You have received or are eligible to receive or access this Explanatory Statement because the Company believes that you may be a Scheme Creditor of the Company and are being asked to vote on the Scheme.

This Explanatory Statement is intended to help you to decide how to vote on the resolution which needs to be passed at the Scheme Meeting to allow the Scheme to be implemented, and to provide instructions as to how to register to vote at the Scheme Meeting.

On 29 May 2023, the Board voluntarily resolved to place the Company into ‘run-off’. This means that the Company will not issue any new or renewal policies for any insurance business. The Company has been unable to secure sufficient capital contributions from shareholders to enable its business to continue operations in line with regulatory requirements. Specifically, the Company is no longer able to satisfy the minimum prudential capital requirements for a general insurer. The Company remains an APRA authorised insurer, and as such will continue to manage claims from existing policyholders using its capital reserves to conduct an orderly run-off of its business.

As part of the orderly run-off of the business, the Company is now proposing to put in place a scheme of arrangement under Part 5.1 of the Act.

The proposed Scheme is designed to ensure that claims continue to be managed in as orderly a manner as possible whatever the financial position of the Company.

A scheme of arrangement is a Court approved procedure under Part 5.1 of the Act. A scheme of arrangement of the kind proposed by the Company is a compromise to take effect between a company and certain of its creditors (in this case, all Scheme Creditors) which becomes legally binding on the Company and on all Scheme Creditors to which it applies after it becomes Effective.

Refer to section 2 in the Explanatory Statement for further information.

All policyholders and other persons who have, or may in the future have, a claim against the Company under or in connection with an Insurance Contract will be affected by the Scheme. This excludes all Workers’ Compensation policies (see “Whose rights will not be altered under the Scheme” below).

The Scheme will not impact any previous settlements you have entered into with the Company, unless the settlement has not yet been paid or you expressly agree otherwise. This includes any arrangements (including the payment or settlement of claims) in the period before the Scheme becomes Effective.

Refer to section 6 of the Explanatory Statement for further information.

The Scheme does not apply to creditors who do not have Scheme Claims. These creditors include:

• employees of the Company in respect of their claims for salaries and other benefits;
• other service providers, such as trade creditors, of the Company in respect of their costs;
• creditors with claims arising in respect of the costs of implementing the Scheme;
• persons with actual or potential claims against the Company in respect of Workers’ Compensation policies written by the Company; and
• persons with claims against a person insured under an Insurance Contract, but who do not have a direct right of action against the Company (e.g. where conferred on them by statute or otherwise, for example, where the party insured by the Company has died, been deregistered, or cannot be found.).

Creditors of the Company who have claims that are fully and finally settled prior to the Effective Date or Creditors of the Company who have claims that are not Scheme Claims will have their claims dealt with (and, if valid, paid in full) by the Company in the usual way outside of the Scheme. Such creditors are not entitled to vote on the Scheme.
Creditors’ claims not subject to the Scheme will be taken in to account in full in assessing the application of any Payment Percentage.
The Scheme is a creditor’s scheme and does not apply to shareholders. Shareholders of the Company will only receive a return of capital, dividend or distribution after all Scheme Liabilities have been paid in full and the Company is lawfully able to make such payments. See section 13.14(f) of the Explanatory Statement.

Policyholders in respect of Workers’ Compensation policies issued by CCI have special rights and protections under applicable legislation in the relevant states and territories, including rights of security in respect of policies issued in New South Wales (which the relevant State Authority may require be increased from time to time). These special rights and protections would also apply in a winding up of CCI.

On that basis, and in recognition of these special rights and protections, Workers’ Compensation policies are excluded from the Scheme and claims under Workers’ Compensation policies will continue to be managed by the Company in the usual way and paid in full outside of the Scheme.

Any increase in or additional security granted to the relevant State Authority would decrease Scheme Assets available for distribution to Scheme Creditors, and this may result in a decrease in Payment Percentages.

Refer to section 3 of the Explanatory Statement for further information.

In a winding up, the Company will be prevented from carrying on business except for the limited purposes of the winding up.

All policyholders who have rights to claim under Insurance Contracts written by the Company would have their rights converted to a right to prove in the Company’s winding up. The Company or its liquidator may have certain rights to cancel or disclaim certain Insurance Contracts under statute.

