HIH Insurance

Corporate failure of HIH Insurance
HIH Insurance corporate logo
Inquiries	Royal Commission into HIH Insurance
Convicted	Ray Williams Rodney Adler Brad Cooper

HIH Insurance was Australia's second largest insurance company. It was placed into provisional liquidation on 15 March 2001. The demise of HIH is considered to be the largest corporate collapse in Australia's history, with liquidators estimating that HIH's losses totalled up to $5.3 billion. Investigations into the cause of the collapse have led to conviction and imprisonment of a handful of members of HIH management on various charges relating to fraud.

History

HIH Insurance was founded in 1968 by Ray Williams and Michael Payne. Known as "M W Payne Underwriting Agency Pty Ltd", it was acquired in 1971 by British company CE Heath PLC. Ray Williams was appointed to the board of CE Heath in 1980. The business operations of CE Heath were subsequently transferred to "CE Heath International Holdings Ltd" in 1989 with CE Heath PLC retaining 90% ownership of CE Heath International Holdings. In 1992, CE Heath International Holdings floated on the Australian Stock Exchange.

In 1995, CE Heath International Holdings acquired CIC Insurance Group. The remaining 48% holding that CE Heath PLC maintained in CE Heath International Holdings was sold to a subsidiary of CIC Insurance Group called CIC Holdings Limited. CIC Holdings increased its share in CE Heath International Holdings to 50% and CIC Holdings was purchased by Winterthur Swiss Insurance Company (Winterthur Swiss). In May 1996, CE Heath International Holdings changed its name to HIH Winterthur.

Through 1997 and 1998, HIH Winterthur acquired a large number of companies both in Australia and globally, including Colonial Ltd General Insurance's operations in Australia and New Zealand, Solart in Argentina and Great States Insurance Co in the United States. Most notably, however, HIH acquired the large Australian insurance company FAI Insurance, whose chief executive Rodney Adler became a director of HIH in 1999. Winterthur Swiss sold its 51% share in HIH Winterthur to the public and HIH changed its name to HIH Insurance Ltd.

Collapse

With $8 billion in assets, HIH was considered one of Australia's largest insurance firms. However, after offsetting its assets with debts and potential insurance claims against the company, HIH was left, on paper, with net assets of only $133 million. McGrath & Riddell described HIH's solvency as "marginal" and stated in their report that "an extremely small movement (just 1.7%) in the value of assets could move the balance sheet into net asset deficiency." That is, even the slightest setback would cause the company to become insolvent.

In 2001, the board appointed a provisional liquidator to take control of HIH and 17 of its controlled entities. The board hoped this would give HIH time to review its operations and assess its financial position. On the same day, HIH was to announce its first-half result for the six months to 31 December 2000. The announcement had already been delayed once and rumours suggested that HIH's first-half result was a loss of $100 million. This figure quickly ballooned to $200 million, and then $300 million. Although the result was never announced, when McGrath announced his appointment as provisional liquidator he estimated that HIH had lost over $800 million over the six months to 31 December 2000. He attributed the HIH company failures to rapid expansion, unsupervised delegation of authority, extensive and complex reinsurance arrangements, under pricing, reserve problems, false reports, reckless management, incompetence, fraud, greed, and self–dealing.

HIH insurance is currently in run–off, which means it is managing its outstanding claims and not writing any new business. This process could take several years to complete; some have suggested as long as 10 years.

The demise of HIH was the largest corporate failure in Australia's history. HIH liquidators estimated that the company collapsed with losses totalling up to $5.3 billion.

Royal Commission

Following the failure of HIH, Prime Minister John Howard announced that a Royal Commission would be established to inquire into the company's collapse. Justice Neville John Owen headed the Royal Commission, which tabled its report to Parliament on 16 April 2003. The findings of the Royal Commission are available on the HIH Royal Commission web site.

Criminal charges and sentences

Adler pleads guilty

Former HIH director Rodney Adler was sentenced on 14 April 2005 to four-and-a-half years' jail, with a non-parole period of two-and-a-half years. Adler's jail sentence came after pleading guilty on 16 February 2005 to four criminal charges, which included:

two counts of disseminating information knowing it was false
one count of obtaining money by false or misleading statements
one count of being intentionally dishonest and failing to discharge his duties as a director in good faith and in the best interests of the company

The sentence was a lenient one, since the judge accepted the defendant's plea of mitigation, citing that he had not sold any of his own shares, or personally benefitted from his actions.

