Scheme Booklet - Doctors Health Fund

Transcription

Scheme Booklet
For a scheme of arrangement between The Doctors’ Health Fund Limited
(ABN 68 001 417 527) and its members in relation to its proposed acquisition
by Avant Group Holdings Limited (ABN 72 077 283 884). The Doctors’ Health Fund Limited (DHF) is a public
What you have received
company limited by guarantee that operates a Health
Benefits Fund. This Scheme Booklet contains details of
Scheme Booklet
the Proposal for DHF to demutualise and be acquired by
Avant Group Holdings Limited (Avant), including reasons
for and against the Proposal.
This Scheme Booklet is dated 7 March 2012.
Scheme Booklet
by Avant Group Holdings Limited (ABN 72 077 283 884).
The Proposal cannot proceed without the approval
of DHF Members who will vote on the Resolutions
required to implement the Proposal at an Extraordinary
General Meeting and Scheme Meeting, both meetings
to be held at the AMA Conference Centre, 69 Christie
Your letter from the DHF Board
31st March 2012
Joe Smith
15 Porter Street
Lane Cove
NSW 2066
Street, St Leonards, NSW on 4 April 2012 commencing
at 10.00am. The notices for these meetings, details of
the Resolutions to be considered at these meetings,
Your Entitlement:
Initial Entitlement: $5,246
Residual Entitlement: A small additional amount
may also be payable as noted below.
Your Member Registration Number (MRN)
345789
Dear Joe,
Further to our letter of 11 August 2011, we can now provide you with the Scheme Booklet which contains details
of the $29.25 million proposal for The Doctors Health Fund Limited (DHF) to demutualise and to be acquired by
Avant Group Holdings Limited (Avant).
The Scheme Booklet is being issued to you because, as a contributing member of DHF’s Health Benefits Fund,
you are also a member of the DHF company, and it is the members of the company who consider the Avant
Proposal and vote on the measures required for its implementation. In this letter and in the Scheme Booklet,
members of the company are referred to as DHF Members.
If the Avant Proposal is implemented, all the DHF Members at the relevant time, and anyone else the DHF Board
determines should have been DHF Members at that time (referred to as Scheme Members), will receive a cash
payment. If you continue as a DHF Member until that time, your cash payment as a Scheme Member will be the
amount shown at the top of this letter - called your Initial Entitlement. You may also receive a small additional
amount (called a Residual Entitlement) in the circumstances explained in the Scheme Booklet. Whether any
Residual Entitlement will arise and, if so, the amount you will receive, is not yet known.
As of the date of this letter, the DHF Board has not received a proposal which it considers is superior to the Avant
Proposal and the Independent Expert we appointed considers that the Avant Proposal is fair and reasonable and in
the best interests of Scheme Members in the absence of a current better proposal. In these circumstances, the DHF
Board unanimously recommends that you vote for the measures required to implement the Avant Proposal.
and how and when DHF Members can vote on these
Resolutions, are set out in this Scheme Booklet.
Proxy Forms
This Scheme Booklet is important and
requires your immediate attention. You are
advised to read the entire document, using
Blue Form
Proxy for Extraordinary General Meeting
Member Name
Member Number
Member Number
of defined terms or expressions.
Barcode
Dear Member of DHF
If you wish to appoint a proxy to vote on your behalf please read the instructions overleaf, then complete and lodge this
form by 10.00am (Sydney time) on 3 April 2012.
If you prefer and you are a registered DHF Member on 24 February 2012, you may vote online at
www.doctorshealthfund.com.au/AvantProposal/Voting by 10.00am (Sydney time) on 3 April 2012.
Alternatively, you may vote in person at the Scheme Meeting to be held at the AMA Conference Centre,
69 Christie Street, St Leonards, NSW, 10.00am (Sydney time) on 4 April 2012.
Appointment of proxy
I, being a Member of DHF, and entitled to vote, hereby appoint either:
The Chair of the
Extraordinary General Meeting
OR
financial or other professional adviser.
(mark X in the box here)
please write below the name of the person you are nominating
(if this person is someone other than the Chair of the Scheme Meeting.)
or failing him/her, (or if the box is not marked and no proxy is specified above), the Chair of the EGM, as my proxy to vote for me and on
my behalf and to vote in accordance with the following instructions (or, if no directions are given, as the proxy sees fit) at the EGM and at
any adjournment of that meeting.
or failing him/her, (or if the box is not marked and no proxy is specified above), the Chair of the Scheme Meeting, as my proxy to vote for
me and on my behalf and to vote in accordance with the following instructions (or, if no directions are given, as the proxy sees fit) at the
Scheme Meeting and at any adjournment of that meeting.
Record your vote
Record your vote
If you wish to direct your proxy how to vote on the Resolution please mark X in the appropriate box below.
If you wish to direct your proxy how to vote on the Resolutions please mark X in the appropriate box below.
Resolution 1: Approval of Scheme of Arrangement
Resolution 1: Constitutional Amendment
For
Against
For
Against
THAT conditional on the Scheme becoming Effective, the DHF Constitution
be amended as set out in Annexure A to the notice of meeting.
b)
THAT under, and in accordance with, the provisions of Section 411 of the Corporations Act 2001 (Cth), the scheme of
arrangement proposed between The Doctors’ Health Fund Limited and the Members as set out in the Scheme Booklet
accompanying this Notice is agreed to (with or without any modification as approved by the Court).
For
Against
If you mark both these boxes
your vote will be invalid
DHF change its company type from a public company limited by guarantee to a proprietary company
limited by shares in accordance with Part 2B.7 of the Corporations Act 2001 (Cth) and from the time that
the change of company type becomes effective pursuant to section 164(5) of the Corporations Act 2001
(Cth), the company be known as The Doctors’ Health Fund Pty Limited; and
You must sign here
If you mark both the FOR
and AGAINST box for a
particular Resolution your
vote on that Resolution
will be invalid
immediately following the change of company type becoming effective pursuant to section 164(5) of the
Corporations Act 2001 (Cth), DHF issue ordinary shares in the capital of DHF to Avant in accordance
with the terms of the Implementation Deed.
IMPORTANT: This section must be signed or authenticated in accordance with the instructions
overleaf, otherwise this form will be invalid.
Signature of Member
You must sign here
Date
Signature of Member
Ground Floor, 69 Christie Street
St Leonards, NSW 2065
ABN 68 001 417 527
www.doctorshealthfund.com.au
Date
Payment Authority
Green Form
Payment Authority
Use this form if you want your cash Entitlement paid directly into an Australian Financial Institution account.
Member name
ACCOUNT DETAILS
DHF Membership Number
Please complete Option 1 or Option 2 below
Option 1
If you have an Australian Financial Institution account from which DHF currently directly debits your Policy premium contribution
payments, and you want your cash Entitlement to be paid into that same account, please mark x in the following box. A detailed
payment advice will be provided for each payment.
Option 2
Insert details of the Australian Financial Institution, Branch and Account into which you want your cash Entitlement under the
Proposal to be paid. A detailed payment advice will be provided for each payment.
Name(s) in which your account is held
BSB Number
Account Number
Name of Financial Institution
Branch Suburb/Town
You must sign here
This section must be signed by the person whose name appears at the top of this form (being the DHF
Member). If signed by an attorney, the power of attorney must have been previously noted by DHF
or a certified copy of the power of attorney must be attached to this form. A solicitor or justice of the
peace can certify a copy of the Power of Attorney.
Signature of member
Date
Please send this Payment Authority to:
Locked Bag 8100, Kingsgrove, NSW 2208.
Privacy clause: Information is collected to administer payments to you under the Proposal and if some or all of the
information is not collected then it might not be possible to administer those payments. Your personal information
may be disclosed to Avant or their related entities. You can obtain access to your personal information by
contacting DHF.
Capitalised terms used in this Payment Authority have the meaning given to them in the Glossary in Section 12
of the Scheme Booklet.
2
OR
please do not write your own name
a)
the Proposal, you should consult your legal,
The Chair of the Scheme Meeting
(if this person is someone other than the Chair of the Extraordinary
General Meeting.)
Resolution 2: Change of Company Type
THAT conditional on the Scheme becoming Effective:
If you are in doubt as to how to deal with
Proxy for Scheme Meeting
Dear Member of DHF
Alternatively, you may vote in person at the Extraordinary General Meeting (EGM) to be held at the AMA Conference Centre,
the Glossary in Section 12 for an explanation
Red Form
Member Name
ABN 68 001 417 527
ABN 68 001 417 527
Contents
Table of Contents
What you should do ........................................................... 4
Summary............................................................................. 6
Important steps & dates ....................................................... 9
Organisation structure ......................................................... 10
1. Important notices........................................................... 11
2. Voting on the Proposal.................................................... 13
3. Answers to key questions............................................... 17
4. The Proposal in detail..................................................... 23
5. Reasons to vote in favour of the Resolutions................... 30
6. Reasons to vote against the Resolutions.......................... 32
7. Allocation and Entitlements............................................. 33
8. The Private Health Insurance Industry............................. 39
9. Information about DHF.................................................. 42
10.Information about Avant and Avant’s commitments
and current intentions .................................................... 47
11. Additional information..................................................... 51
12.Glossary ....................................................................... 62
Appendix 1 – Notice of EGM............................................... 68
Appendix 2 – Notice of Scheme Meeting............................. 72
Appendix 3 – Scheme of Arrangement................................. 75
Appendix 4 – Allocation Rules.............................................. 82
Appendix 5 – Review Committee Charter............................ 86
Appendix 6 – Deed Poll....................................................... 93
Appendix 7 – Summary of Independent Expert’s Report....... 97
Appendix 8 – Appointed Actuary’s Report............................ 126
Appendix 9 – Independent Actuary’s Report......................... 148
Appendix 10 – Tax Advice Letter.......................................... 154
Appendix 11 – Explanation of Constitutional Changes
proposed at the EGM.................................... 158
Corporate Directory............................................................ 164
3
What you should do
1
Read this Scheme Booklet
in its entirety carefully
2
You may vote on the Resolutions
■■
in person by attending the EGM and the
Scheme Meeting;
■■ online at www.doctorshealthfund.com.au/
AvantProposal/Voting;
■■
by proxy; or
■■
by appointing an attorney under a power
of attorney.
Scheme Booklet
by Avant Group Holdings Limited (ABN 72 077 283 884).
3
Section 2 of this Scheme Booket
has full details on how to vote.
FOR EASE OF VOTING
You may vote online
If you are registered as a DHF Member on
24 February 2012, you can vote online by visiting:
www.doctorshealthfund.com.au/AvantProposal/Voting.
If so, please take advantage of this convenient voting facility
before 10.00am on 3 April 2012
ONLINE
www.doctorshealthfund.com.au/AvantProposal/Voting
4
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the notice of meeting.
your vote
Record your vote
a)
b)
DHF change its company type from a public company limited by guarantee to a proprietary company
limited by shares in accordance with Part 2B.7 of the Corporations Act 2001 (Cth) and from the time that
the change of company type becomes effective pursuant to section 164(5) of the Corporations Act 2001
(Cth), the company be known as The Doctors’ Health Fund Pty Limited; and
immediately following the change of company type becoming effective pursuant to section 164(5) of the
Corporations Act 2001 (Cth), DHF issue ordinary shares in the capital of DHF to Avant in accordance
with the terms of the Implementation Deed.
If you mark both the FOR
and AGAINST box for a
will be invalid
Signature of Member
Date
Signature of Member
ABN 68 001 417 527
Date
ABN 68 001 417 527
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Signature of Member
Signature of Member Date
Date
ABN 68 001 417 527
ABN 68 001 417 527
Date
Date Date
Floor,
69the
Christie
GroundGround
Floor, 69
Christie
Street Street
Complete
Green
St Leonards,
NSW 2065
St Leonards,
NSW 2065
68 001
527
Payment
Authority
ABN 68ABN
001 417
527417
For ease and speed of payment, your Entitlement can
be paid directly into an Australian nominated financial
institution account. Just complete the Green Form
in accordance with the instructions on that form and
return it before 5.00pm on 29 May 2012.
Green Form
Payment Authority
Use this form if you want your cash Entitlement paid directly into an Australian Financial Institution account.
GroundGround
Floor, 69
Floor,
Christie
69 Christie
Street Street
St Leonards,
St Leonards,
NSW 2065
NSW 2065
ACCOUNT DETAILS
ABN
68ABN
001 68
417001
527417 527
Option 1
Member name
ABN 68 001 417 527
DHF Membership Number
Please complete Option 1 or Option 2 below
If you have an Australian Financial Institution account from which DHF currently directly debits your Policy premium contribution
payments, and you want your cash Entitlement to be paid into that same account, please mark x in the following box. A detailed
payment advice will be provided for each payment.
Option 2
Insert details of the Australian Financial Institution, Branch and Account into which you want your cash Entitlement under the
Proposal to be paid. A detailed payment advice will be provided for each payment.
Name(s) in which your account is held
BSB Number
Account Number
Name of Financial Institution
Branch Suburb/Town
You must sign here
This section must be signed by the person whose name appears at the top of this form (being the DHF
Member). If signed by an attorney, the power of attorney must have been previously noted by DHF
or a certified copy of the power of attorney must be attached to this form. A solicitor or justice of the
peace can certify a copy of the Power of Attorney.
Signature of member
Date
Please send this Payment Authority to:
Locked Bag 8100, Kingsgrove, NSW 2208.
Privacy clause: Information is collected to administer payments to you under the Proposal and if some or all of the
information is not collected then it might not be possible to administer those payments. Your personal information
may be disclosed to Avant or their related entities. You can obtain access to your personal information by
contacting DHF.
Capitalised terms used in this Payment Authority have the meaning given to them in the Glossary in Section 12
of the Scheme Booklet.
ABN 68 001 417 527
5
Summary
Defined terms and expressions begin with a capital letter and are explained in the Glossary in Section 12.
All dates and times are Sydney time.
This Scheme Booklet contains details of a proposed transaction under which DHF will demutualise and be acquired by
Avant by way of a scheme of arrangement which must be approved by the Federal Court of Australia.
DHF Members will be asked to vote on the Resolutions which are necessary to implement the Proposal at an EGM and the
Scheme Meeting which follows the EGM. These meetings will be held at the AMA Conference Centre, 69 Christie Street,
St Leonards, NSW on 4 April 2012 commencing at 10.00am. The notices for these meetings, the Resolutions to be
considered at these meetings, and details of how and when DHF Members can vote, are explained in this Scheme Booklet.
In order for the Proposal to be implemented, all of these Resolutions must be approved by DHF Members, various approvals
from Government agencies must be obtained and the Scheme must be approved by the Court.
You should have received a letter from the DHF Board with this Scheme Booklet, a blue proxy form, a red proxy form and
a green Payment Authority. If you have not received each of these, please call the Proposal Hotline on 1800 508 716.
This Summary highlights selected information that is described in greater detail elsewhere in this Scheme Booklet. As it does
not contain all of the important information, you should carefully read the entire Scheme Booklet, including the documents in
the appendices, for a more complete understanding of the Proposal.
Background
In March 2011, DHF was approached by Avant, which expressed interest in acquiring DHF. The approach by Avant to
acquire DHF was not solicited by DHF or the DHF Board.
After signing a Confidentiality Deed on 4 April 2011 and holding preliminary discussions, Avant and DHF agreed to proceed
to formal due diligence and to negotiate an Implementation Deed. On 11 August 2011, DHF and Avant entered into the
Implementation Deed, which was subsequently restated and amended by DHF and Avant on 8 February 2012. Under the
terms of the Implementation Deed, the Proposal is subject to the conditions explained in Section 4. The key provisions of
the Implementation Deed are summarised in Section 11.1.
What could you receive?
If the Proposal is implemented, Avant will pay $30 million which will be distributed among Scheme Members. A Scheme
Member is a person who is:
■■ a DHF Member at the Scheme Record Time; or
■■ a Prescribed Member.
The amount explained in the letter from the DHF Board sent with this Scheme Booklet - called your Initial Entitlement - will
be paid to you as long as you remain a DHF Member at the Scheme Record Time. (If you became a DHF Member after
the Calculation Date, to receive an Initial Entitlement as a Scheme Member, you must not suspend your Policy.) You may
also subsequently receive a small additional amount - called a Residual Entitlement. If you complete and return the green
Payment Authority by 5.00pm on 29 May 2012, Entitlements will be paid by direct deposit into your Australian financial
institution account (bank, credit union or building society). Otherwise, payment will be made by cheque.
Entitlements are determined under Allocation Rules set by the DHF Board on the recommendation of DHF’s Appointed
Actuary. The Allocation Rules are explained in Section 7, which includes examples to assist you in understanding how
Entitlements have been calculated. The Allocation Rules are set out in full in Appendix 4.
A review process has been established if you believe that your Initial Entitlement has not been correctly calculated or for
those who believe that they should have an Entitlement. The review process is explained in Section 7.10.
6
What happens to your Policy?
Your Policy will continue in accordance with its terms and remain subject to regulatory safeguards.
How does the Proposal affect your rights as a DHF Member?
If the Proposal is implemented, DHF will convert from a public company limited by guarantee to a proprietary company
limited by shares and Avant will then become its sole shareholder. This means that DHF Members will lose the rights that
they have as members of the company under the DHF Constitution and under the law. These rights include the right to
attend and vote on resolutions at general meetings of DHF, to vote on a resolution on a winding up of DHF and to vote on
a resolution to elect or remove a DHF director. Losing these rights as a member of the company will not affect your rights
under your Policy.
What does the Proposal mean for DHF?
If the Proposal is implemented, DHF will demutualise, convert to a proprietary company limited by shares and change from
a “not-for-profit” to “for-profit” private health insurer. This means that DHF will be taxed on the profits in its Health Benefits
Fund and may distribute dividends and return surplus capital to Avant as its sole member and shareholder. Importantly,
under the Corporations Act, DHF can only pay dividends if its assets exceed its liabilities. In addition, no transfer of capital
can be made if this would result in a breach of the solvency and capital adequacy prudential standards under the PHIA.
Currently, as a mutual, DHF has no access to capital other than through surpluses generated from its operations. If the
Proposal is implemented, DHF will benefit from Avant Mutual’s capital strength when pursuing its business plans. Avant
Mutual is the parent company of Avant Group and is a mutual organisation with the vast majority of its members being
medical practitioners, doctors in training or medical students.
DHF will continue to be registered as a restricted access private health insurer. As part of the Proposal, DHF has applied
to DoHA to expand its restricted access group to enable DHF to provide private health insurance to additional selected
categories of health practitioners and officers, employees and contractors of Avant Insurance and Avant Law Pty Limited.
What are Avant’s commitments and intentions?
Details about Avant’s current intentions and commitments in relation to DHF are set out in Section 10.5.
Will your Entitlement be subject to income tax?
PricewaterhouseCoopers has provided the Tax Advice Letter included in Appendix 10. While advising Scheme Members
to obtain their own independent professional advice on the income tax implications specific to their own circumstances, in
PricewaterhouseCoopers’ opinion the amount received by Scheme Members should not be subject to income tax.
Will your Entitlement affect Social Security payments?
If you receive social security payments, they may be affected by your Entitlement. Further information is given in Section 4.8.
Other Proposals
After the Avant offer was announced, DHF received a non-binding indicative offer of $30 million from another private health
insurer. Although this Competing Proposal offered consideration that was higher than Avant’s original offer of $28.5 million, it
was subject to conditions that, in the view of the DHF Board, made it less favourable. DHF notified Avant of the Competing
Proposal and Avant increased its offer to $29.25 million. While the DHF Board sought to negotiate acceptable conditions with
the other private health insurer, these negotiations were unsuccessful and the Competing Proposal was eventually withdrawn.
After considering DHF’s unaudited results to 31 December 2011, Avant further increased its offer to $30 million.
As at the date of this Scheme Booklet, no offer that the DHF Board considers is a Superior Proposal has been received.
Expert Reports
Independent Expert
Lonergan Edwards & Associates Limited was appointed by DHF to consider the Proposal as an independent expert. A
summary of the Independent Expert’s report is set out in Appendix 7. The report can be reviewed in full by visiting
www.doctorshealthfund.com.au/AvantProposal/SchemeofArrangement or you can request a copy by calling the Proposal
Hotline on 1800 508 716.
7
The Independent Expert concluded that the Proposal “is fair and reasonable and in the best interests of Scheme Members
in the absence of a current better proposal”. In reaching this conclusion, the Independent Expert considered the Competing
Proposal and Avant’s increased offer referred to above, and the unaudited results for DHF to 31 December 2011 set out
in Section 9.3.
Appointed Actuary
David Torrance of KPMG Actuarial Pty Ltd is DHF’s Appointed Actuary. Mr Torrance reviewed the Proposal and concluded,
having regard to the matters set out in the Appointed Actuary’s Report, that:
■■ T
he Allocation Rules represent a fair and reasonable basis upon which the financial benefit arising from the Proposal
will be distributed amongst Scheme Members.
■■ Policy holders’ benefits should remain adequately secure if the Proposal is approved.
■■ Future premium rates are unlikely to be impacted in a material manner by the Proposal.
■■ T
he reasonable benefit expectations of Policy holders are unlikely to be impacted in a materially adverse manner by
the Proposal.
The Appointed Actuary’s Report is set out in Appendix 8.
Independent Actuary
David Goodsall of Synge & Noble Pty Ltd was appointed by DHF to consider the Proposal as an independent actuary. He
concluded that the principles on which the Allocation Rules are based reasonably address relevant considerations for the
allocation and that the allocation methodology as represented by the Allocation Rules is fair and reasonable.
While noting that the future impact on Policy holders will be a function of future experience and circumstances which
cannot be reliably predicted or guaranteed, on the basis of the information available to him, including the report and the
opinions of the Appointed Actuary, he considered that:
■■ T
the Proposal.
The Independent Actuary’s Report is set out in Appendix 9.
Voting
The Notices for the EGM and the Scheme Meeting, the Resolutions to be considered at these meetings and details of how
and when DHF Members can vote, are explained in Section 2.
Section 5 sets out some reasons why DHF Members might wish to vote for the Resolutions, while Section 6 sets out
some reasons why DHF Members might wish to vote against the Resolutions.
DHF Board’s unanimous recommendation
The DHF Board unanimously recommends that DHF Members vote FOR the EGM Resolutions at the EGM, and FOR
the Scheme Resolution at the Scheme Meeting following the EGM, in the absence of a Superior Proposal. The DHF
Board has reached this view after considering the Expert Reports and the arguments for and against the Proposal. The
reasons for the DHF Board’s recommendation are set out in Section 5.
Each DHF director is a DHF Member and intends, in that capacity, to vote for the Resolutions if no Superior Proposal
is received.
8
Important steps & dates
Key Event
Date
Calculation Date
The Calculation Date is 5.00pm 17 January 2012. This
date has been selected because it is the latest practical time
before the EGM and Scheme Meeting to collect all the data
necessary to determine Initial Entitlements before finalising
this Scheme Booklet.
The letter from the DHF Board to DHF Members
explaining their Initial Entitlement and enclosing this Scheme
Booklet, Notices of Meeting for the EGM and the Scheme
Meeting, proxy forms and Payment Authority is sent.
12 March 2012.
If you are registered as a DHF Member at the Record Time, you
will be entitled to vote at the EGM and the Scheme Meeting. The
Scheme Meeting will immediately follow the EGM.
The Record Time is 48 hours before the start of the EGM,
being 10.00am on 2 April 2012.
Latest time and date for lodgement of a completed proxy
form or online vote for EGM and Scheme Meeting
This is 10.00am on 3 April 2012, being 24 hours before
the EGM.
EGM and Scheme Meeting
The EGM will be held at the AMA Conference Centre,
69 Christie Street, St Leonards, NSW and will start at
10.00am on 4 April 2012. It will be followed by the
Scheme Meeting.
Court hearing for approval of the Scheme
Expected to be 9.30am, 13 April 2012.
Effective Date of the Scheme
On approval of the Scheme - expected to be
13 April 2012.
Scheme Record Time
5pm on the day two Business Days before the
Implementation Date.
Implementation Date for the Scheme
This is the date on which the Change of Company Type
becomes effective and is not known at the date of this
Scheme Booklet.
Expected payment of Initial Entitlement to Scheme Members
On or shortly after the Implementation Date.
Lodgement of Review Request Forms
On or before 5.00pm on the day which is five Business
Days after the Implementation Date.
Expected payment to the Scheme Members of any
Residual Entitlement
14 August 2012.
All dates after the EGM and Scheme Meeting are indicative only and, amongst other things, are subject to the Court approval process.
All dates and times are Sydney time. Please refer to the Glossary in Section 12 for an explanation of defined terms and expressions.
9
Organisation structure
After the Proposal is implemented
■■ All of Avant’s offer of $30 million in cash will be distributed to Scheme Members in accordance with the Allocation Rules.
■■ DHF will become a subsidiary of Avant.
■■ After the Proposal is implemented, you will remain a DHF Policy holder, if you keep your Policy in force.
Avant Mutual
Group Limited
Avant Group Holdings Limited
Avant Insurance Limited
The Doctors’ Health Fund Limited
Avant Law Pty Limited
Doctors’ Health Fund
Policy holders
10
Avant Insurance
Policy holders
1. Important notices
1.1 Purpose of this Scheme Booklet
This Scheme Booklet provides DHF Members with information about DHF’s proposed acquisition by Avant. It explains
the Proposal and, if the Resolutions are approved, the manner in which it will be implemented. It also provides information
material to the decision of DHF Members as to whether or not to vote in favour of the Resolutions. This Scheme Booklet is
also the explanatory statement for the Scheme required under Part 5.1 of the Corporations Act.
1.2 Responsibility Statement
DHF has been solely responsible for preparing the DHF Information. The information concerning DHF and the intentions,
views and opinions of DHF and its directors contained in this Scheme Booklet have been prepared by DHF and the DHF
directors and are the responsibility of DHF. Avant and its directors and Officers do not assume any responsibility for the
accuracy or completeness of the DHF Information.
Avant has been solely responsible for preparing the Avant Information. The information concerning Avant and the
intentions, views and opinions of Avant contained in this Scheme Booklet have been prepared by Avant and are
the responsibility of Avant. DHF and its directors and Officers do not assume any responsibility for the accuracy or
completeness of the Avant Information.
The Independent Expert’s Report in relation to the Proposal, a summary of which is included in Appendix 7 has been
prepared by Lonergan Edwards & Associates Limited which takes responsibility for this report.
The Appointed Actuary’s Report in relation to the Proposal included in Appendix 8 has been prepared by David Torrance
of KPMG Actuarial Pty Ltd. David Torrance and KPMG Actuarial Pty Ltd take responsibility for this report.
The Independent Actuary’s Report in relation to the Proposal included in Appendix 9 has been prepared by David
Goodsall of Synge & Noble Pty Ltd. David Goodsall and Synge & Noble Pty Ltd take responsibility for this report.
The Tax Advice Letter included in Appendix 10 has been prepared by PricewaterhouseCoopers which takes responsibility
for this letter.
Neither DHF and Avant, nor any of their respective directors, Officers or advisers (other than as referred to above),
assume any responsibility for the accuracy or completeness of any of the information in the Independent Expert’s Report,
the Appointed Actuary’s Report, the Independent Actuary’s Report or the Tax Advice Letter.
1.3 Read this document carefully
This Scheme Booklet is important and should be read in its entirety before deciding whether or not to vote in favour of
the Resolutions to be considered at the EGM and the Scheme Meeting. If you are in doubt as to what you should do, you
should consult your legal, financial or other professional adviser.
1.4 Role of ASIC
A copy of this Scheme Booklet has been given to ASIC pursuant to section 411(2) of the Corporations Act and registered
with ASIC pursuant to section 412(6) of the Corporations Act. ASIC has been requested to provide a statement, in
accordance with section 411(17)(b) of the Corporations Act, that it has no objection to the Scheme. If ASIC provides the
statement, then it will be produced to the Court at the time of the Second Court Hearing Date. Neither ASIC nor any of its
officers takes any responsibility for the contents of this Scheme Booklet.
1.5 Important Notice associated with the Court order under subsection 411(1) of the Corporations Act
A copy of this Scheme Booklet has been lodged with the Court to apply for an order of the Court convening the Scheme
Meeting. The fact that, under subsection 411(1) of the Corporations Act, the Court has ordered that a meeting be convened
and has approved the Scheme Booklet required to accompany the notice of the meeting does not mean that the Court:
■■ h as formed any view as to the merits of the proposed Scheme, or as to how DHF Members should vote (on this
matter DHF Members must reach their own decision); nor
11
■■ has prepared, or is responsible for the content of, the Scheme Booklet.
If DHF Members approve the EGM Resolutions at the EGM and the Scheme Resolution at the Scheme Meeting, and all of the
other conditions precedent to the Scheme (excluding Court approval) have either been satisfied or waived, the Court will be
asked to approve the Scheme. The Federal Court Rules provide a procedure for DHF Members to oppose the approval by
the Court of the Scheme. If you wish to oppose the approval of the Scheme by the Court at the Second Court Hearing, you
may file with the Court, and serve on DHF, a notice of appearance (and any affidavit on which you wish to rely at the hearing)
at least one day before the Second Court Hearing Date. The Second Court Hearing Date is currently expected to be 9.30.am
on 13 April 2012. Any change to this date will be notified on www.doctorshealthfund.com.au/AvantProposal/ProposalUpdates.
1.6 Forward looking statements
Certain statements in this Scheme Booklet are forward-looking in nature. Generally, you can identify forward-looking statements
by terms such as “may”, “will”, “should”, “could”, “would”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “projects”,
“predicts”, “potential” and other similar expressions. You should be aware that there are a number of risks (both known and
unknown), uncertainties, assumptions and other important factors, some of which are beyond the control of DHF and Avant
that could cause the actual conduct, results, performance or achievements of DHF or Avant to be materially different from those
expressed or implied by such statements, or that could cause future conduct or results to be materially different from the historical
conduct or results. Deviations in future conduct, results, performance and achievements are both normal and to be expected.
DHF, Avant and their respective directors, Officers and advisers make no representation, nor give any assurance or guarantee, that
the occurrence of the events expressed or implied in any forward-looking statements in this Scheme Booklet will occur.
DHF, Avant and their respective directors, Officers or advisers are not responsible for any forward-looking statement in the
Independent Expert’s Report, the Appointed Actuary’s Report, the Independent Actuary’s Report or the Tax Advice Letter.
DHF Members are cautioned about relying on forward-looking statements included in this Scheme Booklet. The forward-looking
statements in this Scheme Booklet reflect views held as at the date of this Scheme Booklet, unless otherwise specified. Subject to
the Corporations Act and any other applicable laws or regulations, DHF and Avant disclaim any duty to update these statements
other than with respect to information which is material to the making of a decision by a DHF Member regarding whether or not
to vote in favour of the Resolutions that DHF and Avant respectively become aware of prior to the Scheme Meeting.
1.7 Privacy and personal information
DHF will need to collect personal information to implement the Proposal. The personal information may include the name and contact
details of DHF Members and their proxies or attorneys at the EGM and the Scheme Meeting. The collection of some of this information
is required or authorised by the Corporations Act. DHF will also collect the information provided in the Payment Authority.
Individuals in respect of whom personal information is collected have certain rights to access the information collected about
them and may contact DHF to exercise those rights.
This personal information may be disclosed to Avant, print, registry and mail service providers and to DHF’s and Avant’s
advisers pursuant to the Proposal. Personal medical information, however, which is collected by DHF for the purposes of its
Health Benefits Fund, is sensitive private information and is not made available to Avant.
If the information outlined above is not collected, DHF may be hindered in, or prevented from, conducting the EGM or the
Scheme Meeting, or implementing the Proposal effectively, or at all.
DHF Members who appoint a proxy or attorney to vote at the EGM or the Scheme Meeting should inform that individual
of the matters outlined above.