All policyholders and other creditors would be required to lodge proofs of debt in respect of debts payable by, and all claims against, the Company (being debts or claims the circumstances giving rise to which occurred before the commencement of the winding up).

Net amounts received by the Company in respect of reinsurances would be distributed to policyholders in priority to other creditors in a winding up.
The proofs of debt would be adjudicated by the liquidator. Where the debt or claim has an uncertain value (such as contingent claims and potential future claims under existing insurance policies), the liquidator would be required to make an estimate of its value or refer the question of its value to the Court.
The Company’s assets would then be applied in satisfaction of the Company’s liabilities in accordance with the statutory priorities in a winding up. The available assets will likely be reduced in a winding up as some of the Company’s reinsurances are subject to cancellation in a winding up.

The liquidator may only pay a dividend to a creditor whose debt or claim has been admitted by the liquidator at the date of the distribution of dividends (and prior to doing so must give notice of their intention to declare a dividend to creditors and to ASIC).

Workers’ compensation policyholders are expected to be paid in full in a winding up (assuming there are sufficient funds) due to the rights afforded to them under legislation in the various States and Territories. The Court has no power to alter the way claims are dealt with as part of a winding up.

The Scheme has been designed to ensure that claims continue to be handled in as orderly a manner as possible.
The Scheme, if approved, will consist of two key periods:


1. first, the Initial Scheme Period. The Initial Scheme Period starts on the date that the Scheme becomes Effective and ends on the date that an event, called a Trigger Event, occurs (the Trigger Date); and

2 Second, the Reserving Period. The Reserving Period starts on the Trigger Date and ends on the date that the Scheme terminates.

During the Initial Scheme Period, the Company will operate on the same basis as it does now. That means that Scheme Creditors can make claims under or in connection with a relevant Insurance Contract in the same way as they do now (please see the relevant Insurance Contract or https://catholicinsurance.org.au/ for information about how to do this). The Company will assess if the Scheme Creditor’s claim is valid and, if valid, the amount payable by the Company in respect of it (such amount being an Established Scheme Liability). The Company will then pay any such Established Scheme Liability in full in accordance with the terms as set out in the relevant Insurance Contract.

During the Reserving Period, Scheme Creditors will continue to be entitled to make an insurance claim under their Insurance Contract in the same way as they do now and the Company will assess that claim. However, where the Company determines that a Scheme Creditor has an Established Scheme Liability, the Company will not pay it in full at that time. Instead, it will pay a percentage (called the Payment Percentage) of that Established Scheme Liability. Scheme Creditors would be accountable for meeting any difference between the Payment Percentage of that Established Scheme Liability and the amount of any claim against them. If it is determined at one or more later dates that it has sufficient funds to do so, the Company may pay further percentages of that Established Scheme Liability after it has made the initial payment. The relevant percentages will be determined as described in section 13.8 below.

The Payment Percentage must be increased so that Scheme Creditors are paid to the maximum extent possible having regard to the Established Scheme Liabilities, Non-Scheme Claims and Scheme Costs of the Company. Scheme Creditors must have been paid in full before capital is returned to shareholders or dividends are paid.

It is also possible that Payment Percentages may be decreased over time. If Payment Percentages are reduced after a payment has been made to a Scheme Creditor, that Scheme Creditor will not be required to repay any amounts to the Company. However, the Company may deduct amounts from any subsequent payments to that Scheme Creditor to reflect what that Scheme Creditor should have received in respect of that earlier payment had it been made at the reduced Payment Percentage.

It is important to note that there can be no guarantee that the amount of Scheme Assets retained will be sufficient to pay Scheme Creditors in full. A loss of or decrease in expected Scheme Assets including as a result of a State Authority requiring the grant of security, or an increase in Scheme Claims beyond what is expected, may result in a need to decrease the Payment Percentage for future payments. However, any such risk may be reduced by the prudent setting of the Payment Percentages by the Scheme Advisers.

With the approval of a Special Meeting, the Reserving Period may be brought to an end early by valuing all remaining actual and contingent or prospective claims and distributing all remaining assets to Scheme Creditors (as a lump sum (with the result that Scheme Creditors have no further claims)) — see “What is the finalisation mechanism and why is it included?” below.

