The New Zealand High Court has ruled in favour of CBL Insurance’s liquidators in finding outstanding claims liabilities should be considered “due debts” and two payments of £397,000 ($754,407) and €25 million ($40.6 million) to Danish company Alpha should be set aside.

The case centred on whether outstanding claims liabilities – an actuarial assessment of likely claims exposure extending years into the future – are due debts in the insolvency context, and whether CBL could pay those due debts at the time of the Alpha transactions.

The liquidators successfully argued they were due debts, CBL was unable to pay them, and as a result the February 2018 payments to Alpha were “voidable transactions”.

“This was a novel and live issue with significant consequences for insurers and another example of the CBL Insurance Limited collapse breaking new legal ground,” DLA Piper, which acted for the liquidators, said.

CBL provided reinsurance for Alpha, which operated in the French commercial building construction market, where long-tail claims could extend up to 16 years after work was completed.

Overall actuarial estimates of future claims payments include unpaid reported claims, claims incurred but not reported, those incurred but “not enough reported” and associated costs.

Justice Andrew Becroft said it was a fair to ask “how could a claim that has not even been advised to the insurer be characterised as a debt that is presently due”, and Alpha argued that outstanding claim liabilities are not sufficiently certain to become a due debt.

But he said insurance companies receive vast amounts of money up front and there is a significant time lag until claims become payable, particularly with construction reinsurance in France, where builders’ warranty policies cover defects for up to 10 years.

“Context is everything,” the judge said. “In that sense, reinsurance companies and probably insurance companies generally are a particular species of company to which a conventional assessment of ability to pay due debts is not easily carried out.”

The due debt assessment should be grounded in the reality of the business and reflect the way debts for insurance companies will inevitably fall due, he said.

The court’s decision says a “preponderance of expert accounting evidence” supports including the outstanding claims liability as a due debt, and that is in line with conclusions reached in Australia.

“Commonality of approach with Australia, where possible, is commercially desirable,” Justice Becroft said. “It would be unfortunate if on such a significant issue, Australian and New Zealand courts were divided.”

The wider interpretation of due debts is “possible and justified”, the decision says.

On the second issue, the court says Alpha did not refute the presumption that at the time of the transactions, CBL Insurance could not pay its due debts.

A timeline in the decision shows the Reserve Bank of New Zealand began in mid 2016 to have concerns about CBL’s reserves, including its outstanding claims liability, and whether the company was carrying on business in a prudent manner.

The regulator told the business in November 2017 not to make any transaction involving the payment or transfer of assets worth more than $NZ5 million ($4.6 million) without consulting it, but the payments to Alpha were made on February 14 and 16 the next year.

RBNZ applied to put CBL Insurance into liquidation on February 23 2018. Alpha entered voluntary liquidation on March 3 and was placed into bankruptcy by the Danish courts on May 8.

The latest CBL decision is available here.