Rights are given under section 173 of the Corporations Act for people to inspect and obtain a copy of DHF’s Register,
which contains personal information (but not medical information) about DHF Members. As a restricted access private
health insurer, however, DHF has the option of providing the use of a mailing house facility to such a person, rather than
providing direct access to the Register.
1.8 Date of this Scheme Booklet
This Scheme Booklet is dated 7 March 2012.
12
2. Voting on the Proposal
2.1 Voting is important
The Proposal cannot be implemented without the approval of DHF Members, who will be asked to vote on the
EGM Resolutions at the EGM, and the Scheme Resolution at the Scheme Meeting. The EGM will be held at the AMA
Conference Centre, 69 Christie Street, St Leonards, NSW on 4 April 2012 commencing at 10.00am. The Scheme
Meeting will follow the EGM.
2.2 Who can vote?
If you are registered as a DHF Member at the Record Time, you will be entitled to vote on each of the EGM Resolutions at the
EGM and the Scheme Resolution at the Scheme Meeting. The DHF Board strongly encourages you to exercise your right as a
DHF Member to vote on the Resolutions.
Voting on the EGM Resolutions and the Scheme Resolution will be conducted in accordance with the DHF Constitution.
Accordingly, if you have a Single Policy (or a Family Policy with single parent family membership), you have one vote on each
Resolution. If you have a Family Policy (except single parent family membership), you have two votes on each Resolution. When
you vote, the returning officer will register one or two votes, as applicable, by reference to the type of Policy that you hold.
Important:
If you are not a DHF Member at the Record Time, you cannot vote on the EGM Resolutions or on the Scheme Resolution.
If you terminate your Policy, or your Policy lapses, you will cease to be a DHF Member. (The date to which your premium
contribution is paid is your “paid-to date”. Under the Fund Rules, as soon as your Policy is more than 2 months’ premium
contribution payments in arrears, your Policy will lapse with effect from the paid-to date.)
If your Policy is suspended in accordance with the Fund Rules, you are still a DHF Member and entitled to vote.
2.3 Voting on the EGM Resolutions
At the EGM, DHF Members will be asked to approve:
■■ A
mendments to the DHF Constitution that will allow Avant to become a member of DHF and facilitate the
implementation of the Proposal.
■■ D
HF changing from a public company limited by guarantee to a proprietary company limited by shares and the issue of
shares to Avant.
The EGM Resolutions are set out in the Notice of EGM in Appendix 1. To be passed, the EGM Resolutions must be
carried by at least 75% of the votes cast on the resolution by DHF Members.
2.4 Voting on the Scheme Resolution
At the Scheme Meeting, DHF Members will be asked to approve the Scheme. The Scheme Resolution is set out in the
Notice of Scheme Meeting in Appendix 2.
To be passed, the Scheme Resolution must be carried by a majority in number of DHF Members present and voting
(whether in person, by attorney* or by proxy) at the Scheme Meeting and by at least 75% of the votes cast on the
resolution by DHF Members (unless the Court orders otherwise).
* You can appoint a person under a power of attorney who can attend and vote on your behalf. Please refer to Section 2.10.
2.5 All Resolutions must be passed
If any of the EGM Resolutions, or the Scheme Resolution, is not passed by the required majorities of DHF Members, the
Proposal will not proceed.
13
2.6 How to vote?
You may vote on the EGM Resolutions at the EGM and the Scheme Resolution at the Scheme Meeting:
■■ in person by attending the EGM and the Scheme Meeting;
■■ If you are registered as a DHF Member on 24 February 2012, online;
■■ by proxy; or
■■ by appointing an attorney under a power of attorney.
Each of these options is explained in more detail below.
2.7 Voting in person
To vote in person, you must attend the EGM which will be held at the AMA Conference Centre, 69 Christie Street,
St Leonards, NSW on 4 April 2012, commencing 10.00am, and the Scheme Meeting which follows the EGM. Please
bring your membership card to assist in registration.
2.8 Voting online
If you are registered as a DHF Member on 24 February 2012, you can vote online by visiting
www.doctorshealthfund.com.au/AvantProposal/Voting and following the instructions. To vote online, you must do this by
no later than 10.00am on 3 April 2012. By voting online, you appoint the Chair of the EGM or the Scheme Meeting (as
applicable) as your proxy to cast your vote on your behalf.
2.9 Voting by proxy
To vote by proxy, you must complete, sign, date and return your blue proxy form and red proxy form (together with any power
of attorney or other authority under which the proxy forms are signed, or a certified copy of that power or authority) so that the
proxy forms are received by DHF by no later than the closing time for proxies (10.00am on 3 April 2012).
Your blue proxy form and red proxy form are included with this Scheme Booklet. Please read the instructions on each proxy form
carefully when completing the form.
If you are appointing a proxy, he or she does not need to be a DHF Member. If you appoint but do not name a proxy, or your
named proxy does not attend the applicable EGM or the Scheme Meeting, the Chair of the EGM or the Scheme Meeting (as
applicable) will be your proxy.
You may direct your proxy how to vote by marking the relevant box on each proxy form. If you do not mark a box, your proxy
may vote as he or she decides. If the Chair of the applicable meeting is your proxy and you have not directed how she should
vote on a Resolution, she intends to vote for the Resolution.
If you appoint a proxy but then attend the meeting, your proxy’s powers are suspended while you are present at the meeting.
You may return your proxy forms (and any supporting documents) by:
Deliver to: Ground Floor, 69 Christie Street, St Leonards NSW
Post to: Locked Bag 8100, Kingsgrove, NSW 2208
Fax to: 1300 987 218
Additional or replacement proxy forms may be obtained from DHF by calling the Proposal Hotline on 1800 508 716 or
by visiting www.doctorshealthfund.com.au/AvantProposal/Voting. Unlike the forms included with this Scheme Booklet, the
replacement forms will not contain your personal details. If you use a replacement proxy form, you will need to include
your name and member number in the place indicated.
2.10Appointing an attorney
You can appoint a person under a power of attorney who can attend and vote at the EGM and/or the Scheme Meeting on your
behalf. If you wish your attorney to attend and vote at the EGM and/or the Scheme Meeting on your behalf, the original or a
certified copy of the power of attorney authorising your attorney to attend and vote at the relevant meeting must be lodged with
DHF before 10.00am on 3 April 2012. (A solicitor or Justice of the Peace can certify a copy of the power of attorney.)
14
You may lodge the power of attorney (and any supporting documents) by delivering, posting or faxing them to DHF at the
address in Section 2.9 for the return of proxy forms.
2.11 Change your mind?
If you change your mind after lodging a proxy form, or after voting online, you can still attend the meetings and vote. Your
proxy’s powers (which are given to the Chair of the applicable meeting in the case of an online vote) are suspended while you
are present at the meeting.
If you wish to change your proxy forms, deliver, post or fax your new completed, signed and dated proxy forms to DHF so
that they are received by DHF before 10.00am on 3 April 2012.
If you wish to change your online vote, you can lodge a new online vote before 10.00am on 3 April 2012.
If you have lodged a proxy form or online vote and you no longer wish to vote, you can revoke your proxy forms or online
vote by delivering, posting or faxing your written revocation to DHF so it is received before 10.00am on 3 April 2012.
Unless you attend the meetings, the latest valid online vote or proxy form which is received by DHF before 10.00am on
3 April 2012 will be regarded as the valid online vote or proxy appointment.
2.12Voting Q&As
This Section sets out some questions and answers that you may have in connection with voting on the Resolutions.
1
Question
Answer
What should I have received?
You should have received this Scheme Booklet, a letter from the DHF
Board explaining your Initial Entitlement, a blue proxy form, a red
proxy form and a green Payment Authority.
If you have not received all of these documents, please call the
Proposal Hotline on 1800 508 716.
2
When do I need to be a DHF Member
in order to vote on the Resolutions?
If you are a DHF Member at the Record Time, you will be entitled to
vote at the EGM and the Scheme Meeting.
3
How might I cease to be a
DHF Member?
Under the DHF Constitution, you will cease to be a DHF Member:
■■ automatically if:
■■ you die; or
■■ you validly resign your membership;
■■ on a date specified by the DHF Board if:
■■ y ou cease to be a Contributing Member. (You will cease to
be a Contributing Member if you terminate your Policy, or your
Policy lapses). For further information, see Section 2.2;
■■ you are expelled from the company;
■■ in the opinion of the DHF Board, you bring the company
into serious disrepute.
If you are not a DHF Member at the Record Time, you will not be
entitled to vote (or if you have voted, your vote will not be counted)
at the EGM and the Scheme Meeting.
15
4
Can I vote if my Policy is
temporarily suspended?
Yes. If your Policy is suspended in accordance with the Fund Rules, you
are still a DHF Member and your right to vote remains unchanged.
5
How many DHF Members must vote
in favour of each Resolution for it to
be passed?
Each EGM Resolution, to be passed, must be carried by at least 75%
of the votes cast on the resolution by DHF Members.
6
How many votes do I get on
each Resolution?
Voting on each Resolution will be conducted in accordance with the
DHF Constitution. If you have a Single Policy (or a Family Policy with
single parent family membership) you have one vote. If you have a Family
Policy (except with single parent family membership) you have two votes.
When you vote, the returning officer will register one or two votes, as
applicable, by reference to the type of Policy that you hold.
7
What happens if the EGM Resolutions,
or the Scheme Resolution, are not
approved by the requisite majorities?
The Proposal will not be implemented and Scheme Members will not
receive any Entitlement.
8
What should I do if I am away or
otherwise unable to attend the EGM and
the Scheme Meeting?
If you are unable to attend the EGM and the Scheme Meeting in
person, you can vote online (if you are registered as a DHF Member
on 24 February 2012), appoint a proxy, or appoint a person to act as
your attorney under a power of attorney.
9
Can I vote by mail?
Yes. Use the reply paid envelope provided with this Scheme Booklet to
post your completed, signed and dated blue and red proxy forms to DHF
at Locked Bag 8100, Kingsgrove, NSW 2208 to arrive by no later than
10.00am on 3 April 2012.
10
Can I vote by fax?
Yes. Fax your completed, signed and dated blue and red proxy forms to
1300 987 218 by no later than 10.00am on 3 April 2012.
11
Can I vote online?
You can vote online if you are registered as a DHF Member on
24 February 2012 by visiting www.doctorshealthfund.com.au/
AvantProposal/Voting and following the instructions by no later than
10.00am on 3 April 2012. By voting online, you appoint the Chair of
the applicable meeting as your proxy to cast your vote on your behalf.
The Scheme Resolution, to be passed, must be carried by a majority
in number of DHF Members present and voting (whether in person,
by attorney under a power of attorney or by proxy) at the Scheme
Meeting and by at least 75% of the votes cast on the resolution by
DHF Members (unless the Court orders otherwise).
2.13Further Information
Further information concerning the EGM Resolutions and the voting procedures for the EGM is set out in the Notice of
EGM in Appendix 1.
Further information concerning the Scheme Resolution and the voting procedures for the Scheme Meeting is set out in the
Notice of Scheme Meeting in Appendix 2.
If you have any further questions about the EGM, Scheme Meeting or the Proposal, please call the Proposal Hotline on
1800 508 716. If you are in any doubt about anything in this Scheme Booklet, please contact your legal, financial or other
professional adviser.
16
This Section sets out the answers to key questions that
DHF Members may have in relation to the Proposal. The
answers to these questions should be read in conjunction
with the other Sections of the Scheme Booklet.
3. Answers to key questions
1
Question
Answer
What is being proposed?
On 11 August 2011, DHF and Avant signed the Implementation Deed
concerning the Proposal for DHF to demutualise and become a whollyowned subsidiary of Avant. The Implementation Deed was subsequently
restated and amended by DHF and Avant on 8 February 2012.
If the Proposal is implemented, Avant will pay $30 million which will be
distributed to Scheme Members (see questions 5 and 6).
The Proposal cannot proceed without the approval of DHF Members,
who will be asked to vote on the EGM Resolutions at the EGM to be
held at the AMA Conference Centre, 69 Christie Street, St Leonards,
NSW on 4 April 2012, commencing 10.00am, and on the Scheme
Resolution at the Scheme Meeting following the EGM.
The Proposal will be implemented if:
■■ the EGM Resolutions are approved by DHF Members;
■■ the Scheme Resolution is approved by DHF Members;
■■ the Court approves the Scheme at the Second Court Hearing
(see question 23);
■■ the other conditions precedent in the Implementation Deed and
Scheme are satisfied, including:
■■ P
HIAC approval of the conversion of registration of DHF to
a “for-profit” private health insurer;
■■ D
oHA approval of the proposed expansion of DHF’s
restricted access group to enable DHF to provide private
health insurance to additional selected categories of health
practitioners and officers, employees and contractors of
Avant Insurance and Avant Law Pty Limited; and
■■ a ll other necessary approvals of Government Agencies to
permit the Proposal to be implemented.
2
Who is Avant?
Avant is a wholly owned subsidiary of Avant Mutual. Avant Mutual
is a ”not-for-profit”, mutual organisation that currently provides
professional indemnity insurance to over 57,000 health professionals
including around 55% of Australia’s medical practitioners. Avant
Mutual reported net assets of $693.3 million as at 30 June 2011.
3
Why does Avant want to acquire DHF?
Avant is committed to meeting the evolving needs of its members and
believes that DHF’s products and services will be beneficial to, and greatly
appreciated by, its members.
4
Who is a DHF Member?
If you are a Contributing Member of DHF’s Health Benefits Fund, you
have a Policy and are a DHF Member. You are still a DHF Member if your
Policy is suspended in accordance with the Fund Rules, but you will cease
to be a DHF Member if your Policy lapses (see question 7).
17
A DHF Member does not include a person who only holds a travel
insurance policy (underwritten by QBE Insurance (Australia) Limited).
18
5
Who is a Scheme Member?
To be a Scheme Member, you must be a DHF Member at the
Scheme Record Time or a Prescribed Member. Scheme Members
receive an Entitlement (see question 25).
6
Who is eligible to receive a payment
from the $30 million paid by Avant if the
Proposal is implemented?
All Scheme Members are eligible to receive an allocation from the $30
million paid by Avant. The amount each Scheme Member receives is
determined under the Allocation Rules and is called an Entitlement
(see question 25). The Allocation Rules are set by the DHF Board
on the recommendation of DHF’s Appointed Actuary and have been
reviewed by the Independent Actuary. The Allocation Rules are described
in Section 7 and set out in full in Appendix 4.
7
If my Policy is in arrears, will I still
receive an Entitlement if the Proposal
is implemented?
The date to which your premium contribution is paid is your “paidto date”. If your Policy is more than 2 months’ premium contribution
payments in arrears, your Policy will lapse with effect from the paid-to
date. If your Policy has lapsed at the Scheme Record Time, you will not
receive an Entitlement. If your Policy is in arrears by less than 2 months at
the Scheme Record Time and you are a DHF Member, you will receive
an Entitlement.
8
What happens if I am a member of both
DHF and Avant Mutual?
Your membership of Avant Mutual does not affect your voting rights as
a DHF Member in any way. Avant Mutual members who are not DHF
Members are not entitled to vote on the Proposal.
9
Do I need to have my medical indemnity
insurance with Avant Insurance to
maintain my DHF Policy?
No. You may keep your medical indemnity insurance with another
medical indemnity insurance provider and retain your DHF Policy.
10
What impact will the Proposal have on
my medical indemnity insurance?
Whether you have your medical indemnity insurance with Avant
Insurance or another organisation, it will not be affected by the Proposal.
11
Who is eligible to vote?
There are two meetings to implement the Proposal. The first meeting is
the EGM which will be followed by the Scheme Meeting. If you are a DHF
Member at the Record Time, you are entitled to vote at both meetings.
12
Should I vote?
The DHF Board believes that the Proposal is important for all DHF
Members. You are encouraged to vote, but voting is not compulsory.
If any of the EGM Resolutions or the Scheme Resolution is not passed
by the requisite majorities of DHF Members at the relevant meeting,
the Proposal will not proceed.
13
How do I vote?
Section 2 explains how you can vote.
14
What level of approval is required to
approve the EGM Resolutions?
For the EGM Resolutions to be passed they must be carried by at
least 75% of the votes cast on the resolution by DHF Members.
15
What level of approval is required to
approve the Scheme?
For the Scheme to proceed, the Scheme Resolution must be carried
by a majority in number of DHF Members present and voting
(whether in person, by attorney or by proxy) at the Scheme Meeting
and by at least 75% of the votes cast on the resolution by DHF
Members (unless the Court orders otherwise).
16
Who else needs to approve
the Proposal?
The Proposal is subject to a number of approvals from the Court and
various Government Agencies (see question 1).
17
What does the DHF Board recommend?
The DHF Board unanimously recommends that, in the absence of a
Superior Proposal, DHF Members vote for the Resolutions. The reasons
for the DHF Board’s recommendation are set out in Section 5.
18
Why might I vote for the Resolutions?
Some reasons why you might consider voting in favour of the
Resolutions are set out in Section 5.
19
Why might I vote against the Resolutions?
Some reasons why you might consider voting against the Resolutions
are set out in Section 6.
20
Has the Proposal been reviewed by an
independent expert?
The Proposal has been independently reviewed by Lonergan
Edwards & Associates Limited which concluded that the Proposal
“is fair and reasonable and in the best interests of Scheme Members
in the absence of a current better proposal”. A summary of the
Independent Expert’s Report is set out in Appendix 7. The report
can be reviewed in full by visiting www.doctorshealthfund.com.au/
AvantProposal/SchemeofArrangement or you can request a copy by
calling the Proposal Hotline on 1800 508 716.
21
What happens if I do not vote, or I vote
against the Resolutions to implement the
Proposal?
Just because you do not vote, or you vote against the Resolutions, it
does not necessarily mean that the Scheme will not be implemented.
If the EGM Resolutions and the Scheme Resolution are carried and
the other conditions precedent (including Court approval of the
Scheme) are satisfied, you will receive your Entitlement if you are a
Scheme Member (see question 5) in accordance with the Allocation
Rules, even if you do not vote, or you vote against the Resolutions.
22
Is the Proposal subject to any conditions?
The Proposal is subject to a number of conditions precedent which
are set out in the Implementation Deed and Scheme. The conditions
precedent that are still to be satisfied at the date of this Scheme
Booklet include:
■■ DHF Member approval of the Resolutions;
■■ Court approval of the Scheme at the Second Court Hearing;
■■ P
HIAC’s consent to DHF becoming registered as a “for-profit”
private health insurer under the PHIA;
■■ D
oHA’s approval of the proposed expansion of DHF’s restricted
access group. Essentially, these changes are designed to enable DHF
to provide private health insurance to additional selected categories
of health practitioners and officers, employees and contractors of
Avant Insurance and Avant Law Pty Limited;
■■ other necessary approvals of Government Agencies;
19
■■ n o DHF Prescribed Occurrence or Avant Prescribed Occurrence
occurs before 5.00pm on the Business Day prior to the Second
Court Hearing Date; and
■■ n o DHF Material Adverse Change or Avant Material Adverse
Change occurs prior to 8.00am on the Second Court Hearing Date.
23
What is the role of the Court in the
Scheme?
The Court has approved DHF sending this Scheme Booklet to DHF
Members and the holding of the EGM and the Scheme Meeting.
If the DHF Members approve the EGM Resolutions at the EGM,
and the Scheme Resolution at the Scheme Meeting by the requisite
majorities, final approval of the Scheme will be sought from the
Court at the Second Court Hearing. Scheme Members are entitled
to attend the Second Court Hearing. DHF will provide notice by
newspaper advertisement of the time and place of the Second Court
Hearing. The Court has the power to approve the Scheme subject to
any alterations or conditions as it thinks fit.
24
What will I receive if the Proposal is
implemented?
If the Proposal is implemented and you are a Scheme Member
(see question 5), you will receive an Entitlement (see question 25).
It is important that you keep your Policy premium contribution up to
date to receive your Entitlement (see question 7).
25
What is my Entitlement if the Proposal
is implemented, how is it calculated and
when will it be paid?
If you are a Scheme Member (see question 5), and the Proposal is
implemented, your Initial Entitlement will be paid on, or shortly after,
the Implementation Date. Your Initial Entitlement is explained in your
letter from the DHF Board sent with this Scheme Booklet. (If you
became a DHF Member after the Calculation Date, to receive an Initial
Entitlement as a Scheme Member, you must not suspend your policy.)
You might also receive a small Residual Entitlement. This is a payment
which may arise if there is any part of the $30 million paid by Avant
remaining after paying all Scheme Members their Initial Entitlement (as
adjusted pursuant to determinations of the Review Committee made in
accordance with the Review Committee Charter).
Your Initial Entitlement and any Residual Entitlement are determined
under the Allocation Rules, which are described in Section 7 and set
out in full in Appendix 4.
If you complete and return the green Payment Authority sent with this
Scheme Booklet by 5.00pm on 29 May 2012, entitlements will be paid by
direct deposit into your Australian financial institution account (bank, credit
union or building society). Otherwise, payment will be made by cheque.
26
What can I do if I have any concerns
about my Entitlement?
You can submit a Review Request Form to the Review Committee if
you believe that:
■■ you have not been correctly identified as a Scheme Member; or
■■ your Initial Entitlement is incorrect.
Details of how to obtain and lodge a Review Request Form are set
out in Section 7.10.
20
You will need to clearly set out the reasons why you believe that you
are entitled to be a Scheme Member, or to have your Initial Entitlement
corrected, and provide sufficient evidence to support your claim.
27
What are the tax implications of
the Proposal for Scheme Members?
PricewaterhouseCoopers has prepared the Tax Advice Letter
which is set out in Appendix 10. In PricewaterhouseCoopers’
opinion, the amount received by Scheme Members if the Proposal
is implemented should not be subject to income tax. Nonetheless,
PricewaterhouseCoopers strongly advises Scheme Members to
obtain their own independent professional advice on the income tax
implications specific to their own circumstances.
28
How will the Proposal impact on any
social security entitlements I receive?
The payment of your Entitlement if the Proposal is implemented may affect
pension or other social security entitlements that you have. It is strongly
recommended that you seek professional advice or contact the relevant
Government department in relation to your particular circumstances.
29
What happens if the Proposal is not
implemented?
If the Proposal is not implemented:
■■ no Entitlements will be paid;
■■ D
HF Members will continue to be members of DHF, with all of
the rights and obligations currently applying to DHF Members;
■■ D
HF will continue to be a public company limited by guarantee
that is registered under the PHIA as a “not-for-profit” private
health insurer; and
■■ in certain circumstances, DHF will be required to repay to Avant
some or all of the costs which Avant has reimbursed to DHF in
connection with the Proposal. See Section 11.1 for a summary
of such circumstances.
30
What will happen to my Policy if the
Avant has stated in Section 10.5 that if the Proposal is implemented
its current intention is that DHF will retain its existing product range,
including DHF’s Top Cover hospital product, and the range of benefits
offered under each of DHF’s products.
31
What will happen to my Policy premium
if the Proposal is implemented?
The Appointed Actuary has concluded that, in his opinion, “future
premium rates are unlikely to be impacted in a material manner by the
Proposal”. The Appointed Actuary’s Report is set out in Appendix 8.
32
What rights will I lose as a DHF Member
if the Proposal is implemented?
DHF Members have certain rights under DHF’s Constitution and
under the law. These rights include the right to attend and vote on
resolutions at general meetings of DHF, to vote on a resolution on a
winding up of DHF and to vote on a resolution to elect or remove
a DHF director. If the Proposal is implemented, the company
memberships of all DHF Members will be cancelled and so, DHF
Members will lose their rights as members of the company.
33
Will DHF continue to be registered as a
restricted access private health insurer if
the Proposal is implemented?
Yes. As part of the Proposal, DHF has applied to DoHA to expand
its restricted access group to include additional selected categories of
health practitioners and officers, employees and contractors of Avant
21
Insurance and Avant Law Pty Limited. See Section 4 for further
information on the proposed expansion of the restricted access group.
34
Why are amendments to the DHF
Constitution being proposed at the EGM?
The changes to the DHF Constitution proposed at the EGM enable
Avant to become a member of DHF and facilitate the implementation
of the Proposal. They are detailed in the Notice of Meeting for the
EGM (Appendix 1) and an explanation of these amendments is
set out in Appendix 11. If passed, they will only become effective
following Court approval of the Scheme.
Further changes to the DHF Constitution will be required to implement
the Proposal, but these amendments will be made by Avant when it is
the sole member of DHF. The implementation steps are explained in
Section 4.5(f).
22
35
Will any current DHF directors be
continuing on the DHF Board if the
If the Proposal is implemented, Avant must procure, insofar as it is
able as a shareholder of DHF to do so, that three of the existing five
members of the current DHF Board will continue on the DHF Board
(with Patria Mann continuing as Chair) for the Initial Period. Patria
Mann, Bruce Foy and Dr Janette Stening have indicated that they are
willing to continue as DHF directors on that basis. They will be joined
on the DHF Board by four directors appointed by Avant.
36
Will the future DHF Board still have at
least two medically qualified directors?
Yes. Avant has committed to this requirement remaining in the DHF
Constitution following implementation of the Proposal.
37
Will the current Chief Executive Officer
(CEO) of DHF continue in that role?
It is Avant’s current intention that Peter Aroney will continue as the
CEO of DHF. Peter Aroney has indicated that he is willing to continue
as CEO.
38
What if I have a question about
the Proposal?
Information about the Proposal is available on DHF’s website
www.doctorshealthfund.com.au/AvantProposal or by calling the
Proposal Hotline on 1800 508 716. If you are in any doubt about
anything in this Scheme Booklet, or what you should do, please
contact your legal, financial or other professional adviser.
39
Is personal medical information disclosed
to Avant?
Personal medical information which is collected by DHF for the
purposes of its Health Benefits Fund is sensitive private information. It
is retained by DHF and will not be made available to Avant.
4. The Proposal in detail
4.1 DHF’s Strategic Direction
In 2006, DHF conducted a strategic review which considered the following:
■■ the importance of building and diversifying the Policy holder base by attracting younger members;
■■ the small size of its Health Benefits Fund, which meant that management costs relative to premium income were high
by comparison with competing funds;
■■ the need to attract and retain key staff;
■■ the need to invest in people and resources to develop DHF’s marketing capability;
■■ the potential to streamline products to a simpler offering; and
■■ the practical constraints of capital and marketing costs.
Since then DHF has undertaken a focused marketing effort with the aim of growing its Policy holder base in its chosen
medical practitioner market. In the period from 30 June 2006 to 31 December 2011 Policy holder numbers have grown
from 4,465 to 7,838.
4.2 Changes in the private health insurance industry
DHF operates in a dynamic private health insurance marketplace. The demutualisations of NIB Health Fund Limited,
MBF Australia Limited, Manchester Unity Limited and the Australian Health Management Group Limited highlighted the
receptiveness of their members to approve changes which unlock member value in mutual organisations.
Federal Government policy has a significant impact, raising risks and challenges for private health insurers. The Federal
Government has proposed the Fairer Private Health Insurance Incentives legislation which was passed by the House of
Representatives on 15 February 2012 and is expected to be passed by the Senate. Please check DHF’s website at
www.doctorshealthfund.com.au for up-to-date details. This legislation, if adopted, will means test the private health insurance
rebate and increase the Medicare Levy Surcharge, which may cause some Policy holders to downgrade or terminate their
cover. If so, this could place upward pressure on premium contribution levels and/or reduce the benefits offered.
Further information about the private health insurance industry, and the changes proposed under the Fairer Private Health
Insurance Incentives legislation, is set out in Section 8.
4.3 The approach by Avant
In March 2011, the DHF Board received an unsolicited approach from Avant, expressing interest in acquiring DHF. The
initial approach included an outline of Avant’s intentions and motives for expressing such interest, emphasising the very
strong alignment that Avant believed existed between the two organisations.
To facilitate discussions, DHF and Avant signed a Confidentiality Deed on 4 April 2011. Importantly, as DHF was concerned
not to incur costs in pursuing a proposal that might not eventuate, a Costs Undertaking was negotiated under which Avant
would reimburse DHF’s costs, up to an agreed cap, while negotiations took place.
The DHF Board sought financial and legal advice to assist it in considering Avant’s approach. After obtaining the relevant
advice, the DHF Board determined that the terms of Avant’s approach were worthy of further consideration, which meant
Avant permitting DHF limited access to undertake initial due diligence on Avant and DHF permitting Avant limited access to
undertake initial due diligence on DHF.
After this due diligence, the parties entered into the Implementation Deed on 11 August 2011 and the Proposal was
announced to DHF Members. The Implementation Deed was restated and amended by DHF and Avant on 8 February 2012.
23
4.4 Assessment of the Avant approach and alternatives
The DHF Board considered the advantages and disadvantages of the Avant approach having regard for expert advice on the
potential range of values of DHF and the fairness and reasonableness of the Consideration offered by Avant.
The DHF Board determined not to seek competing offers, nor to enter into a public tender process for the following reasons:
■■ the Proposal offered potential for DHF to grow in its chosen medical practitioner market through access to Avant
Mutual members;
■■ with medical practitioners as its core membership, Avant Mutual had a compatible culture;
■■ the Proposal provided an opportunity to unlock the value in DHF for DHF Members;
■■ A
vant’s stated intentions were viewed as positive for DHF, including the proposed continuation of DHF’s Health
Benefits Fund and its existing product range, including DHF’s Top Cover hospital product, and the range of benefits
offered under each of DHF’s products;
■■ a competing tender process would involve significant cost to DHF that would not be covered by the Costs Undertaking;
■■ a n Independent Expert would consider whether the Proposal was in the best interests of members and, should the
expert find this not to be the case, DHF could withdraw at no cost to DHF; and
■■ it was open to any interested party to make a competing offer after the Proposal was made public.
The DHF Board also considered the possibility of merging with another mutual “not-for-profit” private health insurer, although
it was thought unlikely that a suitable merger partner could be found - existing potential partners would not have the same
restricted access group and DHF’s products might need to be changed to achieve consistency with those of the merger
partner. This might not be attractive to DHF Members. (DHFs Top Cover, for example, is not supported as a mainstream
product by any other private health insurer.)
After the Avant offer was announced, DHF received a non-binding indicative offer of $30 million from another private health
insurer. Although this Competing Proposal offered consideration that was higher than Avant’s original offer of $28.5 million, it was
subject to conditions that, in the view of the DHF Board, made it less favourable. DHF notified Avant of the Competing Proposal
and Avant increased its original offer to $29.25 million. While the DHF Board sought to negotiate acceptable conditions with the
other private health insurer, these negotiations were unsuccessful and the Competing Proposal was eventually withdrawn. After
considering DHF’s unaudited results to 31 December 2011, Avant further increased its offer to $30 million.
The increased Avant offer, and the Competing Proposal, were considered by the Independent Expert when forming its view
that the Proposal “is fair and reasonable and in the best interests of Scheme Members in the absence of a current better
proposal”. (Further information concerning the Independent Expert’s Report is set out in Section 4.9.)
A Listing is not considered viable by the DHF Board for the following reasons:
■■ D
HF is thought to be too small for its shares to be actively and broadly sought by mainstream institutional investors,
with the result that it would be unlikely to be valued and priced efficiently in a securities market;
■■ g iven DHF’s size, and the scale of its operations, a Listing would be relatively inefficient compared with businesses of a
larger size;
■■ the costs involved in a Listing would absorb a material portion of DHF’s capital;
■■ Listing would increase compliance costs; and
■■ the demands of maximising shareholder returns do not align well with a private health insurer established by medical
practitioners to manage the health insurance needs of their own profession.
4.5 The Proposal
If the Proposal is implemented, Avant will pay DHF $30 million as consideration for the issue of the Subscription Shares by
DHF to Avant. The $30 million will be distributed amongst Scheme Members in accordance with the Allocation Rules.