Further details about how the Scheme will work and the effect that the Scheme will have on the management of claims are set out under the heading “How does the Scheme work?” at section 13 below. Illustrative examples of how the Scheme may work in a Reserving Period in relation to Scheme Claims are set out in Appendix 11 of the Explanatory Statement.

If no Trigger Event occurs, the Company’s intention is to settle and/or pay all claims in accordance with the usual course of business.
If a Trigger Event occurs, and a Payment Percentage is set, claims subject to the Scheme will be paid at the Payment Percentage and it is possible that the Company will ultimately pay only a portion (rather than the whole) of Established Scheme Liabilities.

The Company sees having a Scheme in place before circumstances giving rise to a Trigger Event occur as the most prudent way of allowing the Company to continue to pay claims in full during the Initial Scheme Period and to the extent possible in the Reserving Period without material disruption. The Scheme should provide the Company with the certainty that, if necessary in the future, claims (or a percentage thereof) are paid as fully and as quickly as possible, regardless of the Company’s financial position.

Payments previously made during the Initial Scheme Period or during the Reserving Period (if applicable) will not be impacted if a lower Payment Percentage is subsequently set. However, the Company may deduct amounts from any subsequent payments to that Scheme Creditor to reflect what that Scheme Creditor should have received in respect of that earlier payment had it been made at the reduced Payment Percentage.

With the approval of a Special Meeting, the Reserving Period may be brought to an end early by valuing all remaining actual and contingent or prospective claims and distributing all remaining assets to Scheme Creditors (as a lump sum (with the result that Scheme Creditors have no further claims)) — see “What is the finalisation mechanism and why is it included?” below.

During the Initial Scheme Period it is not anticipated that there will be any delays in the handling and settlement of claims, which will continue to be managed and paid in the normal course.

If a Trigger Event occurs, there would be a short period of delay (up to 90 days) to allow the Scheme Advisers to set appropriate Payment Percentages. Once Payment Percentages are set, amounts will be paid within 60 days of the relevant Established Scheme Liabilities being determined. Under the Scheme, payments to Scheme Creditors would be likely to be made significantly earlier than if the Company entered into formal insolvency proceedings.

As part of the Scheme, Scheme Creditors will be prevented from taking certain action (such as suing the Company) where they are seeking to receive more than they would otherwise be entitled to receive under the Scheme. This helps to ensure that the Scheme is administered in an orderly fashion, and that assets are not distributed to creditors unfairly as a result of separate action taken by those creditors.

The stay does not prevent Scheme Creditors from:

• lodging an insurance claim with the Company under an Insurance Contract in accordance with its terms; or
• taking action against the Company to recover amounts owed under the Scheme where the Company has failed to make payment as required by the Scheme.

See section 8 of the Explanatory Statement for further information.

See section 9 of the explanatory statement for further information.

Stephen Longley and Michael Fung of PwC are the proposed Scheme Advisers. Details of their experience are set out in Appendix 4 of the Explanatory Statement.

See section 21 for further detail on role of Scheme Advisers.

The Payment Percentages will be determined by the Scheme Advisers. In setting a Payment Percentage, the Scheme Advisers will consult with the Creditors’ Committee and consider a range of factors including current and projected levels of assets of the Company relative to its liabilities, after reserving for Non- Scheme Claims and Scheme Costs and recognising any specific rights that Scheme Creditors or State Authorities may have over assets, for example, if it is determined that certain reinsurance amounts should be applied to certain insurance liabilities.

This consultation will require the Scheme Advisers to take account of the views expressed by the Creditors’ Committee in good faith. However, the Scheme Advisers will not be bound by those views and the Creditors’ Committee will not have approval rights in respect of the Payment Percentage.

The occurrence of a Trigger Event must be notified to the Scheme Creditors as soon as practicable. This may be notified by email, newspaper advertisement or by placing notice on the Company’s website.

The costs of the Scheme Advisers, like all other costs in relation to the operation of the Scheme, will be met out of the assets of the Company, subject to the terms of the Scheme.

See section 13.16 of the Explanatory Statement for further detail on the payment of Scheme Costs.

Although it is not usual for a committee of creditors to be formed when a company is solvent, such a committee, required to act in the best interests of Scheme Creditors as a whole, will be established upon the Scheme becoming Effective.