Stock market manipulation

Criminal charges for stock market manipulation were laid against Adler after an investigation by the Australian Securities & Investment Commission (ASIC) into the purchase of HIH shares by Pacific Eagle Equities Pty Ltd, an Adler-controlled company. Pacific Eagle Equities purchased 1,873,661 HIH shares on 15 June 2000, 951,339 HIH shares on 16 June 2000 and 425,000 HIH shares on 19 June 2000 (ASIC, 2002) with HIH funds after Adler persuaded Ray Williams to shift $10 million from HIH to Pacific Eagle Equities. Adler's defence team negotiated with the Commonwealth Director of Public Prosecutions to drop charges of stock market manipulation in exchange for a guilty plea to other charges (Elias, 2005).

Disseminating false information

Adler attempted to induce investors to purchase HIH shares by telling a finance journalist on 19 June 2000 and 20 June 2000 that he had purchased 1,873,661 HIH shares on 15 June 2000 and 951,339 HIH shares on 16 June 2000 for himself (ASIC, 2002). Adler also told the journalist that he believed the share price for HIH was undervalued and presented an opportunity for a quick profit (Elias, 2005).

Intentionally acting dishonestly =

In October 2000 a company in which Adler had an interest, Business Thinking Systems (BTS), was in financial trouble. Adler sought a $2 million investment from HIH. Williams had been told by Adler that the company had raised $2.5 million, which it had not, and that Adler was prepared to invest $500,000, which he had no intention of doing, if HIH invested $2 million in BTS. HIH executive John Ballhausen was then told by Adler that he had invested the $500,000. The HIH board discussed and approved the $2 million investment in BTS in a November 2000 meeting. Adler attended the meeting and failed to disclose his financial interest in the business. Nor did he disclose his knowledge of its financial affairs (Elias, 2005).

On 13 October 2007 at 8.30am, Adler was released from the St Heliers Correctional Centre in the Upper Hunter Valley on parole, after serving two-and-a-half years of his sentence. However, in November 2007, he faced court in a NSW civil case related to bonuses he recommended for executives of the failed telco OneTel. Adler was on OneTel's remuneration committee.^[1]

Other charges

Former HIH Insurance chief executive Ray Williams was sentenced to a minimum of two years and nine months imprisonment, with a maximum term of four years and six months. On 14 January 2008, Ray Williams was released from jail after serving just under three years for his role in Australia's largest corporate collapse.^[2]

Sydney businessman Brad Cooper was sentenced in the Supreme Court on 23 June 2006, after a jury found him guilty on 13 charges, relating to bribes he paid a senior HIH official to push through false claims in the months before the insurer's collapse.^[3] He received an eight-year jail sentence with an order to spend at least five years in jail.^[4] Cooper reportedly admitted to having a cocaine addiction during his high-flying days when he worked as a motivational speaker and as a salesman. At the time he entered jail in October 2005, Australian media stated he reported to prison officials that he had further addictions to painkillers, dex-amphetamines, and was on a valium addiction program.^[5]^[6] Prior to his arrest, he had begun a relationship with Sascha Ricci Griffin, and she continued their relationship with visits to him in court and jail, until his release in late 2010.^[7]^[8]^[9] Cooper filed an appeal from jail against the severity of his sentence, but the NSW Court of Criminal Appeal dismissed his application in March 2009.^[10]

On 21 November 2008 it was reported that a charge had been dropped against former HIH chairman Geoffrey Cohen a week before it was due to be heard in Sydney' Downing Centre Local Court. The decision by the Commonwealth Director of Public Prosecutions not to proceed followed a similar decision in February 2008 relating to a more serious charge. Both were laid in 2005. Both abandoned charges related to Mr Cohen's address to shareholders at the HIH annual general meeting in December 2000. In the second charge, the Australian Securities and Investments Commission alleged Mr Cohen did not take reasonable steps to ensure that the information he gave to the shareholders at annual meeting was not misleading about a joint venture between Allianz Australia Ltd (Allianz) and HIH. The first charge alleged Mr Cohen knowingly misled investors.^[11]