24
(a) Key features: The key features of the Proposal are:
■■ DHF will be acquired by Avant by way of the Scheme;
■■ D
HF will change from a public company limited by guarantee to a proprietary company limited by shares, with Avant
as its sole shareholder;
■■ w
hile retaining all rights and benefits under their existing Policies, DHF Members will lose the company membership
rights that they currently have under DHF’s Constitution and the law. At the same time, the limited liability each DHF
Member has as a guarantor ($0.10 per DHF Member) on the winding up of DHF will be cancelled;
■■ DHF will convert from a “not-for-profit” to a “for-profit” private health insurer under section 126-42 of the PHIA;
■■ D
HF will continue as a restricted access private health insurer, but its restricted access group will be expanded
to include additional selected categories of health practitioners and officers, employees and contractors of Avant
Insurance and Avant Law Pty Limited.
The conditions which must be satisfied or waived before the Proposal can be implemented are set out in the
Implementation Deed and Scheme and summarised in Section 11.1. The steps required to implement the Scheme are
explained in paragraph(f) below.
(b) Approval by DHF Members
DHF Members will be asked to vote on the Resolutions to implement the Proposal at an EGM and at a Scheme Meeting.
Section 2 contains details of the voting approvals required for the Proposal to be implemented and information on how
DHF Members can vote on the Resolutions necessary to implement the proposal.
(c) PHIAC and DoHA approvals
DHF has applied to PHIAC under section 126-42 of the PHIA for DHF to convert from “not-for-profit” to a “for-profit” private
health insurer. PHIAC’s approval of the conversion to “for-profit” registration is a condition precedent to the Proposal that must be
obtained if the Proposal is to be implemented.
DHF has applied to DoHA for an expansion of its current restricted access group. The proposed expansion (if approved) will
enable DHF to issue its health insurance policies to additional selected categories of health practitioners and officers, employees
and contractors of Avant Insurance and Avant Law Pty Limited, as explained in Section 11.6.
Under the Implementation Deed, DoHA’s approval of the proposed expansion of DHF’s restricted access group is a condition
precedent to the Proposal. Avant has the right to waive this condition in the event that this approval for the expanded restricted
access group has not been received by DHF prior to the Second Court Hearing Date.
At the date of this Scheme Booklet, DHF has not yet received PHIAC’s approval to convert to a “for-profit” private health
insurer, nor has DoHA’s approval of the proposed expansion of DHF’s restricted access group been received. DHF will
publish updates from time to time in relation to the applications for PHIAC and DoHA approvals on the DHF website:
www.doctorshealthfund.com.au/AvantProposal/ImportantInformation.
(d)Entitlements
If the Proposal is implemented, the $30 million paid by Avant will be distributed amongst Scheme Members in accordance
with the Allocation Rules.
Only Scheme Members will be eligible to receive an Entitlement. Entitlements are determined under Allocation Rules set by
the DHF Board on the recommendation of DHF’s Appointed Actuary and after consideration of the Independent Actuary’s
opinion that the Allocation Rules are fair and reasonable. Section 7 explains how the Allocation Rules are applied, and
includes examples to assist you in understanding how Entitlements have been calculated. The Allocation Rules are set out
in Appendix 4. The Appointed Actuary’s Report contains further information on the Allocation Rules, which were also
considered by the Independent Actuary. Further information on the reports of the Appointed Actuary and the Independent
Actuary is set out in Section 4.9.
25
The amount explained in the letter from the DHF Board sent with this Scheme Booklet - called your Initial Entitlement - will
be paid to you as long as you remain a DHF Member at the Scheme Record Time. (If you became a DHF Member after
the Calculation Date, to receive an Initial Entitlement as a Scheme Member, you must not suspend your policy.) You may also
subsequently receive a small additional amount - called a Residual Entitlement.
If you complete and return the green Payment Authority by 5.00pm on 29 May 2012, Entitlements will be paid by direct
deposit into your Australian financial institution account (bank, credit union or building society). Otherwise, payment will be
made by cheque. If the Proposal proceeds in accordance with the indicative timing set out on page 9, you will receive your Initial
Entitlement on or shortly after the Implementation Date, with any Residual Entitlement expected to be paid during August 2012.
A review process has been established if you believe that your Initial Entitlement has not been correctly calculated or for those
who believe that they have incorrectly not been allocated an Entitlement. The review process is explained in Section 7.10.
(e) Effect of the Proposal on DHF Member rights
Under the DHF Constitution, DHF Members have individual rights as well as rights which can be exercised collectively.
In the case of collective rights, action is required by a requisite number or percentage of DHF Members, which varies
depending on the right which is sought to be exercised. The rights of DHF Members are summarised below:
Rights which can be exercised individually
■■ to attend, be heard and vote at meetings of DHF Members;
■■ to nominate, or be proposed by another DHF Member, to be appointed as a director of DHF;
■■ subject to any conditions determined by the DHF Board, to inspect any financial or other records of DHF;
■■ to receive a copy of the financial statements to be disclosed at the annual general meeting, and every other document
required, either 21 days prior to the annual general meeting, or within 4 months following the end of the financial year;
■■ to appoint a proxy, or attorney, to attend and vote at any meeting at which the DHF Member is entitled to attend and
vote (if the DHF Member has a Family Policy (except single parent family membership), he or she has two votes).
Rights which can be exercised with the requisite number or percentage of other DHF Members
■■ if DHF should merge or be wound up, any surplus property must be transferred to another Health Benefits Fund, or an
entity that has similar objects and limitations on the transfer of surplus as DHF. The requisite number of DHF Members
can select the transferee of the surplus within these restricted categories;
■■ to appoint and remove DHF directors and set their maximum aggregate remuneration and approve reimbursement
of expenses;
■■ to convene a meeting of DHF Members if, at any time, there are insufficient directors to constitute a quorum;
■■ to require that a meeting of DHF Members be convened (and, in conjunction with the requisite number of DHF
Members requiring the meeting, to call the meeting if it is not convened within two months);
■■ to direct the Chair of a meeting of DHF Members to adjourn the meeting;
■■ to demand a poll on any resolution to be put at a meeting of DHF Members.
In addition to the rights under the DHF Constitution described above, each DHF Member also has rights as a member of a
company under the law. The DHF Constitution and the law specify the number or percentage of DHF Members required to
exercise a right which can be exercised collectively. To obtain a copy of the DHF Constitution, call the Proposal Hotline - 1800
508 716 or visit the DHF website www.doctorshealthfund.com.au/AboutUs/Constitution.
If the Proposal is implemented, all DHF Members will have their company membership of DHF cancelled, and Avant will remain
as DHF’s only member. Accordingly, all DHF Members will cease to be DHF Members and will cease to have any of these rights.
DHF Members have contractual rights under their Policies, and are entitled to receive benefits in accordance with the terms
and conditions of their Policies. If the Proposal is implemented, DHF Members will retain all of their contractual rights and
benefits under their Policies.
26
(f) Implementation steps
If all of the conditions precedent to the Proposal are satisfied or, if applicable, waived, and all necessary approvals are
obtained, the following steps will then be taken:
■■ Prior to 8am on the Second Court Hearing Date, Avant will:
■■ apply to become a member of DHF;
■■ pay $30 million into the Trust Account;
■■ apply to DHF for the Subscription Shares. (This application is conditional on the Scheme becoming effective.)
■■ P
rior to the Implementation Time, the $30 million paid into the Trust Account by Avant will be held by the Trustee for
the benefit of Avant.
■■ On the Effective Date, the EGM Resolutions to change the DHF Constitution take effect.
■■ Immediately after the Effective Date, DHF will register Avant as a member of DHF.
■■ A
t the Implementation Time, the Trustee will commence to hold the $30 million in trust for DHF as pre-payment
for the issue price for the Subscription Shares and the company membership of all DHF Members will be cancelled,
leaving Avant as the sole member of DHF.
■■ O
ne minute after the Implementation Time, the conversion of the registration of DHF as a “for-profit” insurer under
section 126-42 of the PHIA will take effect and Avant (as the sole member of DHF) will adopt changes to the DHF
Constitution to reflect the change to “for-profit” status.
■■ On the Implementation Date:
■■ DHF’s Change of Company Type will take effect;
■■ DHF will issue the Subscription Shares (and share certificate) to Avant; and
■■ D
HF will direct the Trustee to distribute, from the Trust Account, Initial Entitlements to each Scheme Member
within 10 Business Days after the Implementation Date, in accordance with the Allocation Rules.
(g)Termination
The Proposal may be terminated by DHF or Avant in accordance with the terms of the Implementation Deed. The
termination provisions of the Implementation Deed are summarised in Section 11.1(i).
4.6 What happens if the Proposal is not implemented
If the Proposal is not implemented, then:
■■ no Entitlements will be paid;
■■ DHF Members will continue to be members of DHF, with all of the rights and obligations applying to DHF Members;
■■ D
HF will continue to be a public company limited by guarantee that is registered under the PHIA as a “not-for-profit”
private health insurer; and
■■ in certain circumstances, DHF will be required to repay to Avant some or all of the costs which Avant has reimbursed
to DHF in connection with the Proposal. See Section 11.1 for a summary of such circumstances.
4.7 Taxation consequences of receiving an Entitlement
PricewaterhouseCoopers has prepared advice on the Australian income tax consequences of the Proposal for Scheme
Members, as set out in the Tax Advice Letter in Appendix 10. PricewaterhouseCoopers has indicated that, in its opinion,
under the provisions of the Income Tax Assessment Act which relate to demutualisations, the amount received by Scheme
Members if the Proposal is implemented should not be subject to income tax. Nonetheless, PricewaterhouseCoopers
strongly advises Scheme Members to obtain their own independent professional advice on the income tax implications
specific to their own circumstances.
27
4.8 Social security consequences of receiving an Entitlement
If you receive social security payments (for example, pensions, allowances or veterans’ affairs payments), then you should
consider whether these payments will be affected as a result of receiving your Entitlement.
Depending on the amount of your Entitlement, the level of your other income and assets, and whether your pensions
and allowances are means-tested, receiving your Entitlement may affect your social security payments. You should carefully
consider your personal circumstances, and seek professional advice and/or consult the relevant department from whom
you receive your social security payments, to determine the impact of receiving your Entitlement on those payments.
If you are entitled to receive an overseas government pension or allowance, you should contact the relevant overseas body
to determine the impact of receiving your Entitlement.
4.9 Expert Reports
Independent Expert
Lonergan Edwards & Associates Limited was appointed by DHF to consider the Proposal as an independent expert. A
summary of the Independent Expert’s Report is set out in Appendix 7. The report can be reviewed in full by visiting
www.doctorshealthfund.com.au/AvantProposal/SchemeofArrangement or you can request a copy by calling the Proposal
Hotline on 1800 508 716.
The Independent Expert concluded that the Proposal “is fair and reasonable and in the best interests of Scheme Members
in the absence of a current better proposal”. In reaching this conclusion, the Independent Expert considered the Competing
Proposal received by DHF and Avant’s increased offer (referred to in Section 4.4) and the unaudited results for DHF to
31 December 2011 set out in Section 9.3.
Appointed Actuary
David Torrance of KPMG Actuarial Pty Ltd is DHF’s Appointed Actuary. Mr Torrance reviewed the Proposal and concluded,
having regard to the matters set out in the Appointed Actuary’s Report, that:
■■ T
he Allocation Rules represent a fair and reasonable basis upon which the financial benefit arising from the Proposal
will be distributed amongst Scheme Members.
■■ T
the Proposal.
The Appointed Actuary’s Report is set out in Appendix 8.
Independent Actuary
David Goodsall of Synge & Noble Pty Ltd was appointed by DHF to consider the Proposal as an independent actuary. He
concluded that the principles on which the Allocation Rules are based reasonably address relevant considerations for the
allocation and that the allocation methodology as represented by the Allocation Rules is fair and reasonable.
While noting that the future impact on Policy holders will be a function of future experience and circumstances which
cannot be reliably predicted or guaranteed, on the basis of the information available to him, including the report and
opinions of the Appointed Actuary, he considered that:
■■ T
he reasonable benefit expectations of Policy holders are unlikely to be impacted in a materially adverse manner
by the Proposal.
The Independent Actuary’s Report set out in Appendix 9.
28
4.10DHF to demutualise and convert to “for-profit”
If the Proposal is implemented, DHF will demutualise and convert from a “not-for-profit” to a “for-profit” private health insurer.
This means that DHF will be taxed on the profits in its Health Benefits Fund and may distribute dividends and return surplus
capital to Avant as its sole member and shareholder. Importantly, DHF can only pay dividends if its assets exceed its liabilities.
In addition no transfer of capital can be made if this would result in a breach of the solvency and capital adequacy prudential
standards under the PHIA.
If the Proposal is implemented, Avant has committed to procure, insofar as it is able as a shareholder in DHF to do so, that
capital is made available to DHF to the extent that it is needed to ensure that:
■■ D
HF’s Health Benefits Fund is in a position to meet its capital requirements in accordance with the solvency and
capital adequacy prudential standards under the PHIA; and
■■ D
HF has sufficient capital to support its business, to the extent that it is conducted in accordance with DHF’s business
plan in place as at the date of the Implementation Deed and any subsequent DHF business plan which Avant may
approve from time to time.
Further information about the solvency and capital adequacy prudential standards under the PHIA is given in Section 8.3.
Details about Avant’s current intentions and commitments in relation to DHF are set out in Section 10.5.
DHF’s Appointed Actuary considered the impact of DHF converting to “for-profit” in reaching the conclusions set out
in Section 4.9. On the basis explained in Section 4.9, the Independent Actuary agreed with the conclusions of the
Appointed Actuary.
4.11 DHF Board’s recommendation
The DHF Board unanimously recommends that DHF Members vote FOR the EGM Resolutions at the EGM, and FOR the
Scheme Resolution at the Scheme Meeting following the EGM in the absence of a Superior Proposal. The DHF Board has
reached this view after considering the Expert Reports and the arguments for and against the Proposal. The reasons for the
DHF Board’s recommendation are set out in Section 5.
Each DHF director is a DHF Member and intends, in that capacity, to vote for the Resolutions if no Superior Proposal is received.
29
5. Reasons to vote in favour of the Resolutions
If you believe that the Proposal is in your best interests, you can choose to vote in favour of the Resolutions. Some reasons
why you might consider voting FOR the Resolutions are set out in this Section.
5.1 Scheme Members will receive a cash Entitlement
The Proposal represents a means of ‘unlocking’ the value in DHF for Scheme Members. If the Proposal is implemented,
each Scheme Member will receive their Entitlement as a payment in return for the cancellation of their rights as DHF
Members. (If the Proposal is not implemented, Scheme Members will not receive any payment.)
5.2 The financial benefit for Scheme Members is certain under the Proposal
If the Proposal is implemented, each Scheme Member’s Entitlement will be paid in cash by direct deposit to a bank, credit
union or building society account, or by cheque. Accordingly, the amount that Scheme Members will receive is not subject
to share market or other value fluctuations.
5.3 The DHF Board believes the Proposal provides a superior outcome
Having taken into account a range of factors in evaluating the Proposal, the DHF Board believes that the Proposal will
deliver a superior outcome to Scheme Members compared with other potential options such as a Listing or merger with
another mutual private health insurer where DHF’s identity may be lost and/or no payment is made to Scheme Members.
5.4 The Health Benefits Fund will continue
DHF will continue to operate its Health Benefits Fund, rather than be merged with another Health Benefits Fund, or be
taken over by another private health insurer.
5.5 No change to existing Policies and benefits
The Proposal will not, of itself, result in any change to the Policy benefits currently enjoyed by DHF Members and the other
persons insured under their Policies. Existing Policies will continue in accordance with their terms and remain protected
by regulatory safeguards, including relevant Federal Government legislation. These safeguards are designed to protect the
financial strength and integrity of private health insurers.
5.6 The Independent Expert has concluded that the Scheme is in the best interests of Scheme Members
The Independent Expert has concluded that the Proposal “is fair and reasonable and in the best interests of Scheme
Members in the absence of a current better proposal”.
5.7 DHF will have access to the capital of Avant Mutual
Under its current structure, DHF’s only access to new capital is through surpluses generated from its operations. The
availability of capital is a potential constraint on DHF’s ability to grow. Avant has committed to procuring, insofar as it is able
as a shareholder in DHF to do so, that capital is made available to DHF to the extent that it is needed to ensure that:
■■ D
HF is in a position to meet its capital requirements in accordance with the solvency and capital adequacy prudential
standards under the PHIA; and
■■ D
plan in place as at 11 August 2011 and any subsequent business plan which Avant may approve from time to time.
Avant has also committed to procure, insofar as it is able as a shareholder in DHF to do so, that DHF will be able to access
its staff, systems and other support as appropriate.
Further information on Avant’s current intentions and commitments in relation to DHF and its business if the Proposal is
implemented is set out in Section 10.5.
30
5.8 Continued involvement of DHF directors and management
If the Proposal is implemented, Avant must procure, insofar as it is able as a shareholder of DHF to do so, that three of the
existing five DHF directors will continue on the DHF Board (Patria Mann continuing as Chair) for the Initial Period. Patria
Mann, Bruce Foy and Dr Janette Stening have indicated that they are willing to continue as DHF directors on that basis.
They will be joined on the DHF Board by four Avant-appointed directors. It is Avant’s current intention that Peter Aroney
will continue as the CEO of DHF. Peter Aroney has indicated that he is willing to continue as CEO. This will provide a level
of continuity in DHF’s leadership for the Initial Period.
Avant has also committed to retaining the requirement in the DHF Constitution that at least two of the DHF directors must
be medically qualified.
5.9 DHF will be part of a group focussed on the medical community
If the Proposal is implemented, DHF’s ultimate parent company will be Avant Mutual, a mutual, “not-for-profit”,
organisation which is, focused on the medical community. Avant Mutual currently has over 57,000 members, the vast
majority of whom are medical practitioners, doctors in training or medical students. This means that there is a strong
cultural compatibility between DHF and Avant Mutual.
5.10Enhanced growth opportunities
If the Proposal is implemented, it is intended that DHF’s products will be marketed to Avant Mutual members, providing an
opportunity to grow the Policy holder base at a lower cost. This growth offers the benefits of scale, which may include:
■■ reduced claims volatility arising from a larger pool of insureds;
■■ fixed costs being shared by a larger Policy base which should lower the ratio of management expenses to premium income;
■■ enhanced ability to manage pricing and supply risks around DHF’s service providers; and
■■ enhanced ability to attract and retain quality staff.
5.11 No Superior Proposal has been received by DHF
As at the date of this Scheme Booklet, DHF has not received an offer or proposal that the DHF Board considers is a
Superior Proposal. In the absence of a Superior Proposal, the DHF Board unanimously recommends that DHF Members
vote for the Resolutions to implement the Proposal.
31
6. Reasons to vote against the Resolutions
If you do not believe that the Proposal is in your best interests, or in the interests of DHF Members generally, you can vote
against the Resolutions. Some reasons why you might consider voting AGAINST the Resolutions are set out in this Section.
6.1 You will no longer have membership rights in the company
Although existing Policies will continue in accordance with their terms, your rights as a member of the company will be cancelled.
This means that you will not be able to vote or exercise any of the rights that, as a DHF Member, you currently have under the
DHF Constitution or under law. Further information on your rights as a DHF Member is set out in Section 4.5(e).
6.2 You might disagree with the basis on which the Allocation Rules have been determined
Although both the Appointed Actuary and the Independent Actuary consider (subject to the limitations and qualifications
in their respective reports) that the Allocation Rules represent a fair and reasonable basis upon which the financial benefit
arising from the Proposal will be distributed amongst Scheme Members, the Allocation Rules necessarily involve value
judgements and you might believe that Entitlements should have been determined differently.
6.3 You might disagree with the views of the DHF Board and the Independent Expert
You might disagree with the DHF Board and the Independent Expert’s conclusion that the Proposal is in the best interests
of Scheme Members in the absence of a current better proposal. You might believe that the $30 million to be paid by Avant
and distributed to Scheme Members in accordance with the Allocation Rules does not value DHF highly enough.
6.4 You might believe that DHF’s character, culture and quality of services will change
While Avant has stated its current intentions for the conduct of key aspects of the DHF business, there is the risk that under
any new ownership structure, the DHF business may take a different direction or that the character, culture and/or quality
of service will unfavourably change.
6.5 You might believe that DHF should remain a “not-for-profit” stand-alone mutual private health insurer
You might:
■■ be concerned that DHF Members will no longer be members of a stand-alone mutual private health insurer;
■■ b elieve that the quality and/or price of Policies and services may be adversely affected if DHF converts its status from a
“not-for-profit” private health insurer to a “for-profit” private health insurer;
■■ b e concerned that DHF will become part of an organisation which currently has, as its primary focus, medical
indemnity insurance and that, as a result, Avant might favour the interests of Avant Mutual members over the interests
of DHF Policy holders, should any situation arise where these interests are not aligned.
6.6 You might believe that DHF should have pursued an alternative option, or that no change is required
You might believe that the DHF Board should have pursued an alternative option, or that DHF does not need to change
because it is operating successfully in its current form.
6.7 You might not agree with the changes proposed to the restricted access group
You might believe that the proposed expansion of DHF’s restricted access group might adversely impact the range, price
and/or quality of Policies and services.
32
7. Allocation and Entitlements
Under the Proposal, each Scheme Member will receive an Entitlement which is determined under the Allocation Rules.
This Section is a summary of the Allocation Rules and includes examples to help you understand how Entitlements are
calculated. The Allocation Rules are set out in full in Appendix 4.
You should read the Allocation Rules carefully. If you have any questions in relation to the Allocation Rules, please call the
Proposal Hotline on 1800 508 716.
If you believe that you should be a Scheme Member, or that the Allocation Rules have not been correctly applied to you,
you may request a review as explained in Section 7.10. Any dispute concerning the application of the Allocation Rules will
be determined by reference to the Allocation Rules rather than by reference to this Section.
7.1 What is an Entitlement?
Scheme Members will receive an Initial Entitlement, which is explained in the letter from the DHF Board sent with this
Scheme Booklet. The Initial Entitlement is determined having regard to:
■■ the type of Policy held by the Scheme Member - Family Policy or Single Policy; and
■■ the period of time during which the Policy provided Hospital Cover, or Extras Cover, or both.
The way in which it is calculated is explained in Section 7.5.
A small additional amount, called a Residual Entitlement, might also be payable. A Residual Entitlement is an allocation from the Final
Residual Amount. The Final Residual Amount is the balance of the Residual Amount after:
■■ d educting the Initial Entitlement of Scheme Members whose Join Date is after the Calculation Date and payments
made as a consequence of Review Committee determinations; and
■■ a dding the Initial Entitlements previously allocated to DHF Members who ceased to be DHF Members before the
Scheme Record Time.
The way in which any Residual Entitlement is calculated is also explained in Section 7.5.
Note:
While other persons may also be insured under a Policy (such as a spouse or dependent child) it is the person to whom
the Policy is issued - the Contributing Member - who is the DHF Member. Only Scheme Members - DHF Members at
the Scheme Record Time and Prescribed Members - will receive an Entitlement under the Proposal.
7.2 Keeping your Policy up-to-date
If your Policy has lapsed or has been terminated at the Scheme Record Time, you will not be a Scheme Member and you
will not receive an Entitlement. Your Policy will lapse as soon as your premium contributions are more than two months in
arrears, so it is important that you keep your Policy premium contributions up to date.
Note:
The date to which a premium contribution is paid is the “paid-to date”. When your premium contributions are more
than two months in arrears your Policy and contributing membership will lapse with effect from the “paid-to date”.
7.3 What if your Policy is suspended?
If your Join Date was before the Calculation Date and you have suspended your Policy in accordance with the Fund
Rules, you will receive an Entitlement if you are a Scheme Member, but the period that the Policy is suspended will not be
counted when determining tenure under the Allocation Rules, as explained below.
If your Join Date was after the Calculation Date, if you suspend your Policy for any period before the Scheme Record Time,
you will not receive an Entitlement.
33
7.4 What is ‘tenure’ under the Allocation Rules?
(a) How is tenure assessed?
Under the Allocation Rules, tenure is assessed from the date that your Policy started, which is called the Join Date in the
Allocation Rules. If your Join Date is before the Calculation Date, tenure is assessed from your Join Date to the Calculation
Date, with any period during which your Policy was suspended excluded. If your Join Date is after the Calculation Date, and
you have not suspended your policy for any period before the Scheme Record Time, your tenure is deemed to be one year.
The period of tenure is then classified according to the type of Policy you held - Family Policy or Single Policy - and the type
of cover - Hospital Cover and/or Extras Cover - provided under your Policy.
(b) Why have a Calculation Date?
The Calculation Date was selected as the latest practical time to collect all the data necessary to determine Initial
Entitlements before finalising this Scheme Booklet.
(c) What if I change my Policy from Family to Single or vice versa?
As long as you held a Policy, even if you changed your Policy from a Family Policy or a Single Policy, or vice versa, your Join
Date does not change.
(d) What happens if my Policy lapsed?
If your Policy lapsed, but DHF accepted your premium contributions in full for the period from the date of lapse, your Policy
has been reinstated and your Join Date continues unaffected by the lapse.
If, however, your Policy lapsed and either:
■■ premium contributions were not paid in full for the period from the date of lapse, or
■■ DHF refused to accept premium contributions for the period from the date of lapse,
your Policy has been terminated. If you subsequently took out a new Policy then, even if the membership number for the
new Policy is the same as that under the terminated policy, the period that the terminated Policy was in force is not counted
as tenure. Your tenure under the Allocation Rules is assessed from the Join Date for your new Policy.
(e) What if I terminated my Policy?
If you terminated your Policy and subsequently took out a new Policy, even if the membership number for the new Policy
is the same as that under the terminated policy, the period that the terminated policy was in force is not counted as tenure.
Your tenure under the Allocation Rules is assessed from the Join Date for the new Policy.
7.5 How is each Scheme Member’s Entitlement calculated?
(a) How is the Initial Entitlement calculated?
Initial Entitlements are calculated as follows:
Initial Entitlement = unit allocation x initial unit value rounded down to the nearest whole cent.
The unit allocation is the number of units allocated to a Scheme Member, as explained below.
The initial unit value is $1.11. This value was calculated by dividing the Initial Amount by the total number of units allocated
to all DHF Members at the Calculation Date rounded down to the nearest whole cent.
(b) How is any Residual Entitlement calculated?
Residual Entitlements are calculated as follows:
Residual Entitlement = your unit allocation (including any additional units allocated by the Review Committee in accordance
with the Review Committee Charter) x residual unit value rounded down to the nearest whole cent.
The residual unit value is the Final Residual Amount divided by the sum of the units allocated (including any additional units
allocated by the Review Committee in accordance with the Review Committee Charter) to all Scheme Members, rounded
down to the nearest whole cent.
34
If the Review Committee decides that the amount of any Residual Entitlements to be paid to an individual would be nominal (less
than $10.00), or the costs of payment would be disproportionate to the amount of the payment, or a surplus arises from the
rounding of payments, these amounts will be paid to a Medical Benevolent Funds charity in Australia chosen by the DHF Board
that provides for the welfare of medical practitioners.
7.6 How is the Unit Allocation determined?
If you are a Scheme Member and the Join Date for your Policy was on or before the Calculation Date, the way that your
unit allocation is determined is explained in Section 7.7.
If you are a Scheme Member and the Join Date for your Policy was after the Calculation Date, the way in which your unit
allocation is determined is explained in Section 7.8.
7.7 Unit Allocation for a Scheme Member whose Join Date was on or before the Calculation Date
Step 1
If your Policy has never included Hospital Cover, go to Step 4.
Determine your Years
of Hospital Tenure
Your Years of Hospital Tenure are the years and days from the Join Date to the
Calculation Date (both dates inclusive) during which your Policy provided Hospital
Cover, less any years and days during which your Policy (while providing Hospital
Cover) was suspended. The result is then rounded up to the nearest whole year.
This period is then divided into Family Years of Hospital Tenure (if any) and
Single Years of Hospital Tenure (if any).
Step 2
Determine your Family
Years of Hospital Tenure
Step 3
Determine your Single
Your Family Years of Hospital Tenure are the years and days from the Join Date to the
Calculation Date (both dates inclusive) during which you held a Family Policy with Hospital
Cover, less any years and days during which your Family Policy (while providing Hospital
Your Single Years of Hospital Tenure are your Years of Hospital Tenure less your
Family Years of Hospital Tenure.
Step 4
If your Policy has never included Extras Cover, go to Step 7.
Determine your Years
of Extras Tenure
Your Years of Extras Tenure are the years and days from the Join Date to the
Calculation Date (both dates inclusive) during which your Policy provided Extras
Cover, less any years and days during which your Policy (while providing Extras
This period is then divided into Family Years of Extras Tenure (if any) and
Single Years of Extras Tenure (if any).
Step 5
Determine your Family
Years of Extras Tenure
Step 6
Determine your Single
Step 7
Your Family Years of Extras Tenure are the years and days between the Join Date to the
Calculation Date (both dates inclusive) during which you held a Family Policy with Extras
Cover, less any years and days during which your Family Policy (while providing Extras
Your Single Years of Extras Tenure are your Years of Extras Tenure less your
Family Years of Extras Tenure.
Use the table below to determine your unit allocation:
Determine the
Unit Allocation
35
Period of tenure
Unit Allocation
per year of tenure
Period of tenure x
Unit Allocation
Family Years of Hospital Tenure
200
[Your result]
Single Years of Hospital Tenure
100
[Your result]
Family Years of Extras Tenure
200
[Your result]
Single Years of Extras Tenure
100
[Your result]
[Your total unit allocation]
7.8 Unit Allocation for a Scheme Member whose Join Date was after the Calculation Date
If you are a Scheme Member and the Join Date for your Policy was after the Calculation Date, you will receive an Initial
Entitlement if you do not suspend your Policy for any period before the Scheme Record Time.
Use the table below to determine your unit allocation:
If at the Join Date the Scheme Member had:
The Unit Allocation is:
A Single Policy providing Hospital Cover only
100
A Family Policy providing Hospital Cover only
200
A Single Policy providing Extras Cover only
100
A Family Policy providing Extras Cover only
200
A Single Policy providing Hospital Cover and Extras Cover
200
A Family Policy providing Hospital Cover and Extras Cover
400
If you do suspend your Policy for any period before the Scheme Record Time, your unit allocation is zero and you will not
receive an Entitlement.
7.9 Some Examples
The following are some examples which illustrate the application of the Allocation Rules in various situations. They have
been included to assist you to understand the Allocation Rules.
Hospital Cover only
As a young single, Nicholas first took out a Single Policy with Hospital Cover on 1 January 2000. However, after he
married, he changed to a Family Policy with Hospital Cover on 1 February 2008. Nicholas’ Join Date is 1 January 2000 and
his Unit Allocation is determined as follows:
36
13 years (i.e. 12 years 17 days rounded up)
x 200 Units
= 800 Units
9 years (i.e. 13 years less 4 years)
x 100 Units
= 900 Units
Nil
Nil
Nil
Nicholas’ Initial Entitlement
= 1,700 Units x $1.11 (initial unit value)
= $1,887
Unit Allocation = 1,700 Units
Hospital and Extras Cover
Katrina first took out a Single Policy with Hospital Cover on 1 July 2006, then added Extras Cover to her Policy on 1 April
2010. Katrina’s Join Date is 1 July 2006 and her Unit Allocation is determined as follows:
Nil
2 years (i.e. 1 year 292 days rounded up)
Nil
Katrina’s Initial Entitlement
= 800 Units x $1.11 (initial unit value)
= $888
x 100 Units
= 600 Units
x100 Units
= 200 Units
Unit Allocation = 800 Units
Suspension
Susan first took out a Single Policy with Hospital Cover on 1 August 1985. She validly suspended her Policy while she was
in London from 1 December 1990 to 31 January 1992. Upon her return, she resumed her Hospital Cover, but then,
following her marriage, changed to a Family Policy with Hospital and Extras Cover on 1 May 1997. Susan’s Join Date is 1
August 1985 and her Unit Allocation is determined as follows:
26 years (i.e. 26 years 170 days, less the
1 year, 62 days suspended, rounded up)
15 years (14 years 262 days rounded up)
x 200 Units
= 3,000 Units
x 100 Units
= 1,100 Units
x 200 Units
= 3,000 Units
Nil (i.e. 15 years less 15 years)
Susan’s Initial Entitlement
= 7,100 Units x $1.11 (initial unit value)
= $7,881
Unit Allocation = 7,100 Units
37
New Policy after Lapse
Peter first took out a Family Policy with Hospital and Extras Cover on 1 July 1980. His Policy lapsed as his premium
contributions were in arrears for 3 months in 2007 and his premium contributions were not paid back to his paid-to date.