This Creditors’ Committee will play an important role in monitoring the implementation of the Scheme and, in particular, provide the Directors, and after a Trigger Event, the Scheme Advisers with views on important issues.

The Creditors’ Committee will also consider and, if thought fit, approve the remuneration of the Scheme Advisers during the Reserving Period.

In this case an informal initial committee of Scheme Creditors was formed prior to the Scheme being proposed in order to consult with relevant creditors on the Scheme proposal and it is proposed that certain members of this informal committee will become members of the Creditors’ Committee that will continue after the Scheme becomes Effective.

The Creditors’ Committee consists of Michael Cooper, Christopher Mackenzie, John Loy, Tim O'Leary, Geoff Officer, David Penney, Alison Brown and Andrea Fogarty.

See section 22 of the Explanatory Statement for further detail on role of Creditors’ Committee.

Scheme Creditors are encouraged to take an active interest in the Scheme proposal and any queries should be directed to the Company by email at scheme@ccinsurance.org.au.

All Scheme Creditors with unpaid, outstanding or potential future claims as at the Scheme Meeting Date are entitled to vote on the Scheme proposal. If you have a Scheme Claim that is fully and finally settled prior to the Scheme Meeting Date, such that you no longer have a Scheme Claim for that amount against the Company, you will not be entitled to vote on the Scheme unless you have other claims or potential future claims.

Scheme Creditors must contact the Company by email at scheme@ccinsurance.org.au to obtain login credentials to the Creditor Portal by 5.00pm on 9 October 2023 (if they have not yet received access to the Creditor Portal), Scheme Creditors are then required to register as a Scheme Creditor via the Creditor Portal by 5.00pm on 16 October 2023, and then complete their Proof of Debt and proxy details (if relevant) through the Creditor Portal as soon as possible, and no later than 5.00pm on 25 October 2023. See section 2 for details as to how to register and vote.

In summary, the value of each Scheme Creditor’s vote at the meeting of Scheme Creditors should represent a just estimate of the value of its actual or potential Scheme Claim; it should be noted that the value of the Scheme Claim is for voting purposes only and will not be relevant for the purposes of establishing and determining Scheme Claims under the Scheme. Liability for actual Scheme Claims will always be established at the time payment is due under the Scheme. The Valuation Principles to be applied by the Company in making a just estimate are set out in Appendix 8 of the Explanatory Statement.

See section 22 for further detail on the role of Creditors’ Committee.

During the Reserving Period Scheme Creditors are entitled to receive, free of charge, an annual report on:

• the conduct of the affairs of the Company and the operation of the Scheme during the period since the last such report was prepared; and
• if the Trigger Date has occurred prior to delivery of that report, whether the Scheme Advisers recommend a Special Meeting should be convened to approve the finalisation mechanism described in “What is the finalisation mechanism and why is it included?” below

The Scheme will become Effective once it has been approved by the Court and a copy of the order of the Court lodged with ASIC. A high level outline of the Court approval process is as follows:

• On the First Court Date, the Court made procedural orders in relation to holding a meeting for Scheme Creditors to vote on the proposed Scheme.
• The Scheme is then voted on at the Scheme Creditors’ meeting which will take place virtually at 12.00pm on 31 October 2023 on Webcast.
• Once the results of the vote at the Scheme Creditors’ meeting are known the Company will then present those results to the Court at the Second Court Hearing, currently scheduled to be held at 9.30am on 2 November 2023.
• At the Second Court Hearing, the Company will apply for final approval of the Scheme. The Court will consider the outcome of the meeting, and will hear from any Scheme Creditor who has filed a Form 4 Notice of Appearance and wishes to be heard. The Court may also hear from any interested party who has filed a Form 4 Notice of Appearance and seeks leave to be heard.

Assuming that the Scheme is duly approved by Scheme Creditors and the Court, and filed with ASIC, and therefore becomes Effective, Scheme Claims will be managed in the manner outlined above.

The value to be attributed for voting purposes to a Scheme Creditor’s Scheme Claim will be the amount of the claim subject to any adjustment by Mr Tim Farren as Returning Officer of the meeting. If the Scheme Creditor’s Scheme Claim is a prospective claim, a just estimate of its value will be made. Mr Farren will consider any additional information provided by a Scheme Creditor in the Creditor Portal when determining the value of each Scheme Creditor’s vote at the meeting.