References

↑ Muswellbrook, NSW (13 October 2007). "Rodney Adler released from jail". Melbourne: Fairfax.
↑ "HIH founder released from prison". News Limited (Herald Sun). 14 January 2008. Archived from the original on 5 March 2008. Retrieved 2008-01-14.
↑ http://www.asic.gov.au/asic/asic.nsf/byheadline/06-210+Bradley+Cooper+sentenced+to+eight+years%E2%80%99+jail?openDocument
↑ "White collar criminals urged to heed Cooper sentence". News Online (Australian Broadcasting Corporation). 23 June 2006. Retrieved 2006-06-23.
↑ "Brad Cooper, last of the HIH three, free today". The Sydney Morning Herald. 30 October 2010.
↑ "HIH fraudster walks free". The Sydney Morning Herald. 31 October 2010.
↑ http://www.dailytelegraph.com.au/former-high-flyer-brad-is-uncooped/comments-fn6bm6am-1225945569948
↑ "HIH fraudster walks free". The Sydney Morning Herald. 31 October 2010.
↑ http://www.dailytelegraph.com.au/news/sydney-nsw/pennies-earned-for-life-after-jail-for-hih-conman-brad-cooper/story-e6freuzi-1225945341977
↑ http://www.asic.gov.au/asic/asic.nsf/byheadline/06-210+Bradley+Cooper+sentenced+to+eight+years%E2%80%99+jail?openDocument
↑ "Charges dropped against HIH chairman". Melbourne: Fairfax. 21 November 2008.

External links

HIH Insurance Creditor Information Website

Business in Australia

Institutions	Australian Competition and Consumer Commission Australian corporate law Australian Prudential Regulation Authority Australian Securities and Investments Commission Australian Securities Exchange Australian Takeovers Panel S&P/ASX 20 S&P/ASX 50 S&P/ASX 200 S&P/ASX 300 Constitution of Australia, 1901 (Cth) corporations power Economy of Australia

Business associations	Australian Chamber of Commerce and Industry Australian Hotels Association Australian Industry Group Business Council of Australia Minerals Council of Australia National Farmers' Federation

S&P/ASX 50 companies (alpha–sorted)	AGL Energy Amcor AMP APA Asciano Aurizon ANZ ASX BHP Billiton Brambles Caltex Australia Coca-Cola Amatil Commonwealth Bank Computershare Crown CSL Dexus Federation Centres Goodman GPT Incitec Pivot IAG James Hardie Lend Lease Macquarie Group Medibank Mirvac National Australia Bank Newcrest Mining Oil Search Orica Origin Energy QBE Insurance Ramsay Health Care Rio Tinto Santos Scentre Seek Limited Sonic Healthcare South32 Stockland Suncorp Sydney Airport Holdings Telstra Transurban Wesfarmers Westfield Westpac Woodside Petroleum Woolworths

Other notable companies	Adelaide Bank Akubra Alumina AXA Asia Pacific Bendigo Bank BlueScope Steel Caltex Challenger CIMIC Cochlear Coles Fairfax Media Fosters Holden James Hardie JB Hi-Fi John Holland Macquarie Radio Metcash National Storage News Corp Australia Nine Entertainment Optus RM Williams Seven West Media Southern Cross Austereo St George Bank Star Entertainment Group Vero Insurance Zinifex

Corporate controversies and collapses	Ansett Australia Bridgecorp Holdings Firepower International Great Southern Group James Hardie asbestos controversy Rodney Adler, Brad Cooper, Ray Williams and the collapse of HIH Insurance King Brothers Opes Prime Pasminco becomes Zinifex Poseidon bubble Price fixing in the packaging industry Rene Rivkin and the Offset Alpine fire Jodee Rich and One.Tel Network Ten and its cost-cutting measures Christopher Skase and Qintex Storm Financial WA Inc Wayne Mansfield Westpoint Timbercorp

Notable individuals	Peter Abeles Warren Anderson Reg Ansett Alan Bond Robert Champion de Crespigny Lang Hancock Janet Holmes à Court Robert Holmes à Court Rod Eddington Andrew Forrest David Gonski Joseph Gutnick Margaret Jackson Gail Kelly Frank Lowy David Morgan Hugh Morgan Lachlan Murdoch James Murdoch Rupert Murdoch Sidney Myer Jacques Nasser Frank Packer James Packer Kerry Packer Clive Palmer Arvi Parbo Gina Rinehart Dick Smith Kerry Stokes Ziggy Switkowski Harry Triguboff Malcolm Turnbull Solomon Trujillo Nicholas Whitlam