On 1 December 2007, he took out a new Single Policy with Hospital Cover. Even though his membership number was
the same as that under his Policy that lapsed, his Join Date is 1 December 2007 when his new Policy started and his Unit
Allocation is determined as follows:
0 years
Nil
Nil
Nil
Peter’s Initial Entitlement
= 500 Units x $1.11 (initial unit value)
= $555
x 100 Units
= 500 Units
Unit Allocation = 500 Units
7.10Review process
You can submit a request for review to the Review Committee if you believe that:
■■ you have not been correctly identified as a Scheme Member; or
■■ your Initial Entitlement is incorrect.
You must complete a Review Request Form available from DHF’s website at www.doctorshealthfund.com.au/
AvantProposal/SchemeofArrangement or by calling the Proposal Hotline on 1800 508 716. You will need to clearly set out
the reasons why you believe that you are entitled to be a Scheme Member, or have your Initial Entitlement corrected, and
provide sufficient evidence to support your claim.
The Review Committee will consider requests in accordance with the Review Committee Charter, but does not have the
authority to alter the Allocation Rules. The Review Committee Charter is set out in Appendix 5.
The completed Review Request Form must be mailed to:
The Company Secretary
Entitlement Review Request
Locked Bag 8100, Kingsgrove, NSW 2208
The Review Request Form must be received by DHF’s Company Secretary by 5.00pm on the day which is five Business
Days after the Implementation Date.
38
8. The Private Health Insurance Industry
8.1Introduction
The Australian private health insurance industry operates as part of a mixed public and private health care environment.
Private health insurance offers contributors greater choice in accessing a range of hospital and health care services.
The latest Operations of the Private Health Insurers Report issued by PHIAC for the financial year 2010-2011 indicates
that, at 30 June 2011, there were 34 registered private health insurers operating in the private health insurance industry
in Australia. The five largest insurers, or insurer groups, account for 83.7% of the market, with 27 insurers sharing the
remaining 16.3% of the market.
As a consequence of the conversion of Medibank Private to a “for-profit” insurer in October 2009, approximately 70% of
the industry on a market-share basis became “for-profit”. Medibank Private is 100% owned by the Australian Government.
The proportion of Australians with private health insurance hospital cover has stabilised in recent years at around 40-50%
of the population. From the PHIAC Report referred to above, at 30 June 2011, 10.26 million people had hospital cover
representing 45.3% of the population.
8.2 The private health insurance industry regulatory environment
The PHIA came into effect on 1 April 2007 and regulates private health insurers and their operations including registration,
setting of premiums, benefit coverage, portability, capital and solvency requirements, reinsurance and governance. All
private health insurers must operate their Health Benefits Funds in accordance with the PHIA.
There are various Federal Government incentives to encourage people to hold private health insurance, including:
■■ T
he private health insurance rebate - this provides a rebate of 30% of your premium contribution, increasing to 35% if
the oldest person insured under your policy is aged 65 to 69 and 40% if the oldest person insured under your policy is
70 or older, assuming you are eligible for Medicare. Under the Fairer Private Health Insurance Incentives legislation, it is
proposed that this rebate will be means tested, reducing on a tiered basis for those on incomes greater than $83,000
for singles and $166,000 combined for families/couples (ultimately reducing to nil for singles on incomes greater than
$129,000, and families/couples on combined incomes of greater than $258,000). More information on this legislation is
given below.
■■ Lifetime Health Cover, which encourages people to take out private health insurance by 1 July following their 31st birthday.
■■ T
he Medicare Levy Surcharge, which has been in place since 1 July 1997 and aims to encourage high income earners
to take out private hospital cover by imposing a surcharge of 1% on the Medicare levy liability for those without
private hospital insurance. Under the Fairer Private Health Insurance Incentives legislation, it is proposed that the
Medicare Levy Surcharge will increase on a tiered basis for those on higher incomes to a maximum of 1.5% for singles
with incomes of $129,001 and above (for families/couples with combined incomes of $258,001 and above).
The proposed income tiers at which the rebate is reduced, and the Medicare Levy Surcharge is increased, are shown in the
table below. (When considering the income tiers, please note that the legislation uses “income for surcharge purposes” as
defined in the Income Tax Assessment Act 1997 (Cth).)
39
Income Tiers
Singles
<$83,000
$83,001-$96,000
$96,001-$129,000
>$129,001
Families
<$166,000
$166,001-$192,000
$192,001-$258,000
>$258,001
Rebate
Age <65
30%
20%
10%
0%
Age 65-69
35%
25%
15%
0%
Age 70+
40%
30%
20%
0%
1.25%
1.50%
Medicare Levy Surcharge
All Ages
0.00%
1.00%
There are varying views as to how these changes, if adopted, will affect the private health insurance industry. The increase
to the Medicare Levy Surcharge should continue to act as an incentive for singles on incomes above $83,000 (families/
couples $166,000) to maintain their private health insurance, however these individuals could reduce their level of cover or
seek alternative lower priced policies in other health funds. If so, this could place upward pressure on premium contribution
levels and/or reduce the benefits offered.
The Fairer Private Health Insurance Incentives legislation was passed by the House of Representatives on 15 February 2012 and is
expected to be passed by the Senate. Please check DHF’s website at www.doctorshealthfund.com.au for up-to-date details.
8.3 Prudential requirements
Under the PHIA, private health insurers must meet minimum solvency and capital adequacy requirements, with the capital
adequacy reserve being at least equal to the solvency reserve. The first measure is intended to ensure the basic solvency
of the Health Benefits Fund so that, under a wind-up test, the Fund would be able to meet all liabilities as they fall due. The
second measure is intended to secure the financial soundness of the Health Benefits Fund on a going-concern basis. Essentially,
under these requirements, the insurer must at all times maintain adequate capital within the Health Benefits Fund by ensuring
the value of the capital of the Fund equals or exceeds the capital adequacy reserve of the Fund. PHIAC, as the private health
insurance industry prudential regulator, monitors these measures for each Health Benefits Fund on a quarterly basis.
8.4 Health insurance product and price changes
The PHIA imposes certain requirements on the types of products that can be offered by private health insurers through
their Health Benefits Funds and the manner in which they can be made available.
PHIAC reviews all pricing applications and provides advice to the Minister for Health in relation to the pricing applications.
The Minister must approve applications for price increases.
All Health Benefits Fund rule changes must be notified in writing to the Minister for Health. The Minister has the power to
direct a private health insurer not to make a rule change if he or she is satisfied that the change might, or would, result in a
breach of the PHIA.
Community rating
Private health insurers must ensure that their rules and actions are consistent with the community rating principle, which
aims to eliminate barriers to access to private health insurance by preventing discrimination on the basis of a person’s health,
age (other than age at entry under Lifetime Health Cover), race, gender, sexuality or claims history.
40
The community rating principle requires that private health insurers charge the same premium for the same product to all
people on the same scale in the same State or Territory.
Waiting periods and portability
The PHIA specifies the maximum waiting periods that a private health insurer may impose on new policy holders (subject
to portability requirements) before paying benefits in respect of hospital treatments. Portability refers to the ability of
members to change private health insurers with recognition of waiting periods served.
8.5 Other regulatory obligations
Private health insurers are also subject to regulatory frameworks and obligations imposed by legislation such as the Health
Insurance Act 1973 (Cth), the Corporations Act, the Competition and Consumer Act 2010 (Cth), the Privacy Act 1988 (Cth),
the Criminal Code Act 1995 (Cth) and various State and Territory legislation (such as the fair trading legislation).
41
9. Information about DHF
9.1Introduction
DHF commenced operations in 1977 as an initiative of the New South Wales branch of the Australian Medical Association.
It operates nationally from its office in Sydney, with the majority of Policy holders residing in the eastern States. It is a “notfor-profit”, restricted access, private health insurer. DHF’s restricted access group (the people who are eligible to take out
a Policy) is defined in the Private Health Insurance (Registration) Rules 2007 (No 2) and set out in Section 11.6. It is a
signatory to the Private Health Insurance Code of Conduct.
DHF is the only Australian private health insurer which is focused on the medical community. Although medical practitioners
form the basis of DHF’s eligibility criteria, medical students at an Australian university medical school, employees of medical
practitioners and employees of federal or state Australian Medical Associations are also included. It provides personalised
service through its call centre which is supplemented with a secure online facility enabling Policy holders to view their cover
details at anytime they choose.
9.2 Health insurance products
DHF offers a range of quality health insurance products which are designed to meet the requirements of its restricted
access group.
Hospital products include:
■■ T op Cover - which offers medical benefits up to the AMA list of services and fees, with freedom of choice of doctor, and is not
dependent on the doctor’s adherence to any medical gap scheme to be paid by DHF’s Health Benefits Fund;
■■ Prime Choice - which is comparable to other private health insurers’ top hospital products;
■■ S mart Starter - designed for younger, fit and healthy people and has exclusions and restrictions which allow a lower
premium to be charged.
Prime Choice and Smart Starter provide medical benefits under the Australian Health Service Alliance Access Gap
Cover Scheme.
All three levels of hospital cover provide access to an extensive list of contracted private hospitals across Australia and
comprehensive ambulance cover.
DHF offers two levels of general treatment cover. These include cover for a range of services including dental, optical,
physiotherapy and pharmaceuticals.
DHF also offers travel insurance policies through its website. The policies are issued and underwritten by QBE Insurance
(Australia) Limited and offered at a discount to the normal rate.
42
9.3 Financial information
Financial Years ended 30 June 2010 and 30 June 2011
The following is a summary of financial information for DHF for the financial years ended 30 June 2010 and 30 June 2011.
Detailed disclosures and notes applicable to complete financial statements have not been included. Although presented in
a different format, this information was extracted from DHF’s audited annual reports which can be viewed by visiting
www.doctorshealthfund.com.au. The annual reports contain details of significant accounting policies, detailed breakdowns
of financial positions and discussion of strategy and operations for each period.
Income Statement
Notes
Financial Year Ended
30 June 2011
$’000
Premium Revenue
30 June 2010
$’000
25,044
20,805
Direct claims expense
Ambulance levies
RETF recoveries
(22,340)
(290)
2,160
(19,768)
(255)
2,779
Net claims incurred
(20,470)
(17,244)
Gross Underwriting Profit
4,574
3,561
Claims handling costs
Acquisition costs
Other underwriting expenses
(756)
(757)
(1,762)
(1,093)
(551)
(1,102)
(3,275)
(2,746)
Underwriting Profit
1,299
815
Investment income
Other income
1,762
26
1,500
48
3,087
2,363
0
278
3,087
2,641
Total management costs
Profit before Income Tax
Net movement in
unexpired risk liabilities
Profit for the year
1.
2.
Notes
1.The allocation methodology for expense by function changed in 2011 based on DHF management’s interpretation of PHIAC guidance for
annual returns. If the same methodology was used for 2010, the claims handling costs, acquisition costs, and other underwriting expenses for
2010 would have been $634,247, $433,471 and $1,678,624 respectively.
2. As a “not-for-profit” company, DHF does not pay income tax.
remium revenue has increased during the periods shown as a result of the growth in Policy numbers and premium
P
rate increases.
43
Balance Sheet
As at
30 June 2011
$’000
30 June 2010
$’000
Current Assets
Non-current Assets
20,122
10,487
20,720
5,563
Total Assets
30,609
26,283
Current Liabilities
Non-current Liabilities
10,672
48
9,431
50
Total Liabilities
10,720
9,481
Net Assets
19,889
16,802
The DHF Board has, with the assistance of DHF’s Appointed Actuary, determined a target capital range which has been set
by reference to the PHIA prudential standards. DHF’s capital as at 30 June 2011 fell within that range.
Update - 31 December 2011
Unaudited management accounts for DHF have been prepared for the 6 month period to 31 December 2011,
and summarised below.
Income Statement
Notes
Half Year Ended
31 December 2011
$’000
14,578
Premium Revenue
Direct claims expense
Ambulance levies
RETF recoveries
(11,384)
(159)
489
Net claims incurred
(11,054)
Gross Underwriting Profit
3,524
Claims handling costs
Acquisition costs
Other underwriting expenses
(353)
(354)
(1,009)
Total management costs
(1,716)
Underwriting Profit
1,808
Investment income
Other income
Profit before Income Tax
Net movement in
unexpired risk liabilities
Profit for the year
44
954
14
1.
2,776
0
2,776
Notes
1.As a “not-for-profit” company,
DHF does not pay income tax.
Balance Sheet
As at
31 December 2011
$’000
Current Assets
Non-current Assets
24,496
8,962
Total Assets
33,458
Current Liabilities
10,654
139
Total Liabilities
10,793
Net Assets
22,665
These unaudited results to 31 December 2011 are favourable compared to budget as claims have been lower than projected
over that period. Claims experience is volatile and can vary significantly quarter on quarter in a small private health insurer like
DHF. A positive experience for a half-year period does not mean that such results can be expected in the future.
As a result of this positive experience, DHF’s capital position has improved by $2.8 million and is currently above the DHF
Board’s target capital range.
These unaudited results to 31 December 2011 were provided to the Independent Expert and Avant. After considering
these results, including the improved capital position:
■■ the Independent Expert adopted a valuation of DHF between $28.4 million and $31.9 million; and
■■ Avant increased its offer to $30 million.
The increased Avant offer of $30 million is within the Independent Expert’s valuation range. Please refer to
Section 4.9 for further information on the Independent Expert’s Report.
Historical results are not necessarily indicative of the results to be expected in the future.
9.4 Alliances and Associations
DHF has the following key alliances and associations:
HAMBS - HAMB Systems Ltd provides computer software and wide area network services. DHF is a founding member
of HAMBS and is one of the 24 private health insurers in the HAMBS community. The nature of the HAMBS arrangement
allows DHF access to the specialist software application and online Policy holder services.
AHSA - the Australian Health Services Alliance, which is responsible for facilitating arrangements between hospitals, doctors
and health service providers on behalf of DHF and other participating private health insurers.
HIRMAA - a membership organisation representing Australia’s community based “not-for-profit” private health insurers. If
the Proposal is implemented, it is intended that DHF will continue as a member of HIRMAA, however this will be reviewed
in light of DHF’s conversion to “for-profit”.
9.5Outlook
DHF has been successful in recent years in attracting young medical practitioners and continues to focus on growth and
improving services. Recent increases in scale will enable further investment in new technologies, information systems and
processes which will enhance DHF’s service to Policy holders while improving efficiency. Enhancements in DHF’s online
capabilities are being implemented to modernise the interaction with Policy holders.
45
DHF will need to monitor the financial and operational impact of the Fairer Private Health Insurance Incentives legislation
should it be passed by the Senate. This will include monitoring key financial indicators and Policy holder numbers across
products. Policy holders will also need to be appraised and computer systems modified.
DHF will continue to review its product offerings to ensure that they align with Policy holder expectations, within cost
constraints and having regard for the legislative environment. DHF has recently contracted with a provider to access
services collectively referred to under the heading ‘Broader Health Cover’. These cover a range of services including
‘hospital in the home’ and ‘hospital substitute’, as well as ‘chronic disease management’ services. This initiative also involves
a web portal to provide an online health assessment service for members.
46
10.Information about Avant and Avant’s
commitments and current intentions
10.1The Avant Group
Avant is a public company limited by guarantee incorporated in Australia and is a wholly-owned subsidiary of Avant Mutual.
The Avant Group is headed by Avant Mutual, Australia’s largest medical defence organisation. Avant Mutual is a “not-forprofit” mutual organisation established in July 2007 from a merger of two medical defence organisations, each with a history
of providing medical indemnity assistance to medical practitioners for over 100 years. The Avant Group’s vision is:
“To partner Australia’s healthcare providers through the provision of professional indemnity insurance and other services so they
can achieve their goals and contribute to creating a world leading healthcare system in Australia.”
Avant Mutual currently has over 57,000 members, the vast majority of whom are medical practitioners, doctors in training
or medical students. Avant Insurance also currently insures around 4,000 Optometrists and around 500 other allied health
professionals. Avant Mutual also provides:
■■ medico-legal and risk management advisory services; and
■■
education, research and training programs itself, and in collaboration with medical associations, colleges and training providers.
Avant Insurance provides Avant’s members with medical indemnity insurance, comprising support, advice and legal
representation in the event of a claim, complaint or disciplinary matter. Avant Insurance also provides or distributes a
range of other insurance products including private hospital insurance and life, income protection and total & permanent
disablement insurance. Avant Insurance operates nationally with offices in New South Wales, Victoria, Queensland,
Tasmania, South Australia and Western Australia, employing over 250 staff.
10.2Avant’s boards and committees
As at the date of this Scheme Booklet:
*
The directors of Avant* are:
The directors of Avant Insurance are:
Dr Stuart Boland (Chair)
Dr Jonathan Burdon (Deputy Chair)
Dr Rosemary Ayton
Dr Stephen Clarke
Professor Simon Willcock
Dr Beverley Rowbotham
Dr Cherrell Hirst
Mr Vyn Tozer
Mr Vyn Tozer (Chair)
Dr Cherrell Hirst (Deputy Chair)
The Hon John Fahey
Mr David Nathan (CEO)
Mr Peter Beck
Mr Terry Williamson
Mr Peter Polson
Dr Jonathan Burdon
Dr Stuart Boland
Each of the Avant Directors is also a Director of Avant Mutual. These persons, together with The Hon John Fahey, constitute the board of directors of
Avant Mutual.
The following Avant Board Committees assist the Avant Mutual, Avant and Avant Insurance Boards in discharging their
respective responsibilities:
■■ Group Audit & Risk Committee;
■■ Group Investment Committee;
■■ Group Nominations, Performance & Remuneration Committee.
Further information on Avant’s Boards and Corporate Governance at Avant can be viewed at www.avant.org.au.
47
10.3Avant historic financial information*
*All financial information is Avant Mutual consolidated financial information unless otherwise stated
Avant Mutual’s financial position as at 30 June 2011 can be summarised as follows:
Balance Sheet
Current Assets
Non-current Assets
Total Assets
Current Liabilities
As at
30 June 2011
$398.3 million
$1,163.4 million
$1,561.7 million
$254.3 million
$614.1 million
Total Liabilities
$868.4 million
Net Assets
$693.3 million
Avant Mutual’s net assets of $693.3 million as at 30 June 2011, build on net assets of $628.4 million at the same date in
2010 and $544.5 million in 2009.
Avant had net assets of $385.6 million as at 30 June 2011, building on net assets of $281.8 million at 30 June 2010.
Historical results are not necessarily indicative of the results to be expected in the future. Additional information about the
Avant Group can be viewed at www.avant.org.au.
10.4Avant’s rationale for the Proposal
Avant’s vision is as stated in Section 10.1. Avant’s strategic objectives include protecting and growing its core medical indemnity
business, diversifying to reduce risk and enhance sustainability and delivering operational excellence and financial sustainability.
If the Proposal is implemented, it is expected that DHF will contribute to Avant fulfilling its vision and achieving its strategic
objectives by enabling DHF to make its range of private health insurance products available to Avant Mutual’s members and
diversifying the Avant Group’s revenues, which currently come predominantly from the sale of medical indemnity products.
Avant expects that the Proposal should also benefit Policy holders, due to the growth and scale opportunities which should
present themselves through marketing DHF’s products to Avant Mutual members, as growth and scale should result in
increased revenue and an overall reduction in management costs (on a per member basis), which may mitigate the need
for premium increases. Increases in size and scale should also allow DHF to invest further in resources to enhance member
services and make DHF more cost effective.
Avant’s current intention is that DHF will continue as a restricted access private health insurer and will provide private
health insurance to selected additional categories of health practitioners and officers, employees and contractors of Avant
Insurance and Avant Law Pty Limited through an expanded restricted access group.
10.5Avant’s post-implementation intentions and commitments
This Section summarises Avant’s current intentions and certain commitments given by Avant in relation to:
■■ the continuation of the DHF business; and
■■ any changes to the DHF business,
if the Proposal is implemented.
Avant’s intentions are based on the information in relation to DHF, and the circumstances affecting its business, that is
known to Avant at the date on which the Implementation Deed was amended and restated. Accordingly, the statements
48
of intention set out in this Section and elsewhere in this Scheme Booklet are statements of Avant’s current intention, which
may change. Final decisions in respect of statements of intention will only be made in the light of all material facts and
circumstances at the relevant time if the Proposal is implemented.
None of Avant’s commitments or statements of current intention referred to in this Section 10.5 requires Avant to take,
or not take, or procure that any other person takes or does not take, any action which would cause it or such other person
to breach any applicable law or requirement of a Government Agency.
Security of benefits and Policies
If the Proposal is implemented, Avant’s current intention is that DHF will retain its existing product range, including DHF’s
Top Cover hospital product and the range of benefits offered under each of DHF’s products.
Access to capital and other resources
capital is made available to DHF to the extent that it is needed to ensure that:
■■ D
HF’s Health Benefits Fund is in a position to meet its capital requirements in accordance with the solvency and
capital adequacy prudential standards under the PHIA; and
■■ D
plan in place as at the date of the Implementation Deed and any subsequent DHF business plan which Avant may
approve from time to time.
DHF as a separate business
Avant does not currently have a private health insurance business. If the Proposal is implemented, Avant has committed to
procure, insofar as it is able as a shareholder in DHF to do so, that, as mandated under the applicable legislation, rules and
prudential standards, DHF’s Health Benefits Fund will be managed separately from Avant’s other businesses, but that DHF
will be able to access Avant’s staff, systems and other support as appropriate.
DHF employees
If the Proposal is implemented, it is Avant’s current intention to encourage DHF employees to continue in employment
with DHF on their current terms and conditions, except for certain staff retention benefits which are summarised in
Section 11.3(f).
Consultants/advisers
DHF will retain its current Appointed Auditor, Appointed Actuary and current internal auditor, for the Initial Period.
DHF Governance
If the Proposal is implemented, DHF will become a wholly-owned subsidiary of Avant. Avant has committed to procure,
insofar as it is able as a shareholder in DHF to do so, that for the Initial Period:
■■ the number of DHF directors will be 7, comprising 3 DHF directors appointed at the date of the Implementation
Deed and 4 DHF directors nominated by Avant;
■■ Patria Mann will remain as Chair; and
■■ the quorum for a meeting of DHF directors will be 4, at least 2 of whom must be DHF directors at the date of the
Implementation Deed.
This commitment does not apply to the extent that a DHF director resigns or dies and does not prevent Avant from
removing a DHF director who:
■■ resigns or becomes incapacitated for a period of more than 6 months;
■■ is convicted of any offence involving dishonesty;
49
■■ is disqualified to act as a director; or
■■ is banned or disqualified from acting as a director in relation to a financial services company.
Avant’s current intention is that immediately after the expiry of the Initial Period:
■■ 2
of the DHF directors (being one DHF director appointed by Avant and one director appointed at the date of the
Implementation Deed) will resign such that the number of DHF directors will be 5; and
■■ the quorum of a meeting of the DHF Board will be 3.
Avant’s current intention is that Dr Peter Arnold and Dr Dominic Barnes will enter into arrangements with DHF such that
they will provide:
■■ up to 10 hours of consultancy services to DHF during the Initial Period for a fee of $5,000 (exclusive of GST) each; and
■■ a ny additional consultancy services requested by DHF and agreed to be provided by them for a fee of $500 per hour
(exclusive of GST).
Avant’s intention regarding DHF’s current Board Committee structure is as follows:
■■ DHF’s Audit, Risk & Compliance Committee will remain separate for the Initial Period;
■■ D
HF’s Human Resource, Remuneration & Nominations Committee will be merged as soon as practicable with
Avant’s Nomination, Performance & Remuneration Committee, subject to any consents or approvals required from
any Government Agency; and
■■ D
HF’s Marketing & Business Development Committee will continue so long as the DHF Board considers that DHF
continues to derive value from it.
Although some DHF Board committees may be merged with Avant Group committees, the DHF Board will retain the right
to review and return any decisions or recommendations made in respect of DHF’s activities.
there will be appropriate measures in place to ensure that DHF continues to comply with the Governance Standard set out
in the Private Health Insurance (Insurer Obligations) Rules 2009.
10.6Avant’s funding arrangements
Avant will fund the Consideration from its own internal financial resources without the need for any external funding.
Avant executed the Deed Poll immediately following the Court making the orders under section 411(1) of the Corporations
Act to convene the Scheme Meeting. Under the Deed Poll, Avant will undertake to each Scheme Member that it will
comply with its obligations under the Implementation Deed and to pay the Consideration to the Trustee in accordance with
the Implementation Deed. The Deed Poll is set out in Appendix 6.
50
11. Additional information
This Section contains information required under section 411(3) of the Corporations Act, and other additional information
related to the Proposal.
11.1 Implementation Deed
On 11 August 2011, DHF and Avant entered into the Implementation Deed which was restated and amended by DHF and
Avant on 8 February 2012. The Implementation Deed sets out the obligations of both DHF and Avant in relation to the
implementation of the Proposal. The key provisions of the Implementation Deed are as follows:
(a) Conditions precedent to the Scheme becoming Effective
The effectiveness of the Scheme (and therefore the Proposal) is subject to various conditions precedent which must be
satisfied or waived (to the extent that a condition precedent can be waived). In summary, these conditions precedent are
as follows:
■■ approval by PHIAC for DHF to convert to a “for-profit” private health insurer;
■■ c reation of a rule by the Minister for Health (or her delegate) giving effect to the proposed amendments to DHF’s
restricted access group;
■■ a ny other mandatory approvals of a Government Agency being obtained, including ASIC issuing or providing any other
consents or approvals or doing other acts necessary or desirable to implement the Proposal;
■■ approval of the EGM Resolutions by the requisite majority of DHF Members;
■■ a pproval of the Scheme Resolution at the Scheme Meeting by the requisite majorities of DHF Members and in
accordance with the Corporations Act;
■■ n o DHF Prescribed Occurrence or Avant Prescribed Occurrence occurring before 5.00pm on the Business Day prior
to the Second Court Hearing Date;
■■ approval of the Scheme by the Court either conditionally or on conditions acceptable to Avant;
■■ n o legal restraint or prohibition, or action taken (and not withdrawn), prior to 8.00am on the Second Court Hearing
Date, having the effect of preventing the implementation of the Scheme or any transaction contemplated by it;
■■ n o DHF Material Adverse Change or Avant Material Adverse Change occurring between the date of the
Implementation Deed and 8.00am on the Second Court Hearing Date;
■■ the DHF Warranties and the Avant Warranties being true and correct on the date of the Implementation Deed and at
8.00am on the Second Court Hearing Date;
■■ the Independent Expert’s Report concluding that the Proposal is in the best interests of Scheme Members in
circumstances where the Independent Expert does not change its conclusion or withdraw its report prior to 5.00pm
on the Business Day prior to the Second Court Hearing Date.
(b) Conditions precedent to implementation of the Proposal
The issue by DHF of the Subscription Shares to Avant is subject both to the Scheme becoming Effective and to the Change in
Company Type. The Scheme will become Effective when the order of the Court approving the Scheme is lodged with ASIC.
(c) Key obligations of DHF
The key obligations of DHF under the Implementation Deed include:
■■ a pply to the Minister for Health (or her delegate) to make a rule giving effect to the proposed amendments to DHF’s
restricted access group;
51
■■ a pply to PHIAC for conversion of its PHIA registration status from a “not-for-profit” private health insurer to a “forprofit” private health insurer;
■■ a pply to the Court for orders convening the Scheme Meeting and, after approval of the EGM Resolutions and Scheme
Resolution by the requisite majorities of DHF Members, approving the Scheme;
■■ convene and hold the EGM and Scheme Meeting;
■■ p rovide the Court with a certificate noting the satisfaction, waiver or otherwise of the conditions precedent in the
Implementation Deed;
■■ lodge a copy of the Court orders approving the Scheme with ASIC no later than 5.00pm on the Business Day after
the orders are made;
■■ b etween the date of the Implementation Deed and the Effective Date, use all reasonable endeavours to ensure that
a DHF Prescribed Occurrence does not occur other than in accordance with the Implementation Deed or with the
prior consent of Avant;
■■ from the date of the Implementation Deed up to the earlier of the date of termination of the Implementation Deed
and the Implementation Time, conduct its business in the normal and ordinary course in substantially the same
manner as previously conducted, unless otherwise agreed by Avant in writing;
■■ g rant company membership to Avant (in accordance with Avant’s application for membership) immediately after the
Scheme has become Effective;
■■ apply to ASIC for the Change of Company Type within 5 Business Days of the Effective Date;
■■ a t the Implementation Time, direct the Trustee to hold the Consideration on trust for DHF as pre-payment for the
issue price of the Subscription Shares;
■■ a t the Implementation Time, cancel the company memberships of all DHF Members (which will extinguish the liability
of each DHF Member as a guarantor on a winding up of DHF);
■■ o
n the Implementation Date, issue the Subscription Shares to Avant as fully paid and free from any encumbrance
or third party rights, and provide to Avant an appropriate share certificate and certified copy of the register of
shareholders of the company;
■■ on the Implementation Date, direct the Trustee to distribute the Initial Entitlements to Scheme Members.
(d) Key obligations of Avant
The key obligations of Avant under the Implementation Deed are to:
■■ execute the Deed Poll immediately after the Scheme Meeting is ordered by the Court;
■■ verify the Avant Information in this Scheme Booklet;
■■ p rovide the Court with a certificate noting the satisfaction, waiver or otherwise of the conditions precedent in the
■■ pay the Consideration to the Trustee prior to 8am on the Second Court Hearing Date.
(e) Key joint obligations of DHF and Avant
The key joint obligations of DHF and Avant are to appoint the Trustee in accordance with the Implementation Deed
and direct the Trustee to establish the Trust Account into which the Consideration will be deposited to be dealt with in
accordance with the Scheme.
(f) DHF Warranties
DHF has provided representations and warranties to Avant regarding its corporate status and capacity and in respect of the
accuracy and completeness of the information in this Scheme Booklet. In addition, DHF represents and warrants to Avant
that all information relating to DHF that is provided to Avant by or on behalf of DHF is true, complete, and accurate in all
52
material respects and that none of the information provided is misleading in any material respect, nor has DHF intentionally
withheld from Avant any information which might reasonably be expected to materially adversely affect the financial
position, business, operations, or assets of DHF.
(g) Avant Warranties
Avant has provided representations and warranties to DHF regarding its corporate status and capacity and that the Avant
information provided in this Scheme Booklet, as at the date it is despatched to DHF Members, does not contain any
statement that is materially incorrect, misleading or deceptive, including by way of omission from that statement.
(h) Exclusivity provisions
DHF has agreed with Avant that, during an exclusivity period from the date of the Implementation Deed to the earlier of its
termination and the End Date, DHF will not, without Avant’s prior written consent, solicit or invite any Competing Proposal or
initiate discussions with any third party which may reasonably be expected to lead to a Competing Proposal. DHF has agreed
to promptly notify Avant (within at least 48 hours) of any Competing Proposal received by it or any of its authorised persons.
