments made on behalf of CSR did not include persons who have not yet contracted an asbestos related disease as a result of exposure for which CSR is responsible. On the other hand, this important question could have been resolved beyond the possibility of doubt by cross-examination of the relevant authors. That did not occur in the proceedings before the learned primary judge. To say this is in no way to level a criticism at her Honour: the case was conducted before her in accordance with the wishes of the applicant and the interveners. To say this is, however, to recognise that an application for the convening of the first meeting of shareholders under s 411(1) of the Act is not an ideal occasion to attempt to resolve such issues. " (emphasis added)