Mr Farren’s determination will be based on (i) the information provided by the Scheme Creditors; and (ii) the information available to the Company from its existing records. Account will also be taken of any known set-off, security, cross-claim or deduction in respect of balances due to the Company.

Note that the values have allocated the IBNR provision across policyholders with cover for professional standards but not any other policyholders. No allocation of the Company’s Risk  Margin has been made as this provision does not apply to specific claims.

An indicative summary of how value will be attributed for voting purposes is set out on page 33 of the Explanatory Statement. The Valuation Principles to be applied by the Company in making a just estimate are set out in full in Appendix 8.

During both the Initial Scheme Period and the Reserving Period, the Company will assess claims in accordance with its usual policies and procedures. Under the Scheme, in all its dealings with Scheme Creditors (including establishing liabilities), the Company is required to:

• treat Scheme Creditors fairly and without regard to any relationship the Company may have with that Scheme Creditor outside of the debtor/creditor relationship;
• perform all its obligations, including making decisions, on their merits and with regard to the overall purpose of the scheme;
• deal with all creditors of the Company on reasonable terms and at arm’s length; and
• comply with its conflicts of interest policy.

This means that the Company is not able to give preferential treatment to Scheme Creditors who also happen to be members of the Company because they are members.

Both APRA and ASIC have been advised of the proposed Scheme and have received a copy of this Explanatory Statement. ASIC and APRA do not approve the Scheme.

Neither ASIC, APRA nor any of its respective officers take any responsibility for the contents of this Explanatory Statement.

If  the Scheme does not go ahead, the Company will continue to run off its liabilities in the ordinary course of business but will remain vulnerable to claims deterioration and other factors which may endanger its solvency in the future. In this case, if at some point in the future, the Directors conclude that the Company is, or is likely to be, insolvent, it will likely be placed into an insolvency process (voluntary administration or liquidation).

APRA may also exercise its enforcement powers in respect of the Company.

If the Company is placed into liquidation, it is expected that:

• recoveries under reinsurance policies will likely be significantly reduced because:
  • many of the reinsurance policies give the reinsurer the right to cancel policies and cease cover in respect of future losses suffered if the Company is insolvent or is in liquidation; and
  • the reinsurances may not respond to the usual proof of debt process that would apply in a liquidation – as a result, CCI’s appointed liquidators may need to propose a scheme of arrangement on terms similar to the proposed Scheme to maximise reinsurance recoveries;
• costs of a liquidation would be significant and it would run for many years, materially reducing the return to creditors;
• a liquidation would impact all creditors, including employees and trade creditors;
• the liquidator may not be able to make any distributions to creditors until most of the Company’s assets have been realised and creditors’ claims have been determined – which may take several years;
• partial distributions to creditors would occur in stages, and would not be finalised until the affairs of the Company are wound up after many years; and
• there is no certainty that the Financial Claims Scheme would be available to any or all Scheme Creditors. See the Frequently Asked Question “What is the Financial Claims Scheme and how is it relevant to the Scheme” for more information.

Once the Scheme becomes Effective, the Company will notify known Scheme Creditors for which it has contact details that the Scheme is Effective.

The Company will also post a notice on its website and in a prominently published newspaper which is circulated throughout Australia, which is expected to be The Australian newspaper.

It is anticipated that the claims management under the Scheme could continue for a number of years since claims on some Insurance Contracts may be made at any time, provided the loss giving rise to the claim occurred or is deemed to have occurred during the contract period.

As a result it is not possible to set a precise end date for the Scheme.

After a Trigger Event, the Scheme may be brought to an end early using the mechanism described immediately below.

The Insurance Contracts issued by the Company fall into 2 general categories – short tail policies (claims will run off within 2-3 years) and long tail policies (claim may be made for up to or beyond 20 years). Once the short tail policies have run off, the number of Insurance Contracts that remain available for Scheme Creditors to make Scheme Claims will be significantly reduced. At that point, the costs associated with the Company maintaining full claims assessment capability into the future may not be justified in light of the volume of Scheme Claims being received by the Company at that time. Such costs will reduce the assets of the Company available for distribution to Scheme Creditors.