However, the DHF Board may:
■■ r espond to a bona fide unsolicited Competing Proposal which the DHF Board reasonably believes may lead to a
Superior Proposal; or
■■ following receipt of an unsolicited third party expression of interest, offer, invitation or proposal, engage in discussions
which it reasonably expects to lead to an unsolicited Competing Proposal and which the DHF Board reasonably
believes may lead to a Superior Proposal,
if, in each case, the DHF Board determines in good faith after receiving legal advice that failing to do so would, or might
reasonably be expected to, involve a breach of the DHF Board’s legal obligations (including fiduciary and statutory duties).
In the event the DHF Board proposes a resolution, or to do anything, that would result in a Competing Proposal becoming
a Superior Proposal, it must provide Avant with at least five Business Days’ written notice setting out details of the proposed
resolution or action proposed to be taken by DHF and all material terms of the Superior Proposal. Following receipt of such
a notice, Avant has the right to submit a revised proposal to DHF within five Business Days. If this right is exercised, the
amended proposal must be considered by the DHF Board in good faith.
(i)Termination
Either DHF or Avant may terminate the Implementation Deed by providing the other with written notice:
■■ a t any time prior to 8.00am on the Second Court Hearing Date, if the other party is in material breach of any term of the
Implementation Deed and the party wishing to terminate has provided to the party in breach a written notice setting out
details of the breach and its intention to terminate if that breach continues for five Business Days (or any shorter period
ending at 5.00pm on the day before the Second Court Hearing Date) from the date that the notice is given;
■■ a t any time prior to 8.00am on the Second Court Hearing Date, if a Court or Government Agency has taken any
action permanently restraining or otherwise prohibiting the Proposal, or has refused to do anything necessary to
permit the Proposal, and the action or refusal has become final and cannot be appealed; or
■■ if the conditions precedent set out in the Implementation Deed have not been satisfied or waived by DHF and/or
Avant (as applicable) by the End Date, unless the failure to satisfy the condition precedent arose out of a failure to take
steps, or to use all reasonable endeavours, by the party purporting to terminate the Implementation Deed.
Within five Business Days of DHF or Avant becoming aware of a condition precedent becoming unable to be satisfied (or,
if earlier, by 8.00am on the Second Court Hearing Date), and that condition has not been waived, the party entitled to
the benefit of the condition may terminate the Implementation Deed by providing to the other party written notice of its
intention to terminate prior to 8.00am on the Second Court Hearing Date.
53
Avant may terminate the Implementation Deed by giving DHF written notice:
■■ a t any time before 8.00am on the Second Court Hearing Date, if a DHF director changes, withdraws, or modifies his or her
recommendation, or otherwise makes a public statement to the effect that he or she no longer supports the Proposal;
■■ at any time, if DHF is in breach of the exclusivity provisions of the Implementation Deed; or
■■ if the Second Court Hearing Date has not occurred one month before the End Date following approval of the
Scheme Resolution by the requisite majority of DHF Members.
All of the obligations in the Implementation Deed with respect to the Scheme will terminate automatically in the event that:
■■ the Independent Expert opines that the Scheme is not in the best interests of Scheme Members. However, if the
Independent Expert provides such an opinion, Avant may submit a revised proposal and DHF must submit the
revised proposal to the Independent Expert with instructions to provide a report on whether the revised proposal is
in the best interests of Scheme Members. If the report opines that the Scheme is not in the best interests of Scheme
Members, all of the obligations in the Implementation Deed with respect to the Scheme will terminate automatically;
■■ D
HF Members fail to approve the EGM Resolutions and the Scheme Resolution by the requisite majorities at the
EGM and the Scheme Meeting;
■■ the Court refuses to grant an order convening the Scheme Meeting or approve the Scheme and that decision is not
successfully appealed; or
■■ the Court does not approve the Scheme under section 411(4)(b) of the Corporations Act on or before the End Date.
The Parties may also agree to terminate the Implementation Deed in writing.
(j) Effect of termination
If the Implementation Deed is terminated, then excluding some limited provisions relating to confidentiality, the cost
reimbursement obligations of Avant, and the cost refund obligations of DHF (described in paragraph (m) below), the
obligations of DHF and Avant under the Implementation Deed cease without any liability.
(k) End Date
All of the obligations of DHF and Avant under the Implementation Deed will terminate automatically in the event that the
Implementation Date has not occurred by the End Date. The Parties may agree to change the End Date in writing.
(l) Costs reimbursement by Avant
Avant has agreed to reimburse DHF for:
■■ the wage or contract fees and on-costs for additional project employees or contractors of DHF who are, with the
approval of Avant, engaged for the purpose of assisting DHF with the Proposal; and
■■ a ll fees, costs and expenses payable by DHF to its external professional advisers in respect of services directly related
to the Proposal which are incurred in good faith by DHF in connection with the Proposal.
This is subject to DHF’s refund obligation explained in paragraph (m) below.
(m) Refund to Avant of costs reimbursement amount
The following applies in respect of the repayment of the costs reimbursed by Avant to DHF in connection with the Proposal:
■■ if at any time during the term of the Implementation Deed, a Superior Proposal is announced by DHF and
subsequently implemented, DHF must refund all costs reimbursed by Avant to DHF in connection with the Proposal,
including the costs reimbursed under the Costs Undertaking;
■■ if on or before the Second Court Hearing Date, other than in response to the Independent Expert opining that the
Scheme is not in the best interests of Scheme Members, a majority of DHF directors:
■■ makes a public statement withdrawing or adversely modifying their recommendation in regard to the Proposal; or
54
■■ makes a public statement indicating they no longer support the Proposal or that they support a Competing Proposal,
HF must refund all costs reimbursed by Avant to DHF in connection with the Proposal, including the costs
D
reimbursed under the Costs Undertaking;
■■ if the Independent Expert opines in the Independent Expert’s Report that the Scheme is in the best interests of
Scheme Members, but does not report that in its opinion the Scheme is fair, DHF and Avant must meet in good faith
to seek to resolve the issue of fairness as soon as practicable and submit any amended proposal to the Independent
Expert. If the issue of fairness is not resolved, the DHF Board may terminate the Implementation Deed and, in that
event, DHF must refund all costs reimbursed by Avant in connection with the Proposal other than costs reimbursed
under the Costs Undertaking; and
■■ if Avant terminates the Implementation Deed either due to an unresolved material breach of the Implementation
Deed by DHF, or otherwise pursuant to a breach by DHF of its obligations under the exclusivity provisions in the
Implementation Deed noted above, DHF must refund all costs reimbursed by Avant in connection with the Proposal,
including the costs reimbursed under the Costs Undertaking.
11.2 Deed Poll
Avant executed the Deed Poll immediately after the Scheme Meeting was ordered by the Court. The Deed Poll is set out
in Appendix 6.
11.3 Directors and Officers
(a) Changes to the Board
The following directors will resign with effect from the Implementation Time:
■■ Dr Dominic Barnes;
■■ Dr Peter Arnold.
Following implementation of the Proposal, DHF will become a wholly-owned subsidiary of Avant. Avant must procure,
insofar as it is able as a shareholder of DHF to do so, that three of the existing five members of the current DHF Board will
continue on the DHF Board (Patria Mann continuing as Chair) for the Initial Period. Patria Mann, Bruce Foy and Dr Janette
Stening have indicated that they are willing to continue as DHF directors on that basis. They will be joined on the DHF
Board by four Avant-appointed directors who Avant currently intends will be:
■■ Dr Stuart Boland;
■■ Mr David Nathan;
■■ Professor Simon Willcock;
■■ Mr Terry Williamson.
(b) Directors’ interests in connection with the Scheme
All of the DHF directors are DHF Members and will receive an Entitlement in accordance with the Allocation Rules if they
remain as DHF Members as at the Scheme Record Time.
The Initial Entitlements of the DHF directors are set out in the following table:
Director
Patria Mann
Bruce Foy
Dr Peter Arnold
Dr Janette Stening
Dr Dominic Barnes
Initial Entitlement
$1,554
$2,664
$8,880
$2,220
$8,436
55
DHF directors may also receive a Residual Entitlement if they remain as DHF Members as at the Scheme Record Time. At
the date of this Scheme Booklet, the amount of any Residual Entitlement is not known.
Avant’s current intention is that Dr Peter Arnold and Dr Dominic Barnes will each enter into arrangements with DHF to provide:
■■ up to 10 hours of consultancy services to DHF during the Initial Period for a fee of $5,000 (exclusive of GST) each; and
■■ a ny additional consultancy services requested by DHF and agreed to be provided by them for a fee of $500 per hour
(exclusive of GST).
Other than as described above, no DHF director has any other interest in, or which is contingent upon, the outcome of
the Proposal.
(c) Directors’ interests in DHF
DHF is a public company limited by guarantee and has no share capital. Accordingly, no DHF director holds any marketable
securities in DHF.
(d) Directors’ interests in Avant
Dr Dominic Barnes has medical indemnity insurance, and Dr Peter Arnold has medical indemnity run off insurance, with
Avant Insurance. Other than as disclosed, no DHF director, whether directly or indirectly, holds any marketable securities
in, or has an interest in, any contract entered into by an Avant Group entity.
(e) Retirement benefits
Other than as disclosed in this Scheme Booklet, no payment or other benefit is proposed to be made or given to any DHF
director or Officer of DHF as compensation for loss of, or as consideration for or in connection with their retirement from
office with DHF or as a result of the Scheme becoming Effective.
(f) Employee retention arrangements
DHF has entered into employee retention arrangements with the employees (including the CEO) it considers are crucial
to the continued operation of DHF’s business leading up to, and after, the Implementation Date. Under these retention
arrangements, each of the key employees will, subject to their remaining employed by DHF and meeting agreed
performance targets, receive payments. A proportion of the amounts payable will be paid in June 2012 and the remaining
payments will be made at specified times following the Implementation Date. These retention arrangements will result in a
maximum aggregate payment of $375,112. These retention arrangements are common in acquisition transactions in order
to ensure key employees and their knowledge are retained.
(g) Agreements or arrangements with DHF directors
Other than as disclosed in this Section 11.3, no DHF director has, as at the date of this Scheme Booklet, entered into an agreement
or arrangement with another person in connection with or conditional on the outcome of the Scheme or the Proposal.
(h) Agreements or arrangements with Officers
Other than as disclosed in this Scheme Booklet, and rights under Policies, no Officer of DHF has entered into an agreement
or arrangement with another person in connection with, or conditional upon, the outcome of the Scheme or the Proposal.
(i) Interests in contracts
Other than as disclosed in this Scheme Booklet, no DHF director or Officer of DHF has any interest in any contract with DHF.
(j) Other payments and benefits
Other than as disclosed in this Scheme Booklet, no DHF director has any other interest, whether as a director, member or
creditor of DHF or otherwise, which is material to the Scheme or the Proposal.
Other than as disclosed in this Scheme Booklet, neither DHF, nor any of its directors has given, or offered or agreed to
give, a benefit to another person where the benefit was likely to induce the other person to vote in favour of the EGM
Resolutions or the Scheme Resolution, where that benefit has not been offered to all DHF Members.
56
(k) Recommendation by DHF directors
Each DHF director recommends, in the absence of a Superior Proposal, that DHF Members vote for each of the Resolutions.
(l) DHF directors’ voting intentions
Each DHF director intends, in his or her capacity as a member of DHF, to vote for each of the Resolutions to implement
the Proposal in the absence of a Superior Proposal. At the date of this Scheme Booklet, DHF has not received any offer or
proposal that the DHF Board considers is a Superior Proposal.
11.4 Intentions as to DHF’s business
Avant’s current intentions with respect to DHF’s business are set out in Section 10.5.
11.5 Transaction costs
DHF will incur various costs associated with the Proposal including fees paid to DHF’s professional advisers, registry costs,
printing costs, and other costs associated with conducting the EGM and Scheme Meeting.
Under the Cost Undertaking and the Implementation Deed, Avant is obliged to reimburse DHF for certain costs associated
with the Proposal (see Section 11.1(l)). This is subject to DHF’s refund obligation in certain circumstances, as explained in
Section 11.1(m). Accordingly, it is possible that, in some circumstances, some costs associated with the Proposal will be
payable by DHF that either will not be reimbursed by Avant or, if reimbursed, might need to be refunded to Avant.
As at the date of this Scheme Booklet, the costs (ex-GST) associated with the Proposal are approximately $1.2 million (of
which DHF has been reimbursed, or is entitled to be reimbursed, by Avant approximately $1.2 million). If the Proposal is
implemented, DHF expects these costs (ex-GST) to total approximately $2.0 million (of which DHF has been reimbursed,
or is entitled to be reimbursed, by Avant approximately $2.0 million). These estimates include employee retention
payments to be funded by Avant, as referred to in Section 11.3(f).
The Directors consider these costs to be reasonable in the context of the Proposal.
11.6 Regulatory approvals
The following regulatory approvals, exemptions and declarations are being sought or have been given in relation to the Proposal.
It is possible that some or all of the regulatory approvals being sought might not be given, or if given, might be subject to
one or more conditions.
(a) PHIAC
DHF has applied to PHIAC to convert its registration from a “not-for-profit” to a “for-profit” private health insurer. This
application is governed by section 126-42 of the PHIA and PHIAC must approve the application if the formal requirements
of that sub-section are satisfied.
These requirements include that the application must be in the approved form, it must include the relevant details of the
Scheme, and it must be given to PHIAC at least 90 days before the day specified in the application as the day on which
DHF proposes that it become registered as a “for-profit” private health insurer. PHIAC must also be satisfied that the
Scheme would not result in financial benefits being distributed inequitably between Policy holders.
DHF has applied to PHIAC for this approval to take effect at 11.59pm on the Business Day preceding the Implementation
Date. The approval of PHIAC to DHF’s application is a condition precedent to the Proposal. This condition cannot be
waived by either DHF or Avant and, accordingly, it must be satisfied if the Proposal is to be implemented. As at the date of
this Scheme Booklet, DHF has not received the approval from PHIAC.
(b)DoHA
DHF has applied to DoHA to expand its restricted access group to provide DHF with the ability to provide its health
insurance to selected additional categories of health practitioners and officers, employees and contractors of Avant
Insurance and Avant Law Pty Limited.
57
Current Restricted Access Group
A person who is or was:
(a)
A medical practitioner (as defined in section 3(1) of the Health Insurance Act 1973 (Cth) “Medical Practitioner”);
(b) An employee of a Medical Practitioner or an officer or employee of an incorporated medical practice;
(c)
A medical student studying at an Australian university medical school or educational institution;
(d)An overseas trained doctor enrolled through the Australian Medical Council (the AMC) to sit for the examinations
of that Council or of one of the Specialist Colleges affiliated with the AMC;
(e) An officer or employee of the federal, or a state, Australian Medical Association;
(f)An officer or employee of an associated or subsidiary organisation of the federal, or a state, Australian
Medical Association;
(g)
An officer or employee of any federal or state association of registered Medical Practitioners.
Under the PHIA, in addition to the people included in the restricted access group, employees and contractors of DHF, and their
respective spouses and close family members, together with some other associated people, may become Contributing Members.
DHF’s application to DoHA proposes the following new restricted access group.
Proposed Restricted Access Group
(a)A person who is, or was, a medical practitioner as defined in section 3(1) of the Health Insurance Act 1973 (Cth)
(“Medical Practitioner”);
(b) A person who is, or was at any time:
i. in one of the following categories of ‘health practitioner’, as listed in the Health Practitioner Regulation
National Law Act 2009 (Qld) (whether or not registered or practising in Queensland or any other Australian
State or Territory):
■■ medical;
■■ medical radiation;
■■ optometry;
■■ dental;
■■ occupational therapy;
■■ physiotherapy; and
■■ psychology,
(“Health Practitioner”)
ii.an employee of a Medical Practitioner or a Health Practitioner or an officer or employee of an incorporated
practice of a Medical Practitioner or a Health Practitioner;
iii.a person studying to become a Health Practitioner at an Australian university medical school or other
educational institution;
iv.an overseas trained doctor enrolled through the Australian Medical Council (the ‘AMC’) to sit for the
examinations of that Council or of one of the Specialist Colleges affiliated with the AMC;
v.
an officer or employee of the federal, or a state, Australian Medical Association;
vi.an officer or employee of an associated or subsidiary organisation of the federal, or a state, Australian Medical
Association;
vii. an officer or employee of any federal or state association of registered medical practitioners; or
viii.an officer or employee (including contractors) of Avant Insurance Limited ABN 82 003 707 471 or
Avant Law Pty Limited ACN 136 429 153.
58
The Implementation Deed allows DHF and Avant to revise the changes to the restricted access group proposed above if they
both agree and if DoHA approves the changes. As at the date of this Scheme Booklet, no other changes are proposed.
The approval of DoHA to the expansion of DHF’s restricted access group is a condition precedent to the effectiveness of
the Scheme. Under the terms of the Implementation Deed, Avant has the right to waive this condition prior to the Second
Court Hearing Date. As at the date of this Scheme Booklet, the condition has not been satisfied.
(c)ASIC
As part of the Proposal, DHF will apply to ASIC to change from a public company limited by guarantee to a proprietary
company limited by shares under Part 2B.7 of the Corporations Act.
11.7 Material changes in the financial position of DHF
A summary statement of the financial position of DHF for the financial year ended 30 June 2011 is set out in Section 9.3.
This section also includes information based on unaudited management accounts for DHF which were prepared for the 6
month period to 31 December 2011.
To the best of the knowledge and belief of the DHF directors, except as disclosed in this Scheme Booklet, there has been
no material change to the financial position of DHF since 30 June 2011.
11.8 Effect on creditors
To the best of the DHF directors’ knowledge, the Scheme will not materially affect the interests of creditors of DHF
and no material liability will be incurred by DHF under or by reason of the Scheme other than the costs associated with
implementing the Scheme.
11.9 Disclosure of fees and benefits received by certain persons
The persons named in this Scheme Booklet as performing a function in a professional, advisory or other capacity in
connection with the preparation and distribution of this Scheme Booklet are:
■■ Lonergan Edwards & Associates Limited as the Independent Expert;
■■ David Torrance of KPMG Actuarial Pty Ltd as the Appointed Actuary;
■■ David Goodsall of Synge & Noble Pty Ltd as the Independent Actuary;
■■ mackenzie thomas as the legal adviser to DHF;
■■ PricewaterhouseCoopers as the tax adviser to DHF.
Each of them will be entitled to receive professional fees charged in accordance with their agreed basis of charging, as
estimated in the following table:
Name
Lonergan Edwards & Associates Limited
(Independent Expert)
KPMG Actuarial Pty Ltd (Appointed Actuary)
Estimated Fee (ex-GST)
$175,000
$240,000 - $280,000
Synge & Noble Pty Ltd (Independent Actuary)
$26,000
mackenzie thomas (Legal Adviser) and Senior Counsel
$700,000
PricewaterhouseCoopers (Tax Adviser)
$16,000
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11.10Interests of persons for disclosure
This Scheme Booklet has been prepared by DHF in consultation with its professional advisers set out in Section 11.9
above. Some of the individuals who are principals or partners of, or who are employed or retained by those professional
advisers, may be Scheme Members and may therefore receive Entitlements in accordance with the Allocation Rules if the
Proposal is implemented.
11.11Consents
(a) Consent to be named
The following parties have given and have not, before the time of registration of this Scheme Booklet by ASIC, withdrawn
their written consent to be named in this Scheme Booklet in the form and context in which they appear:
■■ Lonergan Edwards & Associates Limited as the Independent Expert;
■■ David Torrance and KPMG Actuarial Pty Ltd as the Appointed Actuary;
■■ David Goodsall and Synge & Noble Pty Ltd as the Independent Actuary;
■■ mackenzie thomas as the legal adviser to DHF;
■■ PricewaterhouseCoopers as the tax adviser to DHF.
(b) Consents to the inclusion of information
The following parties have given and have not, as at the date of this Scheme Booklet, withdrawn their written consent to
the inclusion of the following information in this Scheme Booklet in the form and context in which it is included and to all
references in this Scheme Booklet to that information in the form and context in which they appear:
■■ Avant in respect of the Avant Information;
■■ Lonergan Edwards & Associates Limited in respect of the summary of the Independent Expert’s Report in Appendix 7;
■■ David Torrance and KPMG Actuarial Pty Ltd in respect of the Appointed Actuary’s Report in Appendix 8;
■■ David Goodsall and Synge & Noble Pty Ltd in respect of the Independent Actuary’s Report in Appendix 9;
■■ PricewaterhouseCoopers in respect of the Tax Advice Letter in Appendix 10.
11.12Disclaimers
Each person referred to in Section 11.11 above:
■■ d oes not make, or purport to make, any statement in this Scheme Booklet other than those statements made in the
capacity, and to the extent the person has provided the consent, referred to in Section 11.11 above; and
■■ to the maximum extent permitted under law, expressly disclaims and takes no responsibility for any part of this
Scheme Booklet other than as described in Section 11.11 with the person’s consent.
11.13Supplementary information
If, between the date of lodgement of this Scheme Booklet with ASIC and the Effective Date, DHF becomes aware that:
■■ a material statement in this Scheme Booklet is false or misleading;
■■ there is a material omission from this Scheme Booklet;
■■ a significant change affecting a matter included in this Scheme Booklet has occurred; or
■■ a significant new matter has arisen which would have been required to be included in this Scheme Booklet if it had
arisen before the date of lodgement of this Scheme Booklet with ASIC,
DHF will prepare a supplementary document to this Scheme Booklet and issue it to all DHF Members. The form which
the supplementary document will take will depend on the nature and timing of the new or changed circumstances.
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11.14Material information
Other than as contained in this Scheme Booklet, there is no information material to the making of a decision in relation
to the Proposal (being information that is within the knowledge of any DHF director, acting in that capacity) that has not
previously been disclosed to DHF Members.
11.15ASIC registration
This Scheme Booklet was submitted to ASIC on 28 February 2012 pursuant to section 411(2)(b) of the Corporations Act
and has been lodged with ASIC for registration pursuant to section 412(6) of the Corporations Act.
11.16DHF directors’ consent to lodgement
Each DHF director has given, and not withdrawn, his/her consent to the lodgement of this Scheme Booklet in relation to
the Scheme with ASIC.
BY ORDER OF THE BOARD OF THE DOCTORS’ HEALTH FUND LIMITED
Patria Mann
CHAIR
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12. Glossary
$ means Australian currency.
Allocation Rules means the allocation rules set out in Appendix 4 under which the Consideration is allocated to Scheme Members.
Appendix means an appendix to this Scheme Booklet.
Appointed Actuary means David Torrance of KPMG Actuarial Pty Ltd.
Appointed Actuary’s Report means the report by the Appointed Actuary set out in Appendix 8.
ASIC means Australian Securities and Investments Commission.
Avant means Avant Group Holdings Limited, ABN 72 077 283 884.
Avant Information means the information concerning Avant and the Avant Group set out in this Scheme Booklet.
Avant Insurance means Avant Insurance Limited, ABN 82 003 707 471.
Avant Group means Avant Mutual and each of its controlled entities after implementation of the Scheme, which will include
DHF as a wholly-owned subsidiary, if the Proposal is implemented.
Avant Material Adverse Change means one or more changes, events, occurrences or matters (whether individually or
when aggregated with all such changes, events, occurrences or matters of a like kind) has had, will have or could reasonably be
expected to be likely to have the effect of:
(a) Avant being unable to carry on its business in substantially the same manner as it is currently carried on; or
(b) preventing or being likely to prevent Avant from discharging its obligations under this Deed.
Avant Mutual means Avant Mutual Group Limited, ABN 58 123 154 898.
Avant Prescribed Occurrence means the occurrence of any of the following on or after the date of the Implementation Deed:
(a) an Insolvency Event in relation to Avant;
(b) Avant disposing, or agreeing to dispose, of the whole, or a substantial part of its business or property; or
(c)any investigation, prosecution, arbitration, litigation or dispute, or any two or more such events which are related,
which could reasonably be expected to give rise to a liability or an aggregate liability (as applicable) to Avant or any of
its associated entities in excess of $50 million.
Avant Warranties means the representations and warranties provided by Avant to DHF under the Implementation Deed, as
summarised in Section 11.1(g).
Business Day means a day that is not a Saturday, Sunday or a public holiday or bank holiday in Sydney, Australia.
Calculation Date is 5.00pm 17 January 2012. This is the date on which the initial unit value (used to determine Initial
Entitlements) is calculated.
Change of Company Type means the change of DHF’s company type under Part 2B.7 of the Corporations Act from a public
company limited by guarantee to a proprietary company limited by shares, with the sole shareholder being Avant.
Competing Proposal means a proposed transaction or arrangement under which a person other than Avant will, if the
transaction is entered into or completed:
(a)acquire (whether directly or indirectly) or become the holder of, or otherwise have a right to acquire or have an
economic interest in all or a substantial part of the business of DHF;
(b) acquire voting power of 50% or more in DHF;
(c) acquire control (as determined in accordance with section 50AA of the Corporations Act) of DHF;
(d) otherwise acquire or merge with DHF;
(e) require DHF to abandon or otherwise fail to proceed with the Proposal; or
(f) result in a Demutualisation of DHF.
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Consideration means $30 million.
Contributing Member means a Qualified Person who has been issued a Policy and is:
(a) responsible for the payment of contributions referable to the provision of benefits for persons insured under that Policy; and
(b) recorded as a contributing member in the records of DHF.
Corporations Act means the Corporations Act 2001 (Cth).
Corporations Regulations means the Corporations Regulations 2001 (Cth).
Cost Undertaking means the deed in relation to third party costs between Avant Mutual and DHF entered into on or about
15 April 2011 as amended from time to time.
Court means the Federal Court of Australia or any other court of competent jurisdiction under the Corporations Act agreed in
writing by DHF and Avant.
Deed Poll means the deed poll dated 5 March 2012 executed by Avant in the form of Appendix 6, under which Avant
covenants in favour of Scheme Members to perform its obligations under the Implementation Deed and the obligations
contemplated of it under the Scheme, with such amendments or variations as are agreed to in writing by Avant and DHF and that
the Court indicates would not of itself preclude approval of the Scheme in which event Avant will enter into a further deed poll in
favour of each Scheme Member giving effect to the amendment or variation.
Demutualisation means any arrangement which would have the purpose or effect of:
(a) a merger (in any form) of DHF with any other person; or
(b) providing an economic benefit to DHF Members or persons associated with them by:
(i) creating or issuing transferable shares in DHF;
(ii)
DHF agreeing to create or issue transferable shares in itself;
(iii) varying the rights of DHF Members to the reserves of DHF, the assets of DHF on a winding up, or vote on any
kind of resolution of DHF Members; or
(iv) transferring, exhausting, surrendering, cancelling or terminating some or all rights of DHF Members.
DHF means The Doctors’ Health Fund Limited, ABN 68 001 417 527.
DHF Board means the board of directors of DHF.
DHF Constitution means the constitution of DHF as amended from time to time.
DHF Information - means the information contained in this Scheme Booklet except the:
(a) Avant Information;
(b) Independent Expert’s Report;
(c) Independent Actuary’s Report;
(d) Appointed Actuary’s Report;
(e) Tax Advice Letter.
DHF Material Adverse Change means one or more changes, events, occurrences or matters (whether individually or when
aggregated with all such changes, events, occurrences or matters of a like kind) which has had, will have or could reasonably be
expected to be likely to have, the effect of:
(a) a reduction of $100,000 or more in DHF’s assets;
(b) DHF being unable to carry on its business in substantially the same manner as it is currently carried on; or
(c) preventing or being likely to prevent DHF from discharging its obligations under the Implementation Deed.
DHF Member means each person (other than Avant) who is registered as a member in the Register in accordance with the
DHF Constitution and the Fund Rules. A DHF Member does not include a person who only holds a travel insurance policy
underwritten by QBE Insurance (Australia) Limited.
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DHF Prescribed Occurrence means the occurrence of any of the following relating to DHF on or after the date of the
Implementation Deed:
(a)DHF declaring, paying or distributing any dividend, bonus or other shares of its profits or assets or returning or
agreeing to return any capital to its members;
(b) DHF issuing shares, or granting an option over any shares, or agreeing to make such an issue or grant such an option;
(c) DHF issuing or agreeing to issue, securities or other instruments convertible into shares or debt securities;
(d)other than as required by law, the terms of the Implementation Deed, or to give effect to any permissible change or
amendment to its Fund Rules, DHF making any change or amendment to the DHF Constitution;
(e)other than as required by law or the terms of the Implementation Deed, DHF making any change or amendment to
its Fund Rules;
(f) DHF disposing of or acquiring any material assets other than in the ordinary course of its business;
(g) DHF appointing or terminating the employment of any senior Officer;
(h)DHF entering into any contact or commitment or incur any capital expenditure or liability pursuant to which a
payment of $100,000 or more is made or to be made; or
(i)DHF varying the terms of, or terminating, any contact or commitment pursuant to which payments of $100,000 or
more are made or to be made;
(j)DHF creating, or agreeing to create, any mortgage, charge, lien or other encumbrance over the whole, or a
substantial part, of its business or property;
(k) DHF suffering an insolvency event;
(l) DHF agreeing to any material restraint of trade or similar limitation relating to the activities of DHF;
(m) DHF entering into any incorporated or unincorporated joint venture, partnership or alliance;
(n)any investigation, prosecution, arbitration, litigation or dispute, or any two or more such events which are related,
which could reasonably be expected to give rise to a liability or an aggregate liability (as applicable) to DHF in excess
of $100,000 (Material Proceedings) being notified to or threatened against DHF, or circumstances arising which could
reasonably be expected to give rise to Material Proceedings;
(o)DHF breaching section 140-15 (Compliance with Solvency Standard) or section 143-15 (Compliance with Capital
Adequacy Standard) of the PHIA or related rules under delegated legislation (which includes but is not limited to
regulations and rules made pursuant to the PHIA) or the terms and conditions of registration as a private health insurer
(if any) imposed upon DHF pursuant to section 126-20 (5)(b) of the PHIA;
(p) PHIAC appointing an external administrator of DHF’s Health Benefits Fund under section 217-10 of the PHIA;
(q) PHIAC cancelling the registration of DHF as a private health insurer under the PHIA, including under section 126-45;
(r) DHF’s Health Benefits Fund is terminated under Division 149 of the PHIA;
(s) DHF materially breaching:
(i)
the Private Health Insurance (Registration) Rules 2009 (No 2); or
(ii)
the Private Health Insurance (Insurer Obligations) Rules 2009;
and such a breach, following written notice from PHIAC, not being resolved to the satisfaction of PHIAC;
(t)DHF waiving any material third party default, releasing any third party liability or accepting as a compromise of a
matter less than the full amount of compensation due to DHF, where the financial impact upon DHF will be in
excess of $100,000;
(u) DHF making a donation of greater than $25,000;
(v) DHF changing its status from a public company limited by guarantee;
(w)DHF entering into any material lines of business or other activities in which it is not engaged as at the date of the
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(x)DHF making any change to its accounting practices or policies, other than to comply with generally accepted Australian
accounting standards and any domestically accepted international accounting standards,
however, none of the above events will constitute a DHF Prescribed Occurrence if DHF first consults Avant, in reasonable
detail, and where Avant has approved in writing of the proposed event, or where DHF is required to undertake the action
or event in connection with the Proposal or the Implementation Deed or is an action which is:
(y) specifically identified in a business plan or budget disclosed to Avant prior to the date of the Implementation Deed;
(z)a reasonable and prudent response to an emergency or disaster (including a situation giving rise to a risk of personal
injury or damage to property);
(aa)necessary for DHF to meet its legal or contractual obligations in existence as at the date of the Implementation Deed
in the ordinary course of carrying on its business; or
(bb)payment of a private health insurance claim or proceedings in respect of a private health insurance claim in the
ordinary course of business.
DHF Warranties means the representations and warranties provided by DHF to Avant under the Implementation Deed, as
summarised in Section 11.1(f).
