Business & Finance

Civil Proceedings Commenced Against Former Officers of GIO Insurance

June 20th, 2001

ASIC Chairman, Mr David Knott, today announced the commencement of civil penalty proceedings against three former officers of GIO Insurance Limited.

The proceedings allege that the respondents, Geoffrey Vines, Frank Robertson and Timothy Fox, breached their duties as officers of GIO Insurance during the course of AMP's 1998-99 takeover bid for GIO Australia Holdings Limited (GIO Australia).

The alleged breaches centre on the actions of the respondents in advising GIO Australia and its Due Diligence Committee on the financial outlook for the group's reinsurance business.

"Each of the respondents was a Director of GIO Insurance and played a significant role in the preparation of financial forecasts for the reinsurance business which were included in GIO Australia's Part B Statement issued on 16 December 1998", Mr Knott said.

"The Part B Statement forecast a before-tax profit from the reinsurance business of $80 million in the 1999 financial year, which was reiterated by GIO Australia on 30 December 1998.

"Following the takeover, GIO Australia reported a before-tax loss of $759 million from its reinsurance business", he said.

ASIC alleges that the respondents improperly used their positions and failed to exercise the duties of care and diligence required by the Corporations Law when preparing forecasts and other relevant information for consideration by the GIO Australia Board and the Due Diligence Committee.

ASIC further alleges that, as a consequence of the respondents' failure to properly discharge their duties under the Law, information was released to shareholders of GIO Australia that was seriously defective and misleading.

ASIC also alleges that Mr Vines and Mr Fox made improper use of their positions as directors of GIO Insurance when that company entered into a transaction with another reinsurer designed to avoid disclosing Hurricane Georges losses until after the takeover. This transaction was rejected by the Due Diligence Committee and GIO Australia's auditors, but it cost GIO Insurance $489,000 to exit it.

In civil penalty proceedings filed today in the Supreme Court of New South Wales, ASIC is seeking orders:

• for civil penalties of $200,000 for each contravention by each officer;
• for the banning of each respondent from managing or being a director of any company for such a period as the Court sees fit; and
• for $489,000 compensation from Mr Vines and Mr Fox;

Compensation available under the relevant civil penalty proceedings is restricted to losses incurred by the company itself; in this case GIO Insurance. The compensation sought is the $489,000 which ASIC alleges was incurred by GIO Insurance as part of the Hurricane Georges transaction.

These proceedings do not empower ASIC to claim compensation on behalf of shareholders. That potential compensation is the objective of the class action which has been initiated by the shareholders.

"These proceedings complement the class action damages case already instituted on behalf of former GIO Australia shareholders. Although the purpose of ASIC's action is not to recover shareholder losses, findings and evidence involved in these proceedings may assist to resolve issues in the class action", Mr Knott said.