Royal Commissions of the Commonwealth of Australia

1901–1920

1901–1910

1901–1905	to inquire into and report upon the arrangements made for the transport of troops returning from service in South Africa in the S.S. "Drayton Grange" (1902) on sites for the seat of government of the Commonwealth (1903) on the Bonuses for Manufactures Bill (1903–1904) on the butter industry (1904–1905) on the Navigation Bill (1904–1906) on the affray at Goaribari Island, British New Guinea, on the 6th of March, 1904 (1904) on customs and excise tariffs (1904–1907) on old-age pensions (1905–1906) on the tobacco monopoly (1905–1906)

1906–1910	on ocean shipping service (1906) British New Guinea—Royal Commission of inquiry into the present conditions, including the method of government, of the Territory of Papua, and the best means of their improvement (1906–1907) on secret drugs, cures, and foods (1906–1907) on postal services (1908–1910) on insurance (1908–1910) on stripper harvesters and drills (1908–1909) on Tasmanian customs leakage (1910–1911)

1911–1920

1911–1912	on the sugar industry (1911–1912) on the pearl-shelling industry (1912–1916) on the fruit industry (1912–1914)

1913–1914	to inquire into certain charges against Mr. Henry Chinn (1913) on Northern Territory railways and ports (1913–1914) on powellised timber (1913–1914) upon the Commonwealth electoral law and administration (1914–1915) on meat export trade (1914) on food supplies and trade and industry during the war (1914)

1915–1916	on mail services and trade development between Australia and the New Hebrides (1915) on Liverpool Military Camp, New South Wales (1915) on the charges made by D. L. Gilchrist concerning the construction of the western section of the Kalgoorlie to Port Augusta Railway (1916) to inquire into and report upon certain charges against the Administrator and other officers of the Northern Territory Administration (1916) on Federal Capital Administration (1916–1917)

1917–1918	on Java and the East Indies, Singapore and the Straits Settlements (1917–1918) on Navy and Defence Administration (1917–1919) on the war—Australian Imperial Force. Report as to number of members fit for active service and number of reinforcements and enlistments required (1918) on Public Service administration, Commonwealth of Australia (1918–1920) upon the public expenditure of the Commonwealth of Australia with a view to effecting economies (1918–1921) on taxation of leasehold estates in Crown lands (1918–1919) on the basic wage (1919–1920)

1919–1920	on the sugar industry (1919–1920) on industrial troubles on Melbourne wharfs (1919–1920) on late German New Guinea (1919–1920) to inquire into complaints by the munition worker passengers to Australia by the transport "Bahia Castillo" (1919) on Northern Territory Administration (1919–1920) on taxation (1920–1923) on the increase of the selling price of coal (1920)

1921–1940

1921–1930

1921–1922	on the matter of uniform railway gauge (1921) on pillaging of ships' cargoes (1921) on Cockatoo Island Dockyard (1921) upon the loyalty to the British Crown of German Nationals resident in Australia whose property is liable to a charge created by the Treaty of Peace Regulations made under the Treaty of Peace (Germany) Act 1919–1920 (1921)

1923–1924	on the circumstances attending the supposed loss at sea of the steamship "Sumatra" (1923) in connection with sugar purchases by the Commonwealth through Mr. W. E. Davies in September and October, 1920 (1923–1924) in connection with joinery supplied to the War Service Homes Commissioner in March, 1920 (1923–1924) on the Navigation Act (1923–1925) on national insurance (1923–1927) on the method for determining the unimproved value of land held under Crown leases (1924–1925) on the assessment of war service disabilities (1924–1925) to inquire into extracts from the reports in Parliamentary Debates of speeches made by Mr. Scullin in the House of Representatives on 7 and 19 August 1924, in relation to land tax matters (1924–1925) on the finances of Western Australia, as affected by Federation (1924–1925)

1925–1926	on health (1925–1926) on Norfolk Island affairs (1926) on certain matters in connexion with the British Phosphate Commission (1926)

1927–1928	on wireless (1927) on the Edie Creek (New Guinea) leases (1927) on the Moving Picture Industry in Australia (1927–1928) on the Constitution (Australia)

1929–1930	on the coal industry (1929) to inquire into allegations affecting members of the Parliamentary Joint Committee of Public Accounts in connexion with claims made by broadcasting companies against the Commonwealth Government (1930)