DoHA means the Australian Government Department of Health and Ageing, acting through the Minister for Health or her
authorised delegate.
Effective means, when used in relation to the Scheme, the coming into effect, under section 411(10) of the Corporations Act, of
the Court order made under section 411(4)(b) of the Corporations Act in relation to the Scheme.
Effective Date means the date on which the Scheme becomes Effective.
EGM means the extraordinary general meeting of DHF, to be held immediately before the Scheme Meeting, to consider, and if
thought fit, approve the EGM Resolutions.
EGM Resolutions means the resolutions set out in the Notice of EGM in Appendix 1.
End Date means 5.00pm on 31 May 2012 or such other date and time agreed in writing between Avant and DHF.
Entitlement means, for each Scheme Member, the amount (determined in accordance with the Allocation Rules) which is to be
paid to each Scheme Member under the Scheme.
Extras Cover is cover for general treatment (as defined in the PHIA) provided under a Policy and includes prior versions of this
type of cover under the Fund Rules applying in prior periods.
Family Policy means a Policy in respect of which the membership category as defined in the Fund Rules is couples membership,
single parent family membership or family membership or is the prior equivalent to this class of membership under Fund Rules
applying in prior periods.
Final Residual Amount is the amount determined under the Allocation Rules.
Fund Rules means the Rules of DHF relating to its health insurance business in Australia.
Government Agency means any government, regulatory, judicial or administrative agency, entity or body whose approval or consent
is required by law to be obtained or given in order for the Proposal to be implemented and includes PHIAC, ASIC and DoHA.
Health Benefits Fund means a fund which satisfies the definition of that expression as given in the PHIA.
Hospital Cover is cover for hospital treatment (as defined in the PHIA) provided under a Policy and includes prior versions of
this type of cover under the Fund Rules applying in prior periods.
Implementation Date means the date on which the Change of Company Type becomes effective.
Implementation Deed means the Implementation Deed dated 11 August 2011 between DHF and Avant in relation to the
Scheme, as restated and amended on 8 February 2012, and summarised in Section 11.1.
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Implementation Time means 11.58pm on the Business Day immediately preceding the Implementation Date.
Independent Actuary means David Goodsall of Synge & Noble Pty Ltd.
Independent Actuary’s Report means the report by the Independent Actuary set out in Appendix 9.
Independent Expert means Lonergan Edwards & Associates Limited.
Independent Expert’s Report means the report prepared by the Independent Expert, a summary of which is set out
in Appendix 7.
Initial Amount is $29.25 million, as determined by the DHF Board on the advice of the Appointed Actuary.
Initial Entitlement means the amount initially determined to be paid to each Scheme Member in accordance with the
Allocation Rules.
Initial Period means the period immediately following the Implementation Date to 31 October 2013, or such earlier time as
DHF reports to its sole shareholder under section 314 of the Corporations Act for the financial period ending on 30 June 2013.
Join Date is the date determined for each Scheme Member under the Allocation Rules and explained in Section 7.4.
Listing means demutualisation followed by listing as a public company limited by shares on Australian Securities Exchange
Limited or another recognised securities exchange.
Notice of EGM means the Notice of EGM set out at Appendix 1.
Notice of Scheme Meeting means the Notice of Scheme Meeting set out at Appendix 2.
Officer means, in respect of a company, any of the following persons:
(a) the company secretary;
(b)any other person who makes, or participates in making, decisions that affect the whole, or a substantial part, of the
business of the company;
(c) a person who has the capacity to affect significantly the company’s financial standing; or
(d)a person in accordance with whose instructions or wishes the directors of the company are accustomed to act
(excluding advice given by a person in their professional or business capacity).
PHIAC means the Private Health Insurance Administration Council.
Policy means a Policy issued by DHF from its Health Benefits Fund to a Contributing Member.
Prescribed Member means a person who was not a DHF Member at the Scheme Record Time, but who the DHF Board has
determined should have been a DHF Member at that time, being a person who falls into one of the following categories:
(a)a person who was an insured (but not a Contributing Member) under a Policy at the Scheme Record Time and
who becomes the Contributing Member of that Policy after the Scheme Record Time, as a result of the death of the
previous Contributing Member; or
(b)a person who the Review Committee determines, in accordance with the Review Committee Charter, should be a
DHF Member (where such a determination is made in accordance with the Review Committee Charter prior to the
Scheme Record Time) or should have been a DHF Member (where such a determination is made in accordance with
the Review Committee Charter after the Scheme Record Time).
Private Health Insurance Act or PHIA means the Private Health Insurance Act 2007 (Cth).
Proposal means the proposed acquisition by Avant of DHF under the terms of the Implementation Deed.
Qualified Person means:
(a) a person who is part of DHF’s restricted access group; and
(b) any other person who is eligible under the Fund Rules, or on whom the PHIA confers eligibility to be a DHF Member.
66
Record Time means 48 hours before the commencement of the EGM.
Register means the register of corporate members of DHF maintained by DHF.
Related Body Corporate has the meaning given in the Corporations Act.
Residual Amount is $750,000, as determined by the DHF Board on the advice of the Appointed Actuary.
Residual Entitlement means the entitlement (if any) of a Scheme Member to a proportion of the Final Residual Amount
determined in accordance with the Allocation Rules.
Resolutions means the EGM Resolutions and Scheme Resolution.
Review Committee means the Committee established to review Initial Entitlements and Scheme Member status under the
Review Committee Charter.
Review Committee Charter means the charter setting out the terms of reference of the Review Committee set out
in Appendix 5.
Scheme means the scheme of arrangement (under Part 5.1 of the Corporations Act), between DHF and the Scheme Members,
in the form set out in Appendix 3, subject to any alterations or conditions made or required by the Court and approved in
writing by DHF and Avant. (To avoid duplication, Schedule 1 of the Scheme is in the form set out in Appendix 4 of this Scheme
Booklet, Schedule 2 of the Scheme is in the form set out in Appendix 6 of this Scheme Booklet and Schedule 3 of the Scheme
is in the form set out in Appendix 5 of this Scheme Booklet).
Scheme Meeting means the DHF Members’ meeting ordered by the Court to be convened under section 411(1) of the
Corporations Act to consider the Scheme.
Scheme Member means a DHF Member who is a DHF Member as at the Scheme Record Time or who is a Prescribed Member.
Scheme Resolution means the resolution to approve the Scheme set out in the Notice of Scheme Meeting in Appendix 2.
Scheme Record Time means 5.00pm on the day two Business Days prior to the Implementation Date.
Second Court Hearing Date means the first day on which an application to the Court for orders under section 411(4)(b) of
the Corporations Act approving the Scheme is heard or, if the hearing of the application is adjourned for any reason, the first day
of the adjourned hearing.
Second Court Hearing means the hearing at which the Court is asked to approve the Scheme pursuant to section 411(4)(b)
of the Corporations Act.
Section means a section of this Scheme Booklet.
Single Policy means a Policy in respect of which the membership category as defined in the Fund Rules is single membership or
is the prior equivalent to this class of membership under Fund Rules applying in prior periods.
Subscription Shares means 30,000,000 fully paid ordinary shares in the capital of DHF following its conversion into a
proprietary company limited by shares.
Superior Proposal means a bona fide Competing Proposal which the DHF Board has determined in good faith to be superior to
the Proposal, taking into account all the terms and conditions of such a Competing Proposal (including price, certainty, conditionality and
future benefits to DHF Members) and after giving due consideration to written advice received from DHF’s legal and financial advisers.
Tax Advice Letter means the letter from PricewaterhouseCoopers as tax adviser set out in Appendix 10.
Trust Account means a trust account to be operated by the Trustee for the purpose of the receipt and distribution of the
Consideration in accordance with the Scheme.
Trustee means National Australia Trustees Ltd (or such other person or entity agreed between DHF and Avant).
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Appendix 1
Notice of EGM
THE DOCTORS’ HEALTH FUND LIMITED (ABN 68 001 417 527)
NOTICE OF EXTRAORDINARY GENERAL MEETING
NOTICE IS GIVEN that a general meeting of Members of The Doctors’ Health Fund Limited (DHF) will be held at
10.00am (Sydney time) on 4 April 2012 at the AMA Conference Centre, 69 Christie Street, St Leonards, NSW for the
purpose of considering and, if thought fit, approving the following resolutions as special resolutions:
THAT conditional on the Scheme becoming Effective, the DHF Constitution be amended as set out in Annexure A.
[An explanation of the amendments to DHF’s Constitution proposed under this Resolution is set out in Appendix 11 of
the Scheme Booklet.]
(a)DHF change its company type from a public company limited by guarantee to a proprietary company limited by shares
in accordance with Part 2B.7 of the Corporations Act 2001 (Cth) and from the time that the change of company type
becomes effective pursuant to section 164(5) of the Corporations Act 2001 (Cth), the company be known as The Doctors’
Health Fund Pty Limited; and
(b)immediately following the change of company type becoming effective pursuant to section 164(5) of the Corporations Act
2001 (Cth), DHF issue ordinary shares in the capital of DHF to Avant in accordance with the terms of the Implementation
Deed.
BY ORDER OF THE BOARD
Peter Aroney
Company Secretary
7 March 2012
Defined terms
Capitalised terms used in this Notice of Extraordinary General Meeting (Notice) have the meaning given to them in the
Glossary in Section 12 of the Scheme Booklet of which this Notice forms part.
Scheme Booklet
The resolutions should be read in conjunction with the Scheme Booklet of which this Notice forms part. The Scheme Booklet
contains an explanation of the resolutions and further information about the Scheme to enable you to make an informed
decision as to how to vote on the resolutions. A copy of the Scheme is set out in Appendix 3 of the Scheme Booklet.
A blue personalised proxy form (pre-printed with your name and address) and a reply paid envelope (for use in Australia)
also accompanies this Notice.
Chairperson
In accordance with clause 14.5 of DHF’s Constitution, Patria Mann or, failing her, Bruce Foy will act as Chair of the
Extraordinary General Meeting.
Entitlement to attend and vote at the Extraordinary General Meeting
In order to attend and vote at the Extraordinary General Meeting (or vote on the resolutions online (see details below)),
you must be a DHF Member. Each person recorded on the register of Members of DHF as at 10.00am (Sydney time) on
2 April 2012 can vote on the resolutions that will be put to Members at the Extraordinary General Meeting.
Members may attend and vote at the Extraordinary General Meeting either in person or by attorney, or appoint a proxy to
attend and vote at the Extraordinary General Meeting. If you are registered as a DHF member on 24 February 2012, and
are unable or do not wish to attend the Extraordinary General Meeting, you may cast your vote on the resolutions online
at www.doctorshealthfund.com.au/AvantProposal/Voting.
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Voting rights
Voting on the resolutions will be conducted on a show of hands or on a poll in accordance with the DHF Constitution.
Under clause 15.2 of the Constitution, a Member:
■■ who has a single or single parent family membership has one vote; and
■■ who has couples or family membership has two votes.
Required majority
Each resolution is a special resolution. A special resolution will be approved if at least 75% of the total votes cast by
Members entitled to vote on the resolution are voted in favour of the resolution.
Section 136(2) of the Corporations Act allows DHF to modify its constitution, or a provision of its constitution, by special resolution.
Section 162(1) of the Corporations Act allows DHF to change to a company of a different type by special resolution.
How to exercise your right to vote
Members can vote on the resolutions to be put to Members at the Extraordinary General Meeting in one of the following ways:
■■ by attending the Extraordinary General Meeting and voting in person;
■■ by appointing a proxy;
■■ by appointing an attorney under a power of attorney; or
■■ if you are registered as a DHF member on 24 February 2012, by voting online at
Unless the Member attends the Extraordinary General Meeting, the valid online vote or proxy form which is the latest
received by DHF will be regarded as the Member’s vote.
Voting in person
Members who plan to attend the Extraordinary General Meeting are asked to arrive at the venue at least 30 minutes before
the time designated for the Extraordinary General Meeting, if possible, to have their names checked against the register and
have their attendance noted. It would assist if Members bring their DHF membership card to assist with registration.
Appointing a proxy
A Member may appoint a person as their proxy to attend and vote for the Member at the Extraordinary General Meeting.
(The person appointed as a proxy need not be a Member.) To vote by proxy, a Member must complete, sign, date and return
their blue personalised proxy form accompanying the Scheme Booklet (together with any power of attorney or other authority
under which the proxy form is signed or a certified copy of that power or authority) so that the proxy form is received by DHF
by no later than the closing time for proxies (10.00am (Sydney time) on 3 April 2012).
You may direct your proxy how to vote by marking the relevant box on the proxy form. If you do not mark any of the
boxes, your proxy may vote as he or she decides. If the Chair of the Extraordinary General Meeting is your proxy, and she
has not been directed how to vote on the EGM Resolutions, she intends to vote in favour of the resolutions.
Please read the instructions on the proxy form carefully when completing the form. If a Member appoints a proxy but then
attends the meeting, the proxy’s powers are suspended while the Member is present at the meeting.
A Member may return their proxy form (and any supporting documents) by delivering, posting or faxing it to:
Fax to: 1300 987 218
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A replacement blue proxy form may be obtained by calling the Proposal Hotline on 1800 508 716 or visiting
www.doctorshealthfund.com.au/AvantProposal/Voting. Unlike the proxy form included with the Scheme Booklet, the
replacement form will not contain the Member’s personal details. If a replacement proxy form is used, the section
containing the Member’s personal details must be completed.
Appointing an attorney
A Member can appoint a person under a power of attorney who can attend and vote on their behalf. If you wish your
attorney to attend and vote at the Extraordinary General Meeting on your behalf, the original or a certified copy of the
power of attorney authorising your attorney to attend and vote at the meeting must be lodged with DHF before the closing
time for proxies (10.00am (Sydney time) on 3 April 2012).
A Member may lodge the power of attorney (and any supporting documents) by delivering, posting or faxing it to:
Fax to: 1300 987 218
Voting online
If you are registered as a DHF member on 24 February 2012, you can also vote online.
Visit www.doctorshealthfund.com.au/AvantProposal/Voting and follow the instructions. By voting on line, you appoint the
Chair of the Extraordinary General Meeting as your proxy to cast your vote on your behalf.
To vote online, the Member must complete the voting requirements by no later than the closing time for the receipt of
proxies for the EGM and Scheme Meeting (10.00am (Sydney time) on 3 April 2012).
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ANNEXURE A
CONSTITUTIONAL AMENDMENT
(a) By deleting clause 7.1 in its entirety and replacing it with the following:
‘7.1 Admitting Members
(a)A person who applies to become (or has become) a Contributing Member of a Health Benefits Fund is taken
to have applied to become a member of the Company. Subject to clause 7.2, upon becoming a Contributing
Member, a person will become a member of the Company.
(b)In addition to clause (a) above, while the Implementation Deed is in effect and has not been terminated, Avant may on
application be admitted as a member of the Company by the directors or pursuant to a delegation under clause 7.3.’
(b) By deleting the full stop at the end of clause (b)(iii) of clause 11.1 and replacing it with “; or” and inserting a new clause (c) into clause 11.1 as follows:
‘(c)in the case of Avant, if the Implementation Deed is terminated before the Implementation Time or the
Implementation Time has not occurred by the End Date.’
(c) By deleting clause 11.3(d) in its entirety and replacing it with the following:
‘(d)For any member (other than Avant), once the member has ceased to be a Contributing Member, the member
ceases to be a member of the Company.’
(d) By deleting clause 15.2 in its entirety and replacing it with the following:
‘15.2 Number of votes
On a show of hands (or on voices) or on a poll:
(a) a member of the Company (being a Contributing Member):
(i)who is, under clause 15.1, entitled to vote and who has single or single parent family membership of a
Health Benefits Fund, as defined in the Rules, has only one vote; or
(ii) who is, under clause 15.1, entitled to vote and who has couples or family membership of a Health Benefits
Fund, as defined in the Rules, has 2 votes; and
(b) whilst it remains a member of the Company, Avant has one vote.
For the avoidance of doubt, a Contributing Member of more than one Health Benefits Fund conducted by the Company is
entitled to only one vote as a member of the Company.’
(e) By inserting a new clause 15.13 as follows:
‘15.13 Sole members
If the Company has only one member, and the member records in writing his or her decision on a question, it counts as
the passing of a resolution. The record also counts as the minutes of the passing of the resolution.’
(f) By inserting at the end of clause 16.3(g) the following:
‘(except this paragraph ceases to apply with effect at and from the Implementation Time)’
(g) By deleting clause 16.4 in its entirety and replacing it with the following:
‘16.4 Director qualifications
A director must not be a disqualified person.
Until the Implementation Time, each director must be a member of the Company. With effect at and from the
Implementation Time, a director need not be a member of the Company.
Directors must be appointed in accordance with clause 16.5. At any time no fewer than 2 directors must be Medically
Qualified Directors.’
(h) By inserting the following definitions into Schedule 1:
‘Avant means Avant Group Holdings Limited ABN 72 077 283 884.
End Date has the meaning set out in the Implementation Deed.
Implementation Deed means the implementation deed, dated 11 August 2011 (as amended), between the Company
and Avant which sets out the terms and conditions on which the Proposal will be implemented.
Implementation Time has the meaning set out in the Implementation Deed.
Proposal means the acquisition of the Company by Avant through the granting of membership to Avant and the
implementation of the Scheme.
Scheme has the meaning set out in the Implementation Deed.’
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Appendix 2
Notice of Scheme Meeting
THE DOCTORS’ HEALTH FUND LIMITED (ABN 68 001 417 527)
NOTICE OF SCHEME MEETING
NOTICE IS GIVEN in accordance with an order of the Federal Court of Australia made on 5 March 2012, under section
411(1) of the Corporations Act 2001 (Cth), that a meeting of Members of The Doctors’ Health Fund Limited (DHF) will
be held immediately after the Extraordinary General Meeting which commences at 10.00am (Sydney time) on 4 April 2012
at the AMA Conference Centre, 69 Christie Street, St Leonards, NSW, for the purpose of considering and, if thought fit,
approving the following resolution:
BY ORDER OF THE BOARD
Peter Aroney
Company Secretary
7 March 2012
Defined terms
Capitalised terms used in this Notice of Scheme Meeting (Notice) have the meaning given to them in the Glossary in
Section 12 of the Scheme Booklet of which this Notice forms part.
Scheme Booklet
The resolution should be read in conjunction with the Scheme Booklet of which this Notice forms part. The Scheme Booklet
contains an explanation of the Scheme and further information about the Scheme to enable you to make an informed decision
as to how to vote on the resolution. A copy of the Scheme is set out in Appendix 3 of the Scheme Booklet.
A red personalised proxy form (pre-printed with your name and address) and a reply paid envelope (for use in Australia) also
accompanies this Notice.
Chairperson
The court has appointed Patria Mann or, failing her, Bruce Foy to act as Chair of the Scheme Meeting and has directed the
Chair to report the result of the Resolution to the Court.
Entitlement to attend and vote at the Scheme Meeting
In order to attend and vote at the Scheme Meeting (or vote on the resolution online (see details below)), you must be a
DHF Member. Each person recorded on the register of Members of DHF as at 10.00am (Sydney time) on 2 April 2012
can vote on the resolution that will be put to Members at the Scheme Meeting.
Members may attend and vote at the Scheme Meeting either in person or by attorney, or appoint a proxy to attend and
vote at the Scheme Meeting. Alternatively, if you are registered as a DHF member on 24 February 2012, and are unable or
do not wish to attend the Scheme Meeting, you may cast your vote on the resolution online at
Voting rights
Voting on the resolution will be conducted on a show of hands or on a poll in accordance with the DHF Constitution.
Under clause 15.2 of the Constitution, a Member:
■■ who has a single or single parent family membership has one vote; and
■■ who has couples or family membership has two votes.
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Required majority
The Scheme Resolution will be approved if a majority in number of the DHF Members present and voting on the resolution
vote in favour of the resolution and at least 75% of the votes cast on the resolution are in favour of the resolution.
How to exercise your right to vote
Members can vote on the resolution to be put to Members at the Scheme Meeting in one of the following ways:
■■ by attending the Scheme Meeting and voting in person;
■■ by appointing a proxy;
■■ by appointing an attorney under a power of attorney; or
■■ if you are registered as a DHF member on 24 February 2012, by voting online at
Unless the Member attends the Scheme Meeting, the valid online vote or proxy form which is the latest received by DHF
will be regarded as the Member’s vote.
Voting in person
Members who plan to attend the Scheme Meeting are asked to arrive at the venue at least 30 minutes before the time
designated for the Extraordinary General Meeting, if possible, to have their names checked against the register and have
their attendance noted. It would assist if Members bring their DHF membership card to assist with registration.
Appointing by proxy
A Member may appoint a person as their proxy to attend and vote for the Member at the Scheme Meeting. (The person
appointed as a proxy need not be a Member.) To vote by proxy, a Member must complete, sign, date and return the red
personalised proxy form accompanying the Scheme Booklet (together with any power of attorney or other authority under
which the proxy form is signed or a certified copy of that power or authority) so that the proxy form is received by DHF by
no later than the closing time for proxies (10.00am (Sydney time) on 3 April 2012).
You may direct your proxy how to vote by marking the relevant box on the proxy form. If you do not mark any of the
boxes, your proxy may vote as he or she decides. If the Chair of the Scheme Meeting is your proxy, and she has not been
directed how to vote on the resolution, she intends to vote in favour of the resolution.
Please read the instructions on the proxy form carefully when completing the form. If a Member appoints a proxy but then
attends the meeting, the proxy’s powers are suspended while the Member is present at the meeting.
A Member may return their proxy form (and any supporting documents) by delivering, posting or faxing it to:
Fax to: 1300 987 218
A replacement red proxy form may be obtained from DHF by calling the Proposal Hotline on 1800 508 716 or visiting
www.doctorshealthfund.com.au/AvantProposal/Voting. Unlike the proxy form included with the Scheme Booklet, the
replacement form will not contain the Member’s personal details. If a replacement proxy form is used, the section
containing the Member’s personal details must be completed.
Appointing an attorney
A Member can appoint a person under a power of attorney who can attend and vote on their behalf. If you wish your
attorney to attend and vote at the Scheme Meeting on your behalf, the original or a certified copy of the power of attorney
authorising your attorney to attend and vote at the meeting must be lodged with DHF before the closing time for proxies
(10.00am (Sydney time) on 3 April 2012).
73
A Member may lodge the power of attorney (and any supporting documents) by delivering, posting or faxing it to:
Fax to: 1300 987 218
Voting online
If you are registered as a DHF member on 24 February 2012, you can also vote online.
Visit www.doctorshealthfund.com.au/AvantProposal/Voting and follow the instructions. By voting on line, you appoint the
Chair of the Scheme Meeting as your proxy to cast your vote on your behalf.
To vote online, the Member must complete the voting requirements by no later than the closing time for the receipt of
proxies for the EGM and Scheme Meeting (10.00am (Sydney time) on 3 April 2012).
74
Appendix 3
Scheme of Arrangement
Pursuant to section 411 of the Corporations Act
The Doctors’ Health Fund Limited ACN 001 417 527 of Ground Floor, 69 Christie Street, St Leonards,
NSW 2065 (DHF)
The Scheme Members
OPERATIVE PROVISIONS
1PRELIMINARY
DHF
1.1 DHF is a public company limited by guarantee, incorporated in Australia and registered in New South Wales.
Avant
1.2Avant is a public company limited by guarantee, incorporated in Australia and registered in New South Wales.
Its registered office is at Level 28, 580 George Street, Sydney, NSW 2000.
Scheme
1.3The DHF Board considers that this Scheme is in the best interests of DHF and the members of DHF as a whole and
does not materially affect the creditors of DHF.
Implementation Deed and Deed Poll
1.4 The Implementation Deed sets out the terms on which DHF and Avant have agreed to implement the Proposed Transaction.
1.5 The subscription price of $30,000,000 for the Share Issue will be used to satisfy DHF’s payment obligations under this Scheme.
1.6To facilitate this Scheme, DHF and Avant have entered into the Implementation Deed under which DHF and Avant
have agreed to observe all of the provisions of the Scheme which relate to them and take all necessary steps to give
full effect to this Scheme.
Deed Poll
1.7Avant has executed the Deed Poll in favour of each Scheme Member pursuant to which it has covenanted to perform
its obligations under the Implementation Deed and this Scheme of Arrangement, including to make the payment
referred to in clause 1.5 as and when the payment falls due under the Implementation Deed.
2
CONDITIONS PRECEDENT
Conditions precedent to the Scheme
2.1 This Scheme is conditional on:
2.1.1as at 8.00am on the Second Court Hearing Date, the Implementation Deed not having been terminated in
accordance with its terms;
2.1.2all of the conditions precedent set out in clause 2.1 of the Implementation Deed having been satisfied or waived
in accordance with the terms of the Implementation Deed;
2.1.3the Court having approved this Scheme, with or without modification, pursuant to section 411(4)(b) of the
Corporations Act; and
2.1.4such other conditions made or required by the Court pursuant to section 411(6) of the Corporations Act in
relation to this Scheme as are acceptable to DHF and Avant, being satisfied,
and the provisions of clauses 3 to 9 will not come into effect unless and until each of these conditions precedent has
been satisfied.
Certificate in relation to conditions precedent
2.2On the Second Court Hearing Date, DHF will provide and will procure that Avant provides to the Court a certificate
confirming whether or not all of the conditions precedent set out in clause 2.1 of the Implementation Deed (other
than in relation to this Scheme being approved by the Court pursuant to section 411(4)(b) of the Corporations Act)
have been satisfied or waived in accordance with the terms of the Implementation Deed.
75
2.3The giving of a certificate by each of DHF and Avant under clause 2.2 will, in the absence of manifest error, be
conclusive evidence of the satisfaction or waiver of the conditions precedent referred to in the certificate.
Lapse of the Scheme
2.4This Scheme will lapse and be of no further force or effect if the Implementation Date has not occurred on or before
the End Date or such later date as the Court, with the consent of DHF and Avant, may order.
3
LODGEMENT OF THE COURT ORDER
3.1On or before 5.00pm on the first Business Day following approval of this Scheme by the Court pursuant to section
411(4)(b) of the Corporations Act, DHF will lodge with ASIC an office copy of the Court order approving this Scheme.
3.2 The Court order is taken to have effect on and from the time and date specified in that order.
4
IMPLEMENTATION OF THE SCHEME
Implementation steps
4.1The following steps will occur at the times and on the dates set out below, subject to Avant making payment of the
Consideration into the Trust Account in accordance with the Implementation Deed:
4.1.1at the Implementation Time, the Trustee will commence to hold the moneys standing to the credit of the Trust
Account (subject to clause 4.1.2) on trust for DHF as pre-payment of the issue price for the Share Issue;
4.1.2at the Implementation Time, the DHF memberships of all Scheme Members will be cancelled and the liability of
each Scheme Member as a guarantor on a winding up of DHF will be extinguished and each Scheme Member
will cease to be a member of DHF; and
4.1.3in consideration for the cancellation of the DHF memberships and extinguishment of liability referred to in clause
4.1.2, on the Implementation Date, DHF will pay the Consideration in the manner set out in clause 4.2.
Payment of the Consideration
4.2Subject to Avant making payment of the Consideration into the Trust Account in accordance with the Implementation
Deed, on the Implementation Date, DHF will direct the Trustee to distribute Entitlements as follows:
4.2.1 within 10 Business Days after the Implementation Date, distribute the Initial Entitlements to the Scheme Members; and
4.2.2 no later than 10 Business Days after 31 July 2012, distribute:
(a)any payments the Review Committee has determined are to be made in accordance with the Allocation
Rules and the Review Committee Charter; and
(b)the balance, if any, of the Residual Amount to Scheme Members (or, if the Review Committee determines
that amounts payable to individual Scheme Members would be nominal or the costs of making payment
would be disproportionate to the amounts payable, to a charity that provides for the welfare of medical
practitioners chosen by the DHF Board),
in each case in accordance with the Allocation Rules, with such payments being satisfied from the Trust Account in
accordance with clause 5.
End Date
4.3 If the Implementation Date does not occur on or before the End Date:
4.3.1 the steps referred to in clauses 4.1 and 4.2 will not occur; and
4.3.2DHF must and must procure that Avant direct the Trustee to immediately repay the Consideration, and all other moneys
standing to the credit of the Trust Account to Avant in cleared funds (and otherwise in such manner as Avant directs).
5
PAYMENTS UNDER THE SCHEME
Trust Account
5.1The Trust Account must be established on or before the Second Court Hearing Date in accordance with clause 3 of
the Implementation Deed.
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5.2Any interest on amounts standing to the credit of the Trust Account (less bank fees and other charges) shall be to
Avant’s account.
5.3The Trust Account must be managed in accordance with clause 3 of the Implementation Deed and this clause 5, and
DHF must and must procure that Avant direct the Trustee accordingly.
5.4To the extent there is a surplus in the Trust Account (as a result of rounding of payments) after all amounts required
to be paid under this clause 5 have been paid, that surplus must be paid to a charity that provides for the welfare of
medical practitioners chosen by the DHF Board.
Payments
5.5 Subject to:
5.5.1Avant making the payment of the Consideration into the Trust Account in accordance with the Implementation
Deed; and
5.5.2the occurrence of the events described in clause 4.1.1 and 4.2.2,
DHF must direct the Trustee to pay from the Trust Account the amounts required to be paid under clause 4.2 by
sending those amounts by the relevant Scheme Member’s Preferred Payment Method.
Unclaimed monies
5.6 DHF may direct the Trustee to cancel a cheque issued under clause 5.5 if the cheque:
5.6.1 is returned to DHF or the Trustee; or
5.6.2has not been presented for payment within six months after the date on which the cheque was sent.
5.7During the period of one year commencing on the Implementation Date, on request by a Scheme Member,
DHF must, or must cause the Trustee to, reissue a cheque that was previously cancelled under clause 5.6.
Correction of Allocation
5.8The Initial Entitlement on the Allocation Form sent to the DHF Members may be corrected by DHF with Avant’s
agreement, subject only to a decision made under the Review Committee Charter.
6
THE REVIEW COMMITTEE
6.1DHF will establish the Review Committee, perform its obligations under the Review Committee Charter and
implement the decisions made by the Review Committee in accordance with the Review Committee Charter. The
provisions of the Review Committee Charter are incorporated into and form part of this Scheme.
7
INDEMNITY OF DIRECTORS, OFFICERS AND AGENTS
7.1To the extent permitted by the Corporations Act, DHF must indemnify each director, officer or agent of DHF against
any liability incurred as such a director, officer or agent to any other person (other than DHF) arising from anything
done or from anything omitted to be done in performance or purported performance of this Scheme unless the
liability arises out of conduct involving lack of good faith by such director, officer or agent.
8
POWER OF ATTORNEY
Appointment of DHF as agent and attorney
8.1Each DHF Member, without the need for any further act, irrevocably appoints DHF and each of the directors and
officers of DHF, jointly and severally, as its attorney and agent for the purpose of executing any document or doing any
other act necessary to give full effect to this Scheme and the transactions contemplated by it.
DHF Members’ consent
8.2Each DHF Member consents to DHF doing all things and executing all deeds, instruments and other documents as
may be necessary or desirable to give full effect to this Scheme and the transactions contemplated by it.
77
9
GENERAL SCHEME PROVISIONS
No changes to DHF members after the Scheme Record Time
9.1DHF must not admit any person as a member of DHF (other than Avant in accordance with the Implementation
Deed) after the Scheme Record Time and before the Implementation Time. For the avoidance of doubt, this clause
does not prevent DHF accepting persons as members of its health benefit fund.
Scheme alterations and conditions
9.2If the Court proposes to approve this Scheme subject to any alterations or conditions, DHF may, by its counsel or
solicitors, and with the consent of Avant (not to be unreasonably withheld), consent to those alterations or conditions
on behalf of all persons concerned, including, for the avoidance of doubt, all DHF Members.
