James Hardie (Civil Penalty
Compensation Release) Bill 2005

Explanatory note
This explanatory note relates to this Bill as introduced into Parliament.

This Bill is cognate with the James Hardie Former Subsidiaries (Winding up and
Administration) Bill 2005.

Overview of Bill

Background
Before February 2001, Jsekarb Pty Limited (now called Amaba Pty Limited and
referred to as Amaba in this Bill) and James Hardie & Coy Pty Limited (now called
Amaca Pty Limited and referred to as Amaca in this Bill) were subsidiaries of James
Hardie Industries Limited (now called ABN 60 Pty Limited and referred to as
ABN 60 in this Bill). All of these companies (the liable entities) were, and continue
to be, Australian companies.

The liable entities were originally registered as companies under the applicable
companies law of New South Wales of the time. They are currently taken to be
registered in New South Wales for the purposes of the Corporations Act 2001 of the
Commonwealth (the Corporations Act) and have their registered offices in the State.

The liable entities had previously been manufacturers of products made from
asbestos. As such, they had (and will continue to acquire) liabilities to persons who
sustained, or will sustain, personal injuries because of these products. A substantial
proportion of these liabilities arise, or will arise, in New South Wales.

On 15 February 2001, the James Hardie group of companies (the James Hardie
Group) was restructured. The principal features of the restructuring were as follows:

(a) Amaca became and remains the parent company of Amaba.

(b) Amaca was acquired by the Medical Research and Compensation Foundation
(the Compensation Foundation) for no monetary consideration. The
Compensation Foundation remains the parent company of Amaca.

(c) As a result, both Amaca and Amaba ceased to be subsidiaries of James Hardie
Industries Limited (now called ABN 60).

(d) The Compensation Foundation was established for the purpose of meeting
existing and future claims against Amaba and Amaca.

In October 2001, the Supreme Court of New South Wales approved a scheme of
arrangement under the Corporations Act under which James Hardie Industries NV
became the holding company for the James Hardie Group. James Hardie Industries
NV is a company incorporated in the Netherlands and is registered as a foreign
company under the Corporations Act. The materials before the Supreme Court
concerning the scheme of arrangement and related reduction of capital indicate that
the reduction was conditional on James Hardie Industries NV subscribing for partly
paid shares in James Hardie Industries Limited (now ABN 60) and on James Hardie
Industries Limited being able to call on that amount at any time in the future and from
time to time. However, in March 2003 James Hardie Industries NV ceased to be the
holding company for the Group when its shares in ABN 60 were cancelled.

Under Letters Patent dated 27 February 2004 and 30 June 2004, a Special
Commission of Inquiry was commissioned to inquire into and report on certain
matters relating to the establishment of the Compensation Foundation. On
21 September 2004, the Special Commission issued a report (the Jackson Inquiry
Report) that found that the present value of the existing and future liabilities of
Amaba and Amaca would not be less than $1.5 billion and that the Compensation
Foundation has no prospect of meeting those liabilities.

Negotiations were then held in late 2004 between James Hardie Industries NV, the
State of New South Wales, the Australian Council of Trade Unions, Unions New
South Wales and Mr Bernie Banton as the designated representative of certain
Asbestos Victims Groups with a view to securing funding for asbestos-related
personal injury claims against the liable entities. The parties to the negotiation
entered into Heads of Agreement in December 2004 (the Heads of Agreement) as
the basis for concluding a final agreement to secure such funding (the Final Funding
Agreement).

The State and James Hardie Industries NV have been negotiating the terms of the
Final Funding Agreement during the period since entering the Heads of Agreement.

In late June 2005, the Parliament of New South Wales enacted the James Hardie
Former Subsidiaries (Special Provisions) Act 2005 in order to maintain the status
quo in relation to the liable entities pending the conclusion of the Final Funding
Agreement. To this end, the Act provided for the external administration of the liable
entities under the law of New South Wales and placed certain limitations on the
ability of the liable entities and certain associated companies to reorganise their
corporate structures during the period of the external administration.

The Final Funding Agreement was entered into on 1 December 2005 by the State of
New South Wales, James Hardie Industries NV and LGTDD Pty Limited (a
controlled entity of James Hardie Industries NV).

Principal objects of Bill
One of the preconditions under the Final Funding Agreement for obtaining funding
from James Hardie Industries NV to assist in the payment of the asbestos-related
personal injury liabilities of the liable entities is that the State enact legislation
(which is within its legislative competence to enact) in order to extinguish certain
liabilities of James Hardie Industries NV and other related companies, entities and
individuals (the protected entities). These liabilities arise, or may arise, in connection
with the corporate reorganisation of the James Hardie Group and the negotiation and
entry into the Heads of Agreement, the Final Funding Agreement and certain related
agreements (the Related Agreements).

One of the principal reasons for extinguishing these liabilities is to ensure that the
commercial success of the protected entities (and James Hardie Industries NV in
particular) will not be undermined during the winding up of the liable entities under
the provisions of the proposed James Hardie Former Subsidiaries (Winding up and
Administration) Act 2005 by further examination of the corporate reorganisation of
the James Hardie Group for the purpose of obtaining compensation.

Another principal reason for extinguishing these liabilities is to recognise that James
Hardie Industries NV has agreed to pay compensation under the Final Funding
Agreement and that it should be protected from further claims for compensation
outside of that Agreement.

The extinguishment of these liabilities will accordingly ensure continued funding for
the asbestos-related personal injury liabilities of the liable entities.

The principal object of this Bill is to extinguish, in accordance with undertakings
given by the State under the Final Funding Agreement, certain liability of the
protected entities to pay compensation in connection with civil penalties with respect
to the corporate reorganisation of the James Hardie Group. Certain civil liability is
also extinguished by the proposed James Hardie (Civil Liability) Act 2005.

In order to achieve this object, this Bill also displaces certain provisions of the
Corporations Act.

Note: If this Bill is not modified, these Explanatory Notes would reflect the Bill as passed in the House. If the Bill has been amended by Committee, these Explanatory Notes may not necessarily reflect the Bill as passed.

 

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