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- NATIONAL
Golden handshake flurry as HIH sank
By David Humphries
On the day HIH entered provisional liquidation with debts of more than $5 billion, its directors approved a $1.3 million payout for its finance chief, commending him for his good work at the insurance giant.
But the severance payment for Dominic Fodera met the same fate as a $5 million payout for the HIH founder, Ray Williams, and a $1.4 million farewell to another director, George Sturesteps - both approved four months earlier.
None got their promised bounty and Mr Williams has been forced to queue with tens of thousands of HIH creditors.
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The insurer's liquidator, KPMG's Tony McGrath, said yesterday that creditors may have to wait 10 years for final distribution of whatever is left.
At the HIH royal commission, Mr McGrath said he learnt of the severance generosity on March 15, the day of his appointment. He said he was not at the directors' meeting that approved the Fodera settlement that day but learnt the details within hours.
"I was quite concerned about it because I was aware provisional liquidation was about to be appointed and I would have thought it was entirely inappropriate in these circumstances for the company directors to make resolutions, like the ones you can see here."
Mr McGrath said he did not know the circumstances of Mr Williams's departure, which coincided with the board approving his $5 million payout, including the equivalent of three years' pay, on December 14.
The Williams approval followed by just 10 days a report on HIH finances by the accountancy firm Ernst and Young which concluded that the group was "delicately poised". The royal commission's senior counsel, Wayne Martin, QC, has suggested that the report challenged HIH's sense of its own solvency.
Much of yesterday's evidence centred on HIH accounting practices. Mr McGrath said the company had valued its reserves optimistically, protesting that they were a net $900 million when it entered provisional liquidation.
The company had set aside no prudential margin against unexpected insurance claims. Mr McGrath suggested that if an appropriate margin had been added, "it would have rendered the balance sheet insolvent".
The evidence also began to focus on roles of individuals, with the commission showing the extended interest in the Lloyd's syndicate Charman, which off-loaded to HIH London some high risk reinsurance cover. It ended up costing HIH millions of dollars.
Thomas Riddell, a KPMG London partner who is liquidating HIH's British interests, told the commission several HIH luminaries had associations with Charman. One was Michael Payne, an HIH co-founder and chief of its London operations. The extent of his involvement was being investigated.
Australian company members of the HIH group had pledged $120 million in guarantees for another Lloyd's syndicate, Cotesworth Capital, wholly owned by HIH Casualty and General. Mr McGrath said the effect was to transfer from Australian creditors to their British counterparts claims to what might be left of that money.
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