Enforcement of the Deed Poll
9.3DHF undertakes in favour of each Scheme Member to enforce the Deed Poll against Avant on behalf of and as agent
and attorney for the Scheme Members. As a separate right, and without limiting DHF’s obligations under this clause
9.3, any Scheme Member may enforce the Deed Poll against Avant without DHF joining the proceedings.
Effect of the Scheme
9.4This Scheme binds DHF and all DHF Members (including those who do not attend the Scheme Meeting, do not
vote at the Scheme Meeting or vote against the Scheme) and, to the extent of any inconsistency and to the extent
permitted by law, overrides the DHF Constitution.
Notices
9.5Where a notice, transfer, transmission application, direction or other communication referred to in this Scheme is sent
by post to DHF, it will not be deemed to be received in the ordinary course of post or on a date other than the date
(if any) on which it is actually received at DHF’s registered office or at the place where the Members Register is kept.
Further assurances
9.6DHF must execute all deeds, instruments, transfers and other documents and do all acts and things (on its own behalf
and on behalf of each DHF Member) as may be necessary or desirable to give full effect to this Scheme and the
transactions contemplated by it.
Costs and stamp duty
9.7Subject to the terms of the Implementation Deed, DHF will procure that Avant pays the costs and stamp duty and any
related fines, interest and penalties in respect of the Scheme and the transactions contemplated by it.
Governing law and jurisdiction
9.8 This Scheme is governed by the laws of New South Wales, Australia.
9.9 Each party irrevocably and unconditionally:
9.9.1 submits to the non-exclusive jurisdiction of the courts of New South Wales; and
9.9.2 waives, without limitation, any claim or objection based on absence of jurisdiction or inconvenient forum.
10 DEFINITIONS AND INTERPRETATION
Definitions
10.1In this Scheme, unless the context requires otherwise:
Allocation Form means the letter or other document which accompanies the Scheme Booklet (or is otherwise
provided to a DHF Member) and sets out a DHF Member’s Initial Entitlement or how a DHF Member may calculate
the DHF Member’s Initial Entitlement.
Allocation Rules means the allocation rules for the Scheme set out in Schedule 1.
78
ASIC means the Australian Securities and Investments Commission.
Avant means Avant Group Holdings Limited ACN 077 283 884.
Business Day means a day that is not a Saturday, Sunday, public holiday or bank holiday in Sydney, Australia.
Change of Company Type means the change of DHF’s company type under Part 2B.7 of the Corporations Act from
a company limited by guarantee to a proprietary company limited by shares, with the sole shareholder being Avant.
Conditions Precedent means the conditions precedent described in clause 2.
Consideration means $30,000,000.
Corporations Act means the Corporations Act 2001 (Cth).
Court means the Federal Court of Australia or any other court of competent jurisdiction under the Corporations Act
agreed in writing by DHF and Avant.
Court Approval Date means, if the Court approves the Scheme, the date on which the Court grants the order
under section 411(4)(b) of the Corporations Act approving the Scheme.
Deed Poll means the deed poll dated 5 March 2012 executed by Avant under which Avant covenants in favour of
each Scheme Member to perform its obligations under the Implementation Deed and this Scheme, an unexecuted
copy of which is set out in Schedule 2.
DHF means The Doctors’ Health Fund Limited ACN 001 417 527.
DHF Board means the board of Directors of DHF.
DHF Constitution means the constitution of DHF as at the date of the Scheme Booklet.
DHF Member means each person who is registered as a member of DHF in the Members Register in accordance
with the DHF Constitution.
Director means a director of DHF from time to time.
Effective means, when used in relation to this Scheme, the coming into effect, pursuant to section 411(10) of
the Corporations Act, of the Court order made under section 411(4)(b) of the Corporations Act in relation to this
Scheme, but in any event at no time before an office copy of the order of the Court is lodged with ASIC.
Effective Date means the date on which this Scheme becomes Effective.
EGM means an extraordinary meeting of DHF, to be held immediately before the Scheme Meeting, to consider and,
if thought fit, pass the EGM Resolutions.
EGM Resolutions means:
(a)the special resolution to amend the DHF Constitution to permit Avant to become a member of DHF and any
other changes required to facilitate the Proposed Transaction; and
(b)the special resolution to change DHF’s company type from a public company limited by guarantee to a
proprietary company limited by shares and to authorise DHF to issue the Subscription Shares to Avant
immediately following the Change of Company Type becoming effective,
each special resolution being subject to this Scheme becoming Effective.
End Date means 5.00pm on 31 May 2012 or such other date and time agreed in writing between DHF and Avant.
Entitlement means the amount payable in respect of a Scheme Member calculated in accordance with the
Allocation Rules and distributed in accordance with clause 4.2.
Implementation Date means the date on which the Change of Company Type becomes effective.
Implementation Deed means the implementation deed between DHF and Avant, dated 11 August 2011, as
amended and restated by DHF and Avant on 8 February 2012.
Implementation Time means 11.58pm on the day immediately preceding the Implementation Date.
Initial Entitlement has the meaning set out in the Allocation Rules.
Members Register means the register of members of DHF maintained in accordance with the Corporations Act.
Payment Authority means the form headed “Payment Authority” that accompanies the Scheme Booklet.
PHIA means the Private Health Insurance Act 2007 (Cth).
79
Preferred Payment Method means:
(a)if the Scheme Member has provided account details to DHF by completing and returning a Payment Authority,
electronic funds transfer in Australian currency into that account; or
(b)otherwise, a cheque in Australian currency in the name of the Scheme Member, posted to the address to which
correspondence is sent for the purposes of DHF membership matters or such other address as the Scheme
Member may nominate in writing for this purpose.
Prescribed DHF Member means a DHF Member who was not a DHF Member at the Scheme Record Time, but
who the DHF Board has determined, should have been a DHF Member prior to the Scheme Record Time, being a
person who falls into one of the following categories:
(a)a person who was an insured (but not a Contributing Member) under a Policy at the Scheme Record Time and
who becomes the Contributing Member of that Policy after the Scheme Record Time, as a result of the death of
the previous Contributing Member; or
(b)a person who the Review Committee determines, in accordance with the Review Committee Charter, should
be a DHF Member (where such a determination is made in accordance with the Review Committee Charter
prior to the Scheme Record Time) or should have been a DHF Member (where such a determination is made in
accordance with the Review Committee Charter after the Scheme Record Time).
Proposed Transaction means the acquisition of DHF by Avant on the terms set out in the Implementation Deed.
Residual Amount has the meaning set out in the Allocation Rules.
Review Committee means the body established under the Review Committee Charter to determine whether:
(a) a person should have been treated as a Scheme Member; or
(b) the Initial Entitlement of a Scheme Member was correct.
Review Committee Charter means the review committee charter for the Scheme set out in Schedule 3.
Rules has the meaning set out in the DHF Constitution.
Scheme means this scheme of arrangement under Part 5.1 of the Corporations Act, subject to any alterations or
conditions made or required by the Court and approved in writing by the parties.
Scheme Booklet means the Scheme Booklet dated 7 March 2012 in respect of this Scheme.
Scheme Meeting has the meaning given to it in the Implementation Deed.
Scheme Member means each DHF Member (other than Avant):
(a) who was a DHF Member at the Scheme Record Time; or
(b) who is a Prescribed DHF Member,
and Scheme Members means all of them.
Scheme Record Time means 5.00pm on the day two Business Days prior to the Implementation Date.
Second Court Hearing Date means the first day on which the application made to the Court for an order
approving this Scheme pursuant to section 411(4)(b) of the Corporations Act is heard, or if the hearing of the
application is adjourned for any reason, the first day of the adjourned hearing.
Share Issue means the issue to Avant of the Subscription Shares.
Subscription Shares means 30,000,000 ordinary shares in the capital of DHF.
Trust Account means the bank account to be established by the Trustee under clause 5.
Trustee means National Australia Trustees Ltd ACN 007 350 405.
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Interpretation
10.2In the interpretation of this Scheme, the following provisions apply unless the context otherwise requires:
10.2.1 The singular includes the plural and conversely.
10.2.2 A gender includes all genders.
10.2.3 If a word or phrase is defined, its other grammatical forms have a corresponding meaning.
10.2.4 A reference to a person, corporation, trust, partnership, unincorporated body or other entity includes any of them.
10.2.5 A reference to a clause, schedule or annexure is a reference to a clause of, or schedule or annexure to, this Scheme.
10.2.6A reference to an agreement or document (including a reference to this Scheme) is to the agreement or
document as amended, varied, supplemented, novated or replaced, except to the extent prohibited by this
Scheme or that other agreement or document.
10.2.7A reference to a person includes a reference to the person’s executors, administrators, successors, substitutes
(including persons taking by novation) and assigns.
10.2.8A reference to legislation or to a provision of legislation includes a modification or re-enactment of it, a
legislative provision substituted for it and a regulation or statutory instrument issued under it.
10.2.9 A reference to $ is to the lawful currency of Australia.
10.2.10Words and phrases not specifically defined in this Scheme have the same meanings (if any) given to them in
the Corporations Act.
10.2.11 A reference to time is a reference to time in Sydney, Australia.
10.2.12If the day on which any act, matter or thing is to be done is a day other than a Business Day, such act, matter
or thing must be done on the immediately succeeding Business Day.
10.2.13The meaning of general words is not limited by specific examples introduced by including, or for example, or
similar expressions.
10.2.14A reference to a party using its best endeavours or reasonable endeavours does not include a reference to
that party paying money or providing other valuable consideration to or for the benefit of any person (and
an obligation on a party to use its best or reasonable endeavours does not oblige that party to pay money or
provide other valuable consideration to or for the benefit of any person).
Schedule 1 - Allocation Rules
[The Allocation Rules are in the form set out in Appendix 4 of this Scheme Booklet.]
Schedule 2 - Deed Poll
[The Deed Poll is in the form set out in Appendix 6 of this Scheme Booklet.]
Schedule 3 - Review Committee Charter
[The Review Committee Charter is in the form set out in Appendix 5 of this Scheme Booklet.]
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Appendix 4
Allocation Rules
1.Object
These Allocation Rules set out the basis for determining the Entitlement for each Scheme Member to be distributed in
accordance with the provisions of the Scheme.
Each Scheme Member will receive an Initial Entitlement as determined under these Allocation Rules and might receive a
Residual Entitlement as determined under these Allocation Rules.
2.Definitions
Capitalised terms used but not defined in these Allocation Rules have the same meaning as in the Glossary to the Scheme
Booklet. In addition:
Term
Definition
Calculation Date
5.00pm on 17 January 2012
Initial Unit Value
is determined in accordance with Rule 6.
Residual Entitlement Date
31 July 2012
Residual Unit Value
Unit
the measure used to allocate the Consideration in accordance with
these Allocation Rules.
Unit Allocation
3.
Explanation of Some Concepts
3.1Policy and Cover
A DHF Member can be issued with a Family Policy or a Single Policy that has Hospital Cover or Extras Cover or both
Hospital Cover and Extras Cover.
3.2 Policy lapse
The date to which a premium contribution for a Policy is paid is the “paid to date”. When a DHF Member is more
than two months’ premium contribution payments in arrears the Policy and contributing membership shall lapse with
effect from the paid to date.
3.3 Policy Reinstatement after lapse
If a Policy and contributing membership lapses and subsequent to that lapse DHF accepts premium contributions paid
in full for the period from the date of lapse, then the Policy and contributing membership is reinstated and the DHF
Member’s tenure continues unaffected.
3.4 New Policy after lapse
If a Policy and contributing membership for that Policy lapses and, subsequent to that lapse, premium contributions are
not paid in full for the period from the date of lapse, or DHF refuses to accept arrears premium contributions, then
that Policy ceases. If that person whose contributing membership ceased for a lapsed Policy subsequently becomes
a DHF Member for a new Policy then, even if the membership number for the new Policy is unchanged, the DHF
Member’s tenure is assessed from the date he or she became a DHF Member for the new Policy.
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3.5 New Policy after termination
If a Policy and contributing membership for that Policy is terminated, then the tenure for that Policy ceases. If a person
whose contributing membership ceased for a terminated Policy subsequently becomes a DHF Member for a new
Policy then, even if the membership number for the new Policy is unchanged, the DHF Member’s tenure is assessed
from the date he or she became a DHF Member for the new Policy.
4.
Participation in allocation
DHF Members will be allocated an Initial Entitlement but will only receive that Initial Entitlement if they are a
Scheme Member.
5.
Join Date
The Join Date is the date at which the Scheme Member’s Policy started unless the Policy lapsed and was not reinstated or
the Policy was terminated.
If a Policy lapsed and subsequent to that lapse DHF accepts premium contributions in full for the period from the date of
lapse, then the Policy is reinstated.
If a Policy lapsed and subsequent to that lapse premium contributions were not paid in full for the period from the date of
lapse, or DHF refused to accept arrears premium contributions in full for the period from the date of lapse, and the person
whose contributing membership ceased for the Policy subsequently takes out a new Policy, then the Join Date is the date at
which the new Policy started, even if the membership number for the new Policy is unchanged.
If a Policy is terminated, and the person whose contributing membership ceased for a terminated Policy subsequently takes
out a new Policy, then the Join Date is the date at which the new Policy started, even if the membership number for the
new Policy is unchanged.
6.
Calculation of Initial Entitlement
The Initial Entitlement allocated to a Scheme Member is calculated as follows:
Initial Entitlement = Unit Allocation x Initial Unit Value
rounded down to the nearest whole cent
where
Initial Unit Value is calculated by dividing the Initial Amount by the total number of Units allocated to DHF Members at the
Calculation Date rounded down to the nearest whole cent.
7.
Unit Allocation for a Scheme Member’s Years of Tenure
The Unit Allocation for a Scheme Member whose Join Date was on or before the Calculation Date is determined in
accordance with Rule 8.
The Unit Allocation for a Scheme Member whose Join Date was after the Calculation Date is determined in accordance
with Rule 9.
8.Unit Allocation for a Scheme Member whose Join Date was on or before the Calculation Date
Where a Scheme Member’s Join Date was on or before the Calculation Date, the calculation of the Years of Hospital Tenure,
the Years of Extras Tenure and the Unit Allocation for the Scheme Member at the Calculation Date is set out as follows.
8.1 Scheme Member’s Years of Hospital Tenure
The calculation of the Years of Hospital Tenure is as follows:
(a)determine the number of years and days in the period from the Join Date to the Calculation Date (both dates
inclusive) during which the Scheme Member’s Policy provided Hospital Cover and deduct from that number
of years and days the number of years and days during which the Policy (while providing Hospital Cover) was
suspended in accordance with the Fund Rules applying at the relevant time;
83
(b)the years and days determined under paragraph 8.1(a) are rounded up to the nearest whole year – this number
of years is the Years of Hospital Tenure of the Scheme Member.
(c)determine the years and days (not including any period during which the Policy was suspended in accordance
with the Fund Rules applying at the relevant time) during which the Scheme Member had a Family Policy with
Hospital Cover during the Years of Hospital Tenure of the Scheme Member and round that period up to the
nearest whole year – this is the Family Years of Hospital Tenure of the Scheme Member.
(d)deduct from the Years of Hospital Tenure of the Scheme Member the Family Years of Hospital Tenure of the
Scheme Member (if any) – this number of years is the Single Years of Hospital Tenure of the Scheme Member.
8.2 Scheme Member’s Years of Extras Tenure
The calculation of the Years of Extras Tenure is as follows:
(a)determine the number of years and days in the period from the Join Date to the Calculation Date (both dates
inclusive) during which the Scheme Member’s Policy provided Extras Cover and deduct from that number
of years and days the number of years and days during which the Policy (while providing Extras Cover) was
suspended in accordance with the Fund Rules applying at the relevant time;
(b)the years and days determined under paragraph 8.2(a) are rounded up to the nearest whole year – this number
of years is the Years of Extras Tenure of the Scheme Member.
(c)determine the years and days (not including any period during which the Policy was suspended in accordance
with the Fund Rules applying at the relevant time) during which the Scheme Member had a Family Policy with
Extras Cover during the Years of Extras Tenure of the Scheme Member and round that period up to the nearest
whole year – this is the Family Years of Extras Tenure of the Scheme Member.
(d)deduct from the Years of Extras Tenure of the Scheme Member the Family Years of Extras Tenure of the Scheme
Member (if any) – this number of years is the Single Years of Extras Tenure of the Scheme Member.
8.3 Unit Allocation for a Scheme Member
Calculate the Unit Allocation for a Scheme Member as the sum of:
(a) the Family Years of Hospital Tenure of the Scheme Member (Rule 8.1(c)) multiplied by 200 Units; and
(b) the Single Years of Hospital Tenure of the Scheme Member (Rule 8.1(d)) multiplied by 100 Units; and
(c) the Family Years of Extras Tenure of the Scheme Member (Rule 8.2(c)) multiplied by 200 Units; and
(d) the Single Years of Extras Tenure of the Scheme Member (Rule 8.2(d)) multiplied by 100 Units.
9.
Unit Allocation for a Scheme Member whose Join Date was after the Calculation Date
Where a Scheme Member’s Join Date was after the Calculation Date and that Scheme Member’s Policy has been
suspended for any period before the Scheme Record Time, his or her Unit Allocation is nil.
Where a Scheme Member’s Join Date was after the Calculation Date and that Scheme Member’s Policy has not been
suspended for any period before the Scheme Record Time, his or her Unit Allocation is equivalent to an allocation
based on one year of tenure for the relevant policy type and cover and is:
(a) If at the Join Date the Scheme Member had a Single Policy providing only Hospital Cover, 100 Units.
(b) If at the Join Date the Scheme Member had a Family Policy providing only Hospital Cover, 200 Units.
(c) If at the Join Date the Scheme Member had a Single Policy providing only Extras Cover, 100 Units.
(d) If at the Join Date the Scheme Member had a Family Policy providing only Extras Cover, 200 Units.
(e) If at the Join Date the Scheme Member had a Single Policy providing both Hospital Cover and Extras Cover, 200 Units.
(f) If at the Join Date the Scheme Member had a Family Policy providing both Hospital Cover and Extras Cover, 400 Units.
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10. Calculation and payment of Residual Entitlement
The Residual Amount will be used to pay the Initial Entitlement to Scheme Members under Rule 9 and pursuant to the
determinations of the Review Committee in accordance with the Review Committee Charter. As required by the Review
Committee Charter, these determinations must be made by the Residual Entitlement Date.
The Final Residual Amount is the balance of the Residual Amount after paying the Initial Entitlement to Scheme Members
under Rule 9 and pursuant to the determinations of the Review Committee in accordance with the Review Committee
Charter, increased to include the aggregate amount of Initial Entitlements allocated but not paid to persons who cease to be
DHF Members before the Scheme Record Time plus the amount arising from the rounding down of the Initial Unit Value
to the nearest whole cent.
The Final Residual Amount, if any, will be used to distribute Residual Entitlements to Scheme Members by 14 August 2012.
The Residual Entitlement of a Scheme Member is calculated at the Residual Entitlement Date as follows:
Residual Entitlement = Final Number of Units x Residual Unit Value
rounded down to the nearest whole cent
where
Final Number of Units is the number of Units allocated to a Scheme Member determined in accordance with these
Allocation Rules, including any additional Units allocated by the Review Committee in accordance with the Review
Committee Charter; and
Residual Unit Value means the Final Residual Amount divided by the sum of the Final Number of Units allocated to all
Scheme Members rounded down to the nearest whole cent.
However, if the Review Committee decides that the amount of any Residual Entitlement to be paid to an individual would
be nominal, or the costs of payment would be disproportionate to the amount of the payment, or a surplus arises from the
rounding of payments, these amounts will be paid to a charity chosen by the DHF Board that provides for the welfare of
medical practitioners.
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Appendix 5
Review Committee Charter
1
OBJECTIVE AND DEFINITIONS
Charter
1.1This document is the Review Committee Charter referred to in the Scheme and the Scheme Booklet issued by DHF.
This Review Committee Charter sets out the role and powers of the Review Committee, the body of persons who
together constitute the Review Committee, the procedure for seeking a Request for a review and the procedure for
considering such a Request.
Definitions
1.2Capitalised terms used but not defined in this Review Committee Charter have the same meaning as those terms
have in the Scheme and:
Alternate means the alternate of a Review Committee Member.
Applicant means a person who is or was:
(a)a DHF Member at the Scheme Record Time or a DHF Member who falls within the category of person in
paragraph (a) of the definition of Prescribed DHF Member; or
(b)in relation to a Request under clause 2.2.2, the Contributing Member of the Policy to which the Request relates.
Board Chairperson means the chairperson of the DHF Board.
Chairperson means the chairperson of the Review Committee.
Company Secretary means the company secretary of DHF.
Contributing Member has the meaning set out in the Rules.
Policy means a complying health insurance policy issued by DHF.
Request means a request for review made by an Applicant in accordance with this Review Committee Charter.
Review Committee means the committee constituted under clause 4.
Review Committee Member means a member of the Review Committee appointed under clauses 4.1 to 4.6.
Review Committee Secretary means the person appointed as secretary to the Review Committee under clause 4.8.
Reviewer means the Board Chairperson, or in her absence or if conflicted under clause 8, an alternate who is not
a Review Committee Member agreed between DHF and Avant, or such other person as DHF and Avant agree to
appoint as a Reviewer.
Request Review Form means the form that DHF approves in writing and publishes on its website at
www.doctorshealthfund.com.au/AvantProposal/SchemeofArrangement.
Requests for review
1.3 The Review Committee may only consider and determine a Request where the Request relates to:
1.3.1the number of Units to be allocated to the Applicant in respect of his or her Entitlement (that is, whether the
Allocation Rules have been correctly applied in calculating the number of Units to be allocated to the Applicant); or
1.3.2whether the Applicant should have been treated as a Scheme Member (and is therefore eligible to receive
an Entitlement).
1.4The Review Committee may only consider and determine a Request received by the Company Secretary on or
before 5.00pm (Sydney Time) on the day that is five Business Days after the Implementation Date.
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Privacy
1.5DHF and Avant will comply with the Privacy Act in relation to this Review Committee Charter. DHF may provide
personal information of an Applicant (including personal information of any other person supplied to DHF by the
Applicant) to Avant and to the Review Committee Members and Alternates or to the Reviewer or any experts
appointed to assist the Review Committee.
1.6By providing information contained in the Review Request Form or providing any additional information sought in
respect of a Request, an Applicant (or that other person in respect of whom the Applicant provides information
to DHF) consents to the use and disclosure of his or her personal information for the purpose of considering and
making a decision in respect of the relevant Request. An Applicant (or that other person) can generally access personal
information that DHF holds about the Applicant (or that other person). Sometimes there will be a reason why full
access to that information is not possible, in which case DHF will explain why such access is not possible. To make a
request for access to personal information, an Applicant must contact the Company Secretary.
Form of Request for review by Applicant
1.7A Request must be made in writing by the Applicant in person by completing a Review Request Form, as described in
clause 3.
Non-conforming Request
1.8The Review Committee may accept a Request made on behalf of an Applicant if the Request cannot be made by the
Applicant in person (for example, where the Applicant has died, lacks mental capacity or where there is some other
good reason why the Applicant is unable to make the Request personally).
Initiation of Request by DHF
1.9DHF may of its own volition also make a Request on behalf of an Applicant or group of Applicants if DHF in its sole
discretion considers it appropriate to do so.
2
SCOPE OF AUTHORITY
Material to be considered
2.1In considering a Request, the Review Committee (and where relevant, the Reviewer) must only have regard to this
Review Committee Charter, the Allocation Rules, the information provided by the Applicant in the Review Request
Form and the records of DHF (including without limitation DHF’s policies).
Matters to be considered
2.2 In considering a Request, the Review Committee (and where relevant, the Reviewer) must only consider:
2.2.1whether the number of Units allocated to the Applicant under the Allocation Rules is correct; and/or
2.2.2in the case of a Request that the Applicant be considered to be a Scheme Member, whether the Applicant should
be so considered and if so, the number of Units to be allocated to the Applicant.
2.3 For the avoidance of doubt, the Review Committee shall not have the power to alter the Allocation Rules.
Review Committee not required to give reasons
2.4 The Review Committee is not required to give reasons to an Applicant for its decision in respect of any Request.
No decrease in Units
2.5If the Review Committee (or where relevant, the Reviewer) determines that the Allocation Rules have not been
correctly applied to an Applicant such that their correct application in relation to a Request under clause 2.2.1 or
clause 2.2.2 would result in a lesser number of Units being allocated to the Applicant, then the Review Committee
(or the Reviewer) must dismiss that Request.
Factors for consideration – Request under clause 2.2.2
2.6In considering a Request under clause 2.2.2, the Review Committee may have regard to any one or more of the
following factors:
87
2.6.1whether the Applicant was, or was entitled to be, a DHF Member at the Scheme Record Time;
2.6.2whether the Applicant falls within the categories of person described in paragraph (a) of the definition of
Prescribed DHF Member;
2.6.3whether the Applicant did not know and/or reasonably ought not to have known that the Policy was more than
two months in arrears;
2.6.4whether DHF failed to send a notice to the Applicant before the Policy was more than two months in arrears
advising the Applicant that the Policy was in arrears;
2.6.5whether the Policy was more than two months in arrears at the time it was cancelled;
2.6.6whether the Applicant sought advice from DHF in relation to the cancellation or alteration of the Policy;
2.6.7information from the records or personnel of DHF as to contacts made by the Applicant with DHF; and
2.6.8such other matters as the Review Committee determines are relevant to considering the Request.
3
REQUEST BY APPLICANT
Content of Request
3.1 A Request must:
3.1.1 be made by completing a Review Request Form; and
3.1.2 attach any relevant documents or information in support of the Request.
3.2The Review Committee has the discretion to reject a Request made other than by way of a correctly completed
Review Request Form.
Statutory declaration
3.3The Company Secretary may require that information supplied or to be supplied by an Applicant in relation to a
Request be in the form of a statutory declaration.
4
MEMBERSHIP AND MEETINGS
Review Committee membership
4.1The Review Committee will comprise four Review Committee Members or their Alternates, with two persons being
nominated by DHF (not including the Board Chairperson) and two persons being nominated by Avant.
4.2An Alternate appointed by DHF or Avant (as the case may be) may act as an Alternate for any Review Committee
Member nominated by DHF or Avant respectively.
4.3If a Review Committee Member or an Alternate is unable or unwilling to continue as a member of the Review
Committee, he or she must notify DHF or Avant (as the case may be) and DHF or Avant (as the case may be) may
appoint another person to the Review Committee in their place.
4.4 Each of DHF and Avant may remove and replace their respective nominees on the Review Committee.
4.5DHF must ensure that the Review Committee Members appointed by DHF and the Reviewer act in accordance with
this Review Committee Charter.
4.6Avant must ensure that the Review Committee Members appointed by Avant act in accordance with this Review
Committee Charter.
Chairperson
4.7The Chairperson will be a Review Committee Member nominated by DHF under clause 4.1 or such other Review
Committee Member appointed to the position of Chairperson by DHF and Avant.
Review Committee Secretary
4.8 The Review Committee will appoint a person nominated by DHF to act as the Review Committee Secretary who must:
88
4.8.1attend all meetings of the Review Committee and minute proceedings as directed by the Review Committee;
4.8.2notify the Company Secretary of all decisions of the Review Committee as soon as possible and in any case
within a period of time that will enable the Company Secretary to respond to Applicants in accordance with
clause 8; and
4.8.3maintain records including a register of all Requests received and considered by the Review Committee (or
where relevant, the Reviewer), and the decisions made by the Review Committee (or where relevant, the
Reviewer) in relation to those Requests.
Quorum
4.9A quorum for a meeting of the Review Committee is three, one of whom must be a Review Committee Member or
Alternate appointed by DHF and one of whom must be a Review Committee Member or Alternate appointed by Avant.
Meetings
4.10The Review Committee will meet at such times, at such places or in such manner as the Chairperson may decide
and for this purpose the Review Committee Members may attend meetings by telephone, teleconference,
videoconference or other means approved by the Chairperson. Meetings will be scheduled and held with a view to
dealing with all Requests consistently with the timetable specified in clause 4.19.
Resolutions in writing
4.11A circulating resolution signed by all Review Committee Members is a valid resolution of the Review Committee.
A written resolution signed by the Reviewer, in relation to a Request referred to the Reviewer by the Review
Committee, will be deemed to be a valid resolution of the Review Committee in relation to that Request.
Notice of meetings
4.12The Review Committee Secretary will give notice of meetings of the Review Committee to the Review Committee
Members as directed by the Chairperson.
Voting
4.13 Each Review Committee Member has one vote. The Chairperson does not have a casting vote.
Decisions – reference to Reviewer
4.14If a decision of the Review Committee in relation to a Request is not unanimous (or a quorum cannot be achieved to
consider a Request due to the application of clause 8) then the Request must be referred to the Reviewer who will
have the same powers and authorities as the Review Committee and whose decision in respect of that Request will
be deemed to be the decision of the Review Committee.
4.15The Review Committee Secretary must, subject to clause 2.1, provide the Reviewer with all the information
requested by the Reviewer to assist the Reviewer to reach a decision in relation to a Request referred to the Reviewer
by the Review Committee.
Procedure – stage 1
4.16 On receipt of a Request, the Review Committee Secretary must:
4.16.1obtain data from DHF’s records in relation to the Applicant including the calculation of the Units allocated to
the Applicant or any relevant Policy held by the Applicant;
4.16.2seek any additional information from the Applicant that the Review Committee Secretary considers may be
relevant to the consideration of the Request by the Review Committee; and
4.16.3provide to the Review Committee the Request together with the information referred to in clauses 4.16.1 and
4.16.2 and may include a recommendation as to how the Request should be dealt with by the Review Committee.
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Procedure – stage 2
4.17 On considering a Request, the Review Committee may:
4.17.1 determine to reject the Request;
4.17.2if the Request is in respect of whether the Applicant should have been treated as a Scheme Member, determine
that the Applicant is a Scheme Member and determine the number of Units to be allocated to the Applicant;
4.17.3if the Request relates to the number of Units allocated to the Applicant, determine to confirm or increase the
number of Units allocated to the Applicant;
4.17.4 request that the Review Committee Secretary obtain further information in respect of the Request;
4.17.5if the Applicant does not provide a correctly completed Review Request Form, either determine to reject or
accept the Request or request that the Applicant complete a Review Request Form and if such a form is not
provided, determine to reject the Request;
4.17.6if the Review Committee Secretary has requested further information in respect of the Request and the
Applicant has failed to provide this information, or the Review Committee Secretary is unable to contact the
Applicant to obtain the required further information, and the information before the Review Committee is
insufficient to enable a decision to be made, determine to reject the Request;
4.17.7request the attendance of relevant DHF employees or senior management at a meeting of the Review
Committee to assist in consideration of the Request;
4.17.8 request the provision of expert advice; and
4.17.9 refer the Request to the Reviewer in accordance with clause 4.14.
Procedure generally
4.18The Review Committee may determine its procedures subject to this Review Committee Charter and in particular
may consider Requests in batches where it is reasonably satisfied that the Requests raise similar issues for decision that
would allow the Requests to be considered together and a decision in relation to such a batch of Requests will be a
decision in relation to each Request in that batch, subject to any contrary direction of the Review Committee. The
Review Committee must act in a fair and equitable manner but is not required to interview any Applicant and may
deal with all matters by correspondence.
Timing of decisions
4.19 The Review Committee must ensure that a decision is made in respect of all Requests by 31 July 2012.
Decisions binding
4.20By making a Request, the Applicant agrees that a decision of the Review Committee (or where relevant, the
Reviewer) is final and binding.
5
OBLIGATIONS OF DHF
Provision of services
5.1DHF must provide administrative, secretarial and other services that are reasonably required by the Review Committee
and the Reviewer for the performance of their respective functions under this Review Committee Charter.
