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$640m HIH bailout: "it may well be a lot more"



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Kelvin Thomson - Bailout - It May Well Be A Lot More http://www.alp.org.au//media/0601/ktmshihb270601.html Thursday, 28 June 2001

$640 M HIH Bailout - "It May Well Be A Lot More" Kelvin Thomson - Shadow Assistant Treasurer

Media Statement - 27 June 2001

The newly appointed Managing Director of the Howard Government's HIH bailout company, HIH Claims Support Limited, Mr Dallas Booth, today told an Insurance Council of Australia Conference in Sydney that the bailout "may well cost a lot more" than the $640 million allocated by Federal legislation last week. "We just don't know," Mr Booth said.

Labor's Shadow Assistant Treasurer, Kelvin Thomson, said Mr Booth's admission contradicted assurances given to the House by Minister Joe Hockey last week that the $640 million would not blow out further.

"The possibility of a further blowout underscores the Government's abject failure to lead on this issue by refusing to call a National Round Table, which has left taxpayers carrying the can for whatever the bailout ultimately costs," Mr Thomson said.

"It is significant that Mr Alan Mason, Executive Director of the Insurance Council of Australia, which opposes an insurance industry contribution to the bailout, nevertheless described the Commonwealth and State responses as 'dysfunctional'. Responsibility for this must rest with Federal Minister Hockey."

Other matters to emerge from the HIH Conference were:

Builders are still experiencing significant delays in obtaining insurance. Applications to Dexta are taking from four to six weeks to process, while applications to Royal and Sun Alliance are taking 15 days. Royal Sun Alliance has 700 outstanding applications. (Copy of more detailed File Note on the issue available)

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GST is handicapping the set up of the bailout company. Mr Dallas Booth said HCS had a team of lawyers working on GST issues, but "it is just ugly". Mr Dean Carrigan, Senior Associate from Allen, Allen and Hemsley, lawyers advising HCS, said GST "does not work" in relation to the Government's HCS structure, and indicated that resolving GST issues was one of the matters which had been delaying the finalisation of legal agreements and the making of payments to HIH

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policyholders.

The Provisional Liquidator, Mr Tony McGrath, said the next step for HIH would probably be to proceed to liquidation, sooner rather than later. This would be followed by a scheme of arrangement. In response to a question from Kelvin Thomson he said one of his tasks would be to seek to establish a date at which HIH had become insolvent. Mr Thomson said this would be relevant to the liquidator's potential capacity to claw back bonuses paid to executives and directors made when a company was insolvent and where the payment constituted an unfair preference.

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Mr Alan Mason from the Insurance Council of Australia had a number of issues regarding the future of the insurance industry that he wanted to pursue before the Royal Commission, and was sceptical that the Commission's work could be done by 30 June.

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2000 cheques written by HIH on 14 March had been dishonoured or cancelled following the company's collapse. ●

Allianz Claims General Manager, Jenny Lambert, said some 11,000 claims from HIH policyholders relating to the period before the Allianz joint venture were now in the hands of the provisional liquidator.

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Allianz has 1500 former HIH staff and, under the HCS bailout arrangements, some of these could be processing claims for bailout funds from HIH policyholders. ●

The management of the claims is being split into three pools, with Allianz handling personal lines, QBE handling liability insurance, and Royal and Sun Alliance handling salary continuance. ●

A number of issues are still to be resolved, such as what happens to someone with a claim against a policyholder who dies, and the definition of 'not-for-profit' organisations, eg are licensed clubs included?

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Mr Thomson said Labor's principal concern with the HCS structure was the fact that external audits were to be conducted by KPMG, which is also the HIH liquidator.

"The principal task of HCS involves spending $640 m of taxpayers' funds. As such, the external audit should be carried out by the Commonwealth Auditor-General." Authorised by Geoff Walsh, 19 National Circuit, Barton ACT 2600.

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