In light of this, during the Reserving Period, Scheme Creditors may resolve to bring the Scheme to an end early. This would activate a finalisation mechanism under which all remaining claims of Scheme Creditors (including contingent or prospective claims not yet due and payable) would be valued and paid out of the remaining Scheme Assets. This means that Scheme Creditors with remaining (or prospective or potential future) claims (including IBNR claims) would receive a lump sum, and would have no further rights to make claims under their policies on an ongoing basis.

Scheme Creditors would be accountable for meeting any difference between the lump sum paid to them and the amount of any claim against them.

The finalisation mechanism is designed to align with what would occur if the Company was placed in a winding up. It would finally settle all claims and prospective claims of Scheme Creditors at a single point in time, which may reduce Scheme Costs and allow certain Scheme Creditors to receive payments which are larger and/or made earlier than if the Scheme continued to run for a longer period into the future.

The approval of the Company and the Scheme Advisers is required before the finalisation mechanism is activated.

If a Trigger Event does occur, the Company does not currently expect that the finalisation mechanism would be activated until material progress had been made on clearing current claims and the short tail claims. Due to the nature of some long tail claims, this may take up to 10 years after the Effective Date. Before activating the finalisation mechanism, any potential impact of any remaining reinsurances would need to be considered.

For more detail on the finalisation mechanism itself and what would happen if it was activated, please see section 15 below.

The Scheme will terminate:

• if a Statutory Manager or Judicial Manager is appointed in respect of the Company pursuant to the Insurance Act and the Scheme has been terminated by that appointment in accordance with applicable law or the Statutory Manager or Judicial Manager elects not to continue the Scheme;
• if all of the Scheme Liabilities of the Company have been discharged in full;
• 90 days after the last to occur of:
  • all of the Company’s Scheme Assets having been distributed in accordance with the Scheme; and
  • the Scheme Advisers issuing a notice to Scheme Creditors that all of the Scheme Assets have been distributed pursuant to the Scheme;

• if the Company, with the approval of the Creditors’ Committee and the Scheme Advisers, gives notice to Scheme Creditors that the Scheme is no longer in the best interests of Scheme Creditors as a whole and the Company should be wound up;
• if a resolution that the Scheme should be terminated and the Company should be wound up is passed by more than 50% in number and 75% in value of Scheme Creditors present and voting at a meeting of Scheme Creditors; or
• if the Court makes an order that the Scheme be terminated.

A termination will not prejudice any right or obligation which has arisen under the Scheme prior to such termination.

The relevant Minister has the power to declare that the Financial Claims Scheme applies to the Company in certain circumstances where APRA has advised the Minister it believes the Company is unable to pay its debts as they fall due. If the Minister is entitled to make the declaration and has exercised their discretion to do so, certain Scheme Creditors holding a protected policy (as defined in the Insurance Act) would be entitled to payment by APRA or to have their claims transferred to another insurer in each case subject to the conditions more fully described in Part VC of the Insurance Act.

The application of the Financial Claims Scheme if the Scheme is approved is unknown, as it is a matter in the discretion of the responsible Minister if and at the relevant time the circumstances permitting the exercise of the power arise.

If the Company is placed into liquidation (whether or not the Scheme goes ahead):

• activation of the Financial Claims Scheme (and, if activated, the Scheme Creditors to be covered) would be in the discretion of the Minister; and
• it is not known whether the Minister would exercise that discretion or, if exercised, which Scheme Creditors the Financial Claims Scheme might apply to.

Scheme Creditors should therefore not place reliance on the Financial Claims Scheme being activated or applying in respect of their claims when making a decision as to whether to approve the Scheme.

As policyholders are aware, the Company entered into transactions with certain policyholders in late 2021 and early 2023 which provided for those parties agreeing to assume a $2,000,000 deductible in respect of specified professional standard claims (known as the LRDs). The LRDs will not be impacted by the Scheme. The parties to the LRDs remain insured and are Scheme Creditors. The value of their claims under the Scheme will take into account the LRDs.

No. The Company was solvent at the time the LRDs were undertaken and the LRDs delivered a considerable capital benefit to the Company.
Also, if the Scheme is approved and the Trigger Event occurs, the Scheme Advisers will review any potential causes of action that might be available in an insolvent liquidation of the Company and report the results to the Creditors’ Committee.