Information, data and access to staff
5.2DHF must provide information and data relevant to a Request as required by this Review Committee Charter, the
Review Committee and the Reviewer and must at the request of the Review Committee (or where relevant, the
Reviewer) make staff and senior management directly available to the Review Committee (or the Reviewer) to assist it
in its (or him or her in his or her) deliberations.
Expert advice
5.3If requested by the Review Committee (or where relevant, the Reviewer), DHF must arrange for the provision of
expert advice to the Review Committee (or the Reviewer) to assist it in its (or him or her in his or her) deliberations.
90
Timetable
5.4DHF must perform its duties and functions having regard to the need for the Review Committee (or where relevant,
the Reviewer) to make decisions within the timeframes set out in clause 4.19.
Implementations of decisions
5.5 DHF must, on being advised of a decision of the Review Committee, or (where relevant) the Reviewer:
5.5.1if the decision is made before the Scheme Record Time that an Applicant should have been treated as a Scheme Member:
(a) where relevant, arrange for the Applicant to be provided with a Proxy Form before the Record Time; and
(b)determine the Entitlement of the Applicant based on the number of Units determined by the Review
Committee to be allocated to the Applicant;
5.5.2if the decision is made before the Implementation Date that an Applicant is entitled to be allocated additional
Units, determine the increased Entitlement of the Applicant;
5.5.3if the decision is made after the Scheme Record Time that an Applicant was entitled to be treated as a Scheme
Member, determine the Entitlement of the Applicant based on the number of Units determined by the Review
Committee to be allocated to the Applicant;
5.5.4if the decision is made after the Implementation Date that an Applicant is entitled to be allocated additional Units,
determine the increased Entitlement of the Applicant; and
5.5.5otherwise ensure that the decisions of the Review Committee are notified to the Applicant and that they
are implemented.
5.6DHF must, on being advised of a determination of the Review Committee made in accordance with clause 4.2.2 of
the Scheme, direct the Trustee to pay the balance of the Residual Amount in accordance with that determination.
6REPORTING
Report
6.1The Review Committee must report to the DHF Board and Avant on matters and decisions arising from its
responsibilities as outlined in this Review Committee Charter.
Content of report
6.2 Reports under clause 6.1 must include information in relation to the decisions of the Review Committee including:
6.2.1a list of the Requests considered and decisions made by the Review Committee during the relevant period since
the last report;
6.2.2the outcome of any Request referred to the Reviewer; and
6.2.3minutes of its meetings.
7
NOTIFICATION OF DECISIONS
7.1The Company Secretary will promptly notify the Applicant in writing of the decision of the Review Committee or the
Reviewer, as the case may be.
7.2The Company Secretary may at any time and from time to time delegate the duty to notify the Applicant under this
clause 7 to the Review Committee Secretary.
8
CONFLICTS OF INTEREST IN RELATION TO REQUESTS
Non-disclosure of names of Applicants
8.1The Review Committee Secretary will not provide to the Review Committee or the Reviewer the name of any
Applicant for the purposes of any decision.
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Review Committee
8.2If a Review Committee Member becomes aware that a Request relates to a relative of the Review Committee
Member or a person with whom that Review Committee Member has a personal relationship, that Review
Committee Member must advise the Review Committee Secretary and must not participate in the consideration of
that Request. If a Review Committee Member is unable to participate by reason of this clause 8.2 then an Alternate for
that Review Committee Member may participate so long as this clause does not also apply to that person.
Reviewer
8.3If the Reviewer becomes aware that a Request, which has been referred to the Reviewer by the Review Committee,
relates to a relative of the Reviewer or a person with whom the Reviewer has a personal relationship, the Reviewer
must advise the Review Committee Secretary and require that his or her alternate, or another disinterested person be
appointed as a Reviewer to consider that Request.
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Appendix 6
Deed Poll
Date: 5 March 2012
PARTIES
Avant Group Holdings Limited ACN 077 283 884 of Level 28, 580 George Street, Sydney, NSW 2000 (Avant)
In favour of
Name: each Scheme Member
BACKGROUND
AEach Director of DHF considers that it is in the interests of DHF that the DHF Members be given the opportunity to
consider and, if thought fit, approve the Scheme.
B
Accordingly, the DHF Board has resolved that DHF should propose the Scheme.
CThe effect of the Scheme will be that Avant will be granted membership of DHF, the membership of all Scheme Members
will be cancelled in consideration for the payment of the Consideration in accordance with the Scheme.
D
DHF and Avant have entered into the Implementation Deed.
EUnder the Implementation Deed, Avant has agreed to take all necessary steps to implement and complete the Scheme as
soon as is reasonably practicable, including executing this document.
FAvant is entering into this document for the purpose of covenanting in favour of Scheme Members to perform its
obligations under the Implementation Deed and the Scheme, including the provision of the Consideration.
OPERATIVE PROVISIONS
1.
CONDITIONS AND TERMINATION
Conditions precedent
1.1Avant’s obligations under clause 2 are subject to the Scheme becoming Effective.
Termination
1.2Avant’s obligations under this document will automatically terminate and the terms of this document will be of no
further force or effect if:
1.2.1the Implementation Deed is terminated in accordance with its terms prior to the Effective Date for the Scheme;
or
1.2.2the Scheme does not become Effective on or before the End Date,
unless Avant and DHF otherwise agree in accordance with the Implementation Deed.
Consequences of termination
1.3If this document terminates under clause 1.2, then, in addition and without prejudice to any other rights, powers or
remedies available to it:
1.3.1Avant is released from its obligations to further perform this document except those obligations under clause 6.1
and any other obligations which by their nature survive termination; and
1.3.2Scheme Members retain the rights they have against Avant in respect of any breach of this document by Avant
which occurs before termination.
2.
PROVISION OF CONSIDERATION
Compliance with Scheme obligations generally
2.1Avant will comply with its obligations under the Implementation Deed and do all acts and things as may be necessary
or desirable on its part to perform the acts contemplated of it under the Scheme.
93
Provision of Consideration
2.2Subject to clause 1, Avant undertakes in favour of each Scheme Member to pay the Consideration to the Trustee as
and when the Consideration is required to be paid by it under the Implementation Deed in the manner specified in
clause 3 of the Implementation Deed.
3
REPRESENTATIONS AND WARRANTIES
3.1 Avant represents and warrants that:
3.1.1 it is a public company limited by guarantee validly existing under the laws of Australia;
3.1.2it has the corporate power to enter into and perform its obligations under this document and to carry out the
transactions contemplated by this document;
3.1.3it has taken all necessary corporate action to authorise the entry into this document and has taken or will take
all necessary corporate action to authorise the performance of this document and to carry out the transactions
contemplated by this document; and
3.1.4 this document is valid and binding upon it and enforceable against it in accordance with its terms.
4
CONTINUING OBLIGATIONS
4.1 This document is irrevocable and, subject to clause 1, remains in full force and effect until:
4.1.1 Avant has fully performed its obligations under this document; or
4.1.2 the earlier termination of this document under clause 1.2.
5NOTICES
5.1 Any notice, demand, consent or other communication (a Notice) given or made under this document:
5.1.1 must be in writing and signed by a person duly authorised by the sender;
5.1.2must be delivered to the intended recipient by prepaid post or by hand or fax to the address or fax number
below or the address (being an address in Australia) or fax number last notified by the intended recipient to
the sender:
Avant
Address: Level 28, 580 George Street, Sydney, NSW 2000
Fax:
02 9264 4014
Attention: Chief Executive Officer
5.1.3 will be taken to be duly given or made:
(a) in the case of delivery in person, when delivered;
(b) in the case of delivery by post:
(i)
within Australia to an Australian address, two Business Days after the date of posting; and
(ii)
in any other case, 10 Business Days after the date of posting; and
(c)in the case of fax, on receipt by the sender of a transmission control report from the dispatching machine
showing the relevant number of pages and the correct destination fax machine number or name of recipient
and indicating that the transmission has been made without error,
but if the result is that a Notice would be taken to be given or made on a day that is not a Business Day in the
place to which the Notice is sent or is later than 4.00pm (local time) it will be taken to have been duly given or
made at the commencement of business on the next Business Day in that place.
94
6GENERAL
Stamp duty
6.1 Avant will:
6.1.1pay all stamp duty (including fines, penalties and interest) in respect of this document, the performance of this
document and each transaction effected by or made under this document; and
6.1.2indemnify each Scheme Member against any liability arising from failure to comply with clause 6.1.1.
Waiver
6.2Waiver of any right arising from a breach of this document or of any right, power, authority, discretion or remedy
arising upon default under this document must be in writing and signed by the party granting the waiver.
6.3 A failure or delay in exercise, or partial exercise, of:
6.3.1a right arising from a breach of this document; or
6.3.2a right, power, authority, discretion or remedy created or arising upon default under this document,
does not result in a waiver of that right, power, authority, discretion or remedy.
Variation
6.4A provision of this document may not be amended or varied unless the amendment or variation is agreed in writing
by DHF and the Court indicates that the amendment or variation would not of itself preclude approval of the
Scheme in which event Avant will enter into a further deed poll in favour of each Scheme Member giving effect to the
amendment or variation.
Rights cumulative
6.5The rights, powers and remedies of Avant and of each Scheme Member under this document are cumulative and do
not exclude any other rights, powers or remedies provided by law independently of this document.
Assignment
6.6The rights and obligations of Avant and of each Scheme Member under this document are personal and must not be
assigned, encumbered or otherwise dealt with at law or in equity.
Further assurances
6.7Avant will, at its own expense, execute all deeds and other documents and do all acts and things as may be necessary
or desirable to give full effect to this document and the transactions contemplated by it.
7
GOVERNING LAW AND JURISDICTION
7.1 This document is governed by the laws of New South Wales, Australia.
7.2 Avant irrevocably and unconditionally:
7.2.1 submits to the non-exclusive jurisdiction of the courts of New South Wales, Australia; and
7.2.2waives, without limitation, any claim or objection based on absence of jurisdiction or inconvenient forum.
8
DEFINITIONS AND INTERPRETATION
Definitions
8.1Terms that are not defined in this document and that are defined in the Implementation Deed or the Scheme have the
same meaning in this document, unless the context makes it clear that a definition is not intended to apply.
Interpretation
8.2Clause 10.2 of the Scheme applies to the interpretation of this document except that references to ‘this Scheme’ in
that clause are to be read as references to ‘this document’.
95
Nature of Deed Poll
8.3Avant acknowledges that this document may be relied on and enforced by any Scheme Member in accordance
with its terms even though the Scheme Members are not party to it. As a separate right, and without limiting DHF’s
obligations under this clause 8.3, any Scheme Member may enforce this document against Avant without DHF joining
the proceedings.
EXECUTION
Executed as a deed poll on 5 March 2012.
Executed by Avant Group Holdings Limited
ACN 077 283 884 acting by the following persons:
96
Signature of director
Signature of director/company secretary
Name of director (print)
Name of director/company secretary (print)
Appendix 7
Summary of Independent Expert’s Report
The Directors
69 Christie Street
St Leonards NSW 2065
27 February 2012
Subject: Demutualisation of The Doctors’ Health Fund and sale to Avant Group Holdings
Limited – Concise Report
Dear Directors
Introduction
1
On 11 August 2011 The Doctors’ Health Fund Limited (DHF) announced that it and Avant
Group Holdings Limited (Avant) had signed an Implementation Deed (the Agreement) under
which Avant would become a member of DHF, then the memberships of all DHF Members
other than Avant would be cancelled in consideration for payments that would be funded by
the agreed consideration of $28.5 million payable by Avant.
2
DHF subsequently received and considered an indicative non-binding proposal from an
alternative purchaser1 which:
(a)
proposed consideration for DHF Members of $30.0 million
(b)
had other conditions and features which caused the DHF Board to have concerns as to
whether it was likely to develop into a Superior Proposal2
(c)
caused the DHF Board to:
(i)
have discussions with the alternative purchaser to clarify elements of their
proposal; and
(ii)
receive advice to help assess whether this proposal was likely to become a
Superior Proposal.
3
Discussions were ongoing until the alternative purchaser formally withdrew their indicative
offer before the DHF Board reached a view as to whether the alternative purchaser’s offer was
a Superior Proposal.
4
On 8 February 2012 the Agreement was amended so that :
(a)
1
2
the agreed price payable by Avant was increased to $30.0 million; and
As discussed in Section 4 of the Scheme Booklet.
As defined in the Agreement.

97
(b)
Avant was allowed five business days to submit an amended proposal if the
Independent Expert provided a formal opinion that the Scheme was not in the best
interests of Scheme Members3 (together with paragraph 1, “the Proposal”).
5
The Proposal is subject to conditions precedent including Court, regulatory and member
approvals. Details of the conditions are set out in the Agreement (and are summarised in
Section I of our full report). DHF will convene two meetings of members on the same day for
the purposes of the Proposal. The Proposal cannot be implemented unless the resolutions put
to each meeting are passed by the requisite majorities.
6
The notices for these meetings, the Resolutions to be considered at these meetings, and the
details of how and when DHF Members can vote, are explained in the Scheme Booklet. The
Scheme will also need to be approved by the Court.
7
The DHF Board unanimously recommends that DHF Members vote for the EGM Resolutions
at the EGM and for the Scheme Resolution at the Scheme Meeting in the absence of a
Superior Proposal. The reasons for the DHF directors’ recommendation are set out in Section
5 of the Scheme Booklet.
DHF
8
DHF is a restricted access private health insurer, providing health insurance to Australian
medical practitioners, their families and employees. Management have advised us that as at
11 August 2011 (being the announcement date), DHF had 7,629 members.
Avant
9
Avant is a wholly owned subsidiary of Avant Mutual Group Limited (Avant Mutual) which is
a “not-for-profit”, mutual organisation that currently provides professional indemnity
insurance to over 57,000 health professionals including around 55% of Australia’s medical
practitioners. Avant Mutual reported net assets of $693.3 million at 30 June 2011.
Purpose of report
10
The Agreement requires that DHF appoint an Independent Expert to opine on whether the
Proposal is in the best interests of Scheme Members, and an affirmative view is a condition
precedent for the Proposal to proceed.
11
Accordingly, the Directors of DHF have requested that Lonergan Edwards & Associates
Limited (LEA) prepare an Independent Expert’s Report (IER) stating whether, in our opinion,
the Proposal is fair and reasonable and in the best interests of Scheme Members and the
reasons for that opinion.
12
LEA is independent of DHF and Avant and has no other involvement or interest in the
proposed Scheme.
3
We note that the DHF Members who will receive payments under the Scheme (the Scheme Members) will include
all DHF Members who are eligible to vote at the relevant meetings and who remain members at the Scheme Record
Date. The Agreement uses the terms “DHF Members” and “Scheme Members”. These terms basically refer to the
same group of people, viewed at different times. DHF Members are members of DHF at the Record Time and
entitled to vote on the EGM Resolutions at the EGM and the Scheme Resolution at the Scheme Meeting. Scheme
Members are DHF Members at the Scheme Record Time and Prescribed Members. Refer to the Scheme Booklet
for more details on eligibility.
2
98
13
This is a summary of our IER and will accompany the Scheme Booklet to be sent to Scheme
Members. The report can be reviewed in full by visiting
www.doctorshealthfund.com.au/AvantProposal/SchemeofArrangement or you can request a
copy by calling the Proposal Hotline on 1800 508 716.
Overview of opinion
14
In our opinion, the Proposal is fair and reasonable and in the best interests of Scheme
Members in the absence of a current better proposal. We have formed this opinion for the
reasons set out below.
Value of DHF
We have assessed the value of DHF on a 100% controlling interest basis to be in the range of
A$28.4 million to A$31.9 million, as shown below:
Value of 100% of DHF
Low
A$m
12.1
16.3
28.4
Value of health insurance business
Regulatory Surplus Capital(1)
High
A$m
15.6
16.3
31.9
Note:
1 Being Regulatory Surplus Capital as at 31 December 2011.
Fair and reasonable opinion
15 Pursuant to Australian Securities Investments Commission (ASIC) Regulatory Guides4 a
scheme is “fair” if the value of the scheme consideration is equal to or greater than the value
of the securities the subject of the scheme. This comparison for DHF is shown below:
Position of DHF
Value of Scheme Consideration
Extent to which the Scheme Consideration exceeds the value of DHF
Low
$m
30.0
28.4
1.6
High
$m
30.0
31.9
(1.9)
Midpoint
$m
30.0
30.2
(0.2)
16
As the Scheme Consideration is within our assessed valuation range for DHF on a 100%
controlling interest basis, in our opinion, the Scheme Consideration is fair to Scheme
Members when assessed based on the guidelines set out in RG 111.
17
Pursuant to RG 111, a transaction is reasonable if it is fair.
4
In particular Regulatory Guide 111 – Content of expert reports (RG 111).
3
99
Best interests
18 In our opinion, the Proposal is in the best interests of Scheme Members in the absence of a
current better proposal. In assessing whether the Proposal is in the best interests of Scheme
Members, we have had regard to the advantages and disadvantages of the Proposal to Scheme
Members, as summarised below.
Advantages
19 The Proposal has the following benefits for Scheme Members:
(a)
the Scheme Consideration of $30.0 million cash is within our assessed value range of
DHF on a 100% controlling interest basis
(b)
the Proposal allows Scheme Members to access the value currently locked inside DHF
due to its mutual structure
(c)
Scheme Members can realise value for their interest in DHF and then apply to join
another mutual health fund, if they would prefer to be in a mutual fund
(d)
the Appointed Actuary’s Report which accompanies the Scheme Booklet concludes that
as a result of the Proposal:
(i)
DHF policyholders benefits should remain adequately secure if the Proposal is
approved,
(ii)
future premium rates are unlikely to be impacted in a material manner by the
proposal, and
(iii) the reasonable benefit expectations of DHF policyholders are unlikely to be
impacted in a materially adverse manner by the Proposal.
(e)
Avant has also agreed (subject to certain conditions) to reimburse various transaction
costs associated with the Proposal in addition to the $30.0 million Scheme
Consideration although in certain circumstances, DHF may need to refund reimbursed
costs to Avant
(f)
the ultimate parent (Avant Mutual) has significant similarities to DHF, as it is a mutual
organisation focused on health practitioners, with the vast majority of its members being
medical practitioners.
Disadvantages
20 Scheme Members should note that if the Proposal is approved they will no longer hold an
interest in DHF and therefore:
(a)
will not be able to vote and control the activities of DHF
(b)
will not participate in any future value created by DHF over and above that reflected in
the Scheme Consideration; and
(c)
will not be able to accept any alternative offers which might otherwise emerge.
4
100
21
Other disadvantages to Scheme Members that may arise are:
(a)
there might be tax consequences for Scheme Members, although the advice received by
DHF (the Tax Advice Letter set out in Appendix 10 of the Scheme Booklet) is that the
amount received by Scheme Members should not be subject to income tax
(b)
there is a risk that this Proposal might have adverse impact on DHF policyholders even
though the Appointed Actuary’s Report indicates that a material adverse impact is
unlikely.
Valuation of DHF
Overview
22 We have assessed the value of a 100% interest in DHF on the basis that DHF is demutualised
and becomes a “for profit” private health insurer, liable to pay tax on its health insurance
profits, as opposed to remaining as a “not-for-profit” mutual. The reasons for our assessment
on this basis are as follows:
(a)
23
5
6
any monetary value of DHF under a mutual structure is theoretical and not accessible in
the form of dividends or capital returns to participating members. As a mutual, DHF
would not be able to make any cash distributions to participating members either in:
(i)
the ordinary course of business; or
(ii)
in the event that the fund is wound up, DHF’s accumulated net assets must be
transferred to another private health insurance fund which must also operate under
a mutual structure
(b)
as a mutual, DHF can pass through to members the benefit of part of its accumulated
reserves in the form of increased benefits, or lower premiums and charges. However,
only a proportion of such reserves could be passed through in this way due to the need
to retain sufficient reserves to cover both the regulatory minimum capital adequacy
requirement plus the need to retain an additional capital adequacy buffer to cover
unexpected events. Further, a mutual typically retains some reserves as capital for
growth5
(c)
the Scheme Consideration of $30.0 million against which the value of DHF is compared
can become available to DHF Members only if DHF is demutualised. That is, assessing
the value of DHF as a demutualised tax-paying entity enables the evaluation of the
fairness and reasonableness of the Proposal on a like-with-like basis.
Because we have conducted our valuation by using a multiple of underwriting profit based on
a listed (tax-paying) health insurer and on transaction prices for other health insurers (that
would also become tax-paying post acquisition), our allowance for tax is implicit (i.e.
embedded in our assessed multiple range) rather than explicit6.
A mutual has only one source of capital, which is from its reserves.
Explicit allowance for tax would have been made if we had, for instance, conducted a valuation based on a cash
flow projection.
5
101
Value of PHI business
24 We have valued DHF’s Private Health Insurance (PHI) business using the capitalisation of
earnings approach. The earnings adopted for valuation purposes is net underwriting profit,
which excludes:
25
(a)
income from the investment of premiums and previous period’s net surplus7
(b)
(notional) income tax.
We have then applied an appropriate capitalisation multiple to such (pre-tax) underwriting
profit to arrive at a value for the PHI business.
Underwriting profit adopted for valuation purposes
26 The underwriting profit adopted for valuation purposes is an exercise of judgement that takes
into consideration various factors including the historical (and forecast) level of profitability.
In most circumstances more weight is given to the most recent results than to older historic
results. We have had regard to the historical and forecast growth and profitability margins,
and have discussed the financial performance, operating environment and prospects with DHF
management.
27
A summary of the operating performance of DHF’s PHI business for the four years ended
30 June 2011 and the six months ended 31 December 2011 is set out below:
Operating performance of PHI business
Contribution income
Net claims expense(1)(2)
Gross underwriting profit
Management expenses
Underwriting profit(3)
Growth in contribution income (%)
Gross underwriting margin (%)(4)
Management expense ratio (%)(4)
Net underwriting profit ratio (%)(4)
FY08
$000
15,806
(12,407)
3,399
(3,336)
63
FY09
$000
18,169
(15,117)
3,052
(2,708)
344
FY10
$000
20,805
(17,244)
3,561
(2,746)
815
FY11
$000
25,044
(20,469)
4,575
(3,276)
1,299
6 mths to
Dec 11
$000
14,578
(11,054)
3,524
(1,716)
1,808
16.2
21.5
21.1
0.4
15.0
16.8
14.9
1.9
14.5
17.1
13.2
3.9
20.4
18.3
13.1
5.2
16.4
24.2
11.8
12.4
Note:
1 Includes the Risk Equalisation Trust Fund (RETF) recoveries.
2 There was a one-off release of excessive outstanding claims provision during FY11 of some $418,000.
If this is excluded, the net claims expense in FY11 equals some $20.887 million and the underwriting
profit margin equals some 3.5%. We note that the recognition of the provision in earlier years caused
the net underwriting profit in those years to be understated.
3 Excludes the reversal of an unexpired risk liability recognised in FY09 and released in FY10.
4 Calculated as a percentage of contribution income.
Totals may not add due to rounding.
Source: DHF Annual Reports for FY09, FY10 and FY11 and DHF management accounts for the six
months to December 2011.
7
Noting that investment earnings on assets backing policy liabilities will not be significant due to the short-term
nature of the health insurance business.
6
102
28
29
Having regard to DHF’s operating performance, we note that:
(a)
DHF has generated significant increases in contribution income over recent years. This
has been driven by the strategic intent for growth adopted by the Board and
supplemented with a marketing campaign. Notwithstanding that the lower priced
insurance products have experienced more significant growth in recent years, DHF has
been able to achieve sales revenue growth at a faster rate than the growth in the number
of members through the sale of both hospital and ancillary insurance coverage, mix of
family versus single covers and annual rate increases
(b)
DHF has also generated significant increases in profitability over recent years. This has
been driven by economies of scale benefits (resulting from increased business volumes),
reductions in the cost of acquisition of new members, steady growth in its most
profitable premium products and improved profitability of the relatively new lower
priced products. The profitability recognised in FY11 was also affected by the
outstanding claims provisions released (referred to above).
We have assessed a maintainable level of contribution income and a maintainable
underwriting profit margin in order to calculate the net underwriting profit adopted for
valuation purposes.
Contribution income
30 For the purpose of our valuation, we have adopted maintainable contribution income of
$30.0 million. This is higher than contribution income for FY11 due to the full year effect of
premium rate increases implemented in April 2011 as well as membership growth to date.
The adopted figure of $30.0 million is consistent with DHF’s current budget for FY12 which
anticipates further membership growth and a minor effect from further rate increases in April
2012. It is also consistent with DHF’s forecast for FY12 based upon actual results to
31 December 2011. The future outlook for DHF’s contribution income is affected by:
(a)
DHF plans to maintain its growth strategy in order to continue to build scale and offset
the impact of the higher claims expenses associated with an older membership base.
DHF management forecasts growth in its membership base by some 13% in 2012. With
regards to management’s rapid growth forecasts, we note that:
(i)
growth in recent years and forecasted growth is primarily in the lower priced
hospital cover, which have generally been purchased by younger members.
Management have focussed marketing expenditure on these sales. There is a large
proportion of these new younger members which purchase general treatment
cover in addition to hospital cover
(ii)
approximately two-thirds of the member base are doctors and the average age of
members is almost 50 years. These members are generally in a sound financial
position and less susceptible to adverse market conditions. We note that this
provides support for steady year-to-year premium income
(iii) the utilisation of iSelect as an intermediary of DHF’s insurance products is
relatively recent and management are currently reviewing the role of this channel
in the future
7
103
(iv) management plans to continue the uplifted marketing expenditure of recent years.
We note that this may promote higher general public exposure and awareness of
the brand
(v)
(b)
as at 30 June 2011, DHF’s capital adequacy multiple8 of 3.36 was within DHF’s
target range of 3.0 to 3.5. If membership growth exceeds the net asset growth rate
there is a tendency for a decrease in DHF’s capital adequacy multiple (that is, the
capital adequacy requirement would tend to increase at a faster rate than the net
assets of the fund)
all else being equal, DHF will continue to achieve an increase in contribution revenue
through annual rate increases.
Underwriting profit margin
31 For the purpose of our valuation, we have adopted a maintainable net underwriting profit
margin (before tax) of between 3.75% and 4.25%. In order to assess this range we have had
regard to DHF’s underwriting margin in recent years (adjusted for one-off events) as well as
the following:
(a)
the historical changes to the MLS threshold as set out in the Industry overview
contained in Section IV of our full report
(b)
as outlined in the Industry overview, the Federal Government has proposed means
testing the Government Rebate. Under the proposed changes, the cost of PHI to
policyholders will increase substantially. However, those above the Medicare Levy
Surcharge (MLS) threshold would have to pay the MLS if they did not purchase PHI.
We note that:
(i)
a large proportion of DHF’s membership base would be liable for the MLS. The
MLS would be equivalent to at least a substantial portion of the premium paid and
might exceed the premium. This would deter members from not having private
health insurance. However, some members may seek to transfer to DHF’s lower
priced products (which currently have lower margins) or to seek cheaper
alternatives with other private health insurers
(ii)
following the introduction of the Government Rebate in January 1999, the
membership base in DHF did not experience the substantial growth achieved by
other health insurers9
(iii) DHF has a low member termination rate, generally
(c)
8
9
over the past four years the drawings from the RETF have on average contributed some
11% of DHF’s total income. DHF has historically heavily relied on the RETF drawings
to cover the additional claims experience resulting from its relatively old membership
base. Management are not aware of any indications that a change to the current system
will be enacted, but acknowledge that DHF is a net drawer from the fund and is exposed
to any variation in the legislation
Being net assets divided by the capital adequacy reserve (as per the required prudential calculation).
Which we are advised was largely due to DHF at that time having significantly less aggressive marketing than many
other health funds.
8
104
(d)
(e)
the long-term net underwriting margin target of private health insurers have risen in
recent years. We note that:
(i)
NIB’s ongoing net underwriting margin target is 5% to 6% of contribution
income10
(ii)
the growth in younger members has resulted in a growth in the sales of the lower
priced hospital products which are less profitable. However, management
indicate that these younger members also usually take out general treatment cover,
which is currently highly profitable for DHF
DHF has achieved a steady reduction in the level of management expenses (as a
percentage of contribution income) over recent years. With regards to DHF’s ability to
continue to improve operational efficiency, we note that:
(i)
management expenses have historically been high relative to larger private health
insurers due to the small scale of DHF’s operations. DHF’s management expense
ratio was some 15% in FY09 and 13% in FY10, compared to the industry average
of some 10% in FY09 and 9% in FY10. DHF’s management believe that their
Management Expense Ratio (MER) will remain above the industry average as a
result of the ongoing costs associated with allocating resources to support growth
plans and relatively higher fixed costs as a proportion of revenue
(ii)
management believe that they can achieve operational efficiencies by closely
monitoring their rapid growth as the scale of the business increases through
membership growth. We note that DHF is relatively new to the management of a
rapidly growing PHI business
(iii) a growing membership base and operations will give DHF the opportunity to
capitalise on the benefits of economies of scale
(iv) DHF has recently undertaken operational initiatives to support continued growth
and to improve operational processes
(v)
DHF has recently reduced acquisition costs per member (based on net growth
numbers) as a result of focussing marketing expenditure on younger potential
members, which according to management has increased the sales conversion
rate. DHF plan to continue this strategy in the foreseeable future
(vi) DHF incurs relatively larger acquisition expenses on members gained through
iSelect. DHF management is currently reviewing the role of the iSelect channel
within its growth strategy
(f)
management are of the opinion that additional operating costs, which are fixed in
nature, will need to be incurred to support the growth of the operations. These include
administration support costs and higher rental charges associated with a potential move
to a larger office premises
(g)
DHF expects to incur ongoing capital outlays to support growth, including the
enhancement of on-line member services, website development, content management
system upgrades and the enhancement of communication and information technology
(IT) systems. The larger fixed asset base will result in higher depreciation and
amortisation charges. This will limit the cost savings associated with gaining scale
10 As per NIB Limited’s (NIB) 2011 Full Year Results Investor Presentation dated 22 August 2011.
9
105
32
(h)
actuarial projections indicate an expectation that DHF’s net underwriting margin for the
period FY12 to FY14 will be similar to the 3.5% margin (adjusted for one-off events)
achieved in FY11
(i)
smaller funds are generally not able to capture high net margins.
Having regard to all these factors, we consider a net underwriting profit margin slightly above
DHF’s projection, that is, in the range of 3.75% to 4.25% of contribution income, to be
appropriate for DHF. In our opinion, without the additional costs associated with rapid
growth (that we are not reflecting in our maintainable earnings), DHF should be able to
achieve this range of net underwriting margin.
Conclusion on underwriting profit
33 Having regard to the above, we have adopted an underwriting profit (before tax) for valuation
purposes of between $1.1 million to $1.3 million, calculated as follows:
Premium revenue adopted for valuation purposes
Net underwriting profit margin (before tax) adopted for valuation purposes
Underwriting profit (before tax) adopted for valuation purposes
Low
$m
30.0
3.75%
1.1
High
$m
30.0
4.25%
1.3
Underwriting profit multiple
34 The selection of the appropriate underwriting profit multiple to apply is a matter of judgement
but normally involves consideration of a number of factors including, but not limited to:
(a)
the stability and quality of earnings
(b)
the quality of the management and the likely continuity of management
(c)
the nature and size of the business
(d)
the spread and financial standing of customers
(e)
the financial structure of the company and gearing level
(f)
the multiples attributed by share market investors to listed companies involved in
similar activities or exposed to the same broad industry sectors
(g)
the multiples that have been paid in recent acquisitions of businesses involved in similar
activities or exposed to the same broad industry sectors
(h)
the future prospects of the business including the growth potential of the industry in
which it is engaged, strength of competitors, barriers to entry, etc
(i)
the cyclical nature of the industry