1931–1940

1931–1935	on Jacob Johnson (1931) on performing rights (1932–1933) on taxation (1932–1934) on mineral oils and petrol and other products of mineral oils (1933–1935) on the wheat, flour and bread industries (1934–1936) to inquire into and report upon the circumstances associated with the retirement of Lieutenant-Commander Alan Dermot Casey from the Royal Australian Navy (1934) to inquire into the monetary and banking systems at present in operation in Australia (1935–1937)

1936–1940	on doctors' remuneration for national insurance service and other contract practice (1938) regarding the contract for the erection of additions to the General Post Office, Sydney (1939)

1941–1960

1941–1950	to inquire into and report upon the contract or contracts with Abbco Bread Co. Pty. Limited for the supply of bread to the Department of the Army, and other matters (1941) to inquire into circumstances under which certain public monies were used and to whom, and for what purposes such moneys were paid (1941) an inquiry into a statement that there was a document missing from the official files in relation to "The Brisbane Line" (1943) to inquire into and report upon certain transactions of the Sydney Land Sales Control Office, and the Canberra Land Sales Control Office of the Treasury (1947) to inquire into certain transactions in relation to timber rights in the Territory of Papua-New Guinea (1949)

1951–1960	on the Port Augusta to Alice Springs Railway (1951–1952) on television (1953–1954) on espionage (1954–1955)

1961–1980

1961–1970

on alleged improper practices and improper refusal to co-operate with the Victoria Police Force on the part of persons employed in the Postmaster-General's Department in Victoria in relation to illegal gambling (1962–1963)
on loss of HMAS Voyager (1964)
on the statement of Lieutenant Commander Cabban and matters incidental thereto (1967–1968)
into exploratory and production drilling for petroleum in the area of the Great Barrier Reef (1970–1975)

1971–1980

1971–1975	Aboriginal Land Rights Commission (1973–1974) Australian Post Office Commission of inquiry (1973–1974) of Inquiry into land tenures (1973–1976) on petroleum (1973–1976) of Inquiry into the maritime industry (1973–1976) Independent Inquiry into Frequency Modulation Broadcasting (1973–1974) of Inquiry into transport to and from Tasmania (1974–1976) on Australian Government Administration (1974–1976) on human relationships (1974–1978) on intelligence and security (1974–1977) into alleged payments to maritime unions (1974–1976) to inquire into and report upon certain incidents in which Aborigines were involved in the Laverton area (1975–1976) on Norfolk Island (1975–1976)

1975–1980	of Inquiry into drugs (1977–1980) of Inquiry into matters in relation to electoral redistribution Queensland, 1977 (1978) of Inquiry into the efficiency and administration of hospitals (1979–1981) of Inquiry into the viability of the Christmas Island phosphate industry (1979–1980) on the activities of the Federated Ship Painters and Dockers Union (1980–1984)

1981–2000

1981–1990

1981–1985	of Inquiry into Drug Trafficking (1981–1983) into the activities of the Australian Building Construction Employees' and Builders Labourers' Federation (1981–1982) into Australian meat industry (1981–1982) of Inquiry into the activities of the Nugan Hand Group (1983–1985) on the use and effects of chemical agents on Australian personnel in Vietnam (1983–1985) on Australia's security and intelligence agencies (1983–1985) of Inquiry into compensation arising from social security conspiracy prosecutions (1984–1986) into British nuclear tests in Australia (1984–1985) of inquiry into alleged telephone interceptions (1985–1986)

1986–1990	of inquiry into Chamberlain convictions (1986–1987) into grain storage, handling and transport (1986–1988) into Aboriginal Deaths in Custody (1987–1991)

1991–2000

of Inquiry into the Australian Secret Intelligence Service (1994–1995)
of Inquiry into the leasing by the Commonwealth of accommodation in Centenary House (1994)
of Inquiry into the relations between the CAA and Seaview Air (1994–1996)

2001–present

2001–2010	into HIH Insurance (2001–2003) into the Building and Construction Industry (2001–2003) to Inquire into the Centenary House Lease (2004) Inquiry into certain Australian companies in relation to the UN Oil-For-Food Programme (2005–2006) Equine Influenza Inquiry (2008)

2011–present	into Institutional Responses to Child Sexual Abuse (2013–present) into the Home Insulation Program (2013–present) into trade union governance and corruption (2014–present)

Royal Commissions Act 1902 (Cth)

This article is issued from Wikipedia - version of the Saturday, February 13, 2016. The text is available under the Creative Commons Attribution/Share Alike but additional terms may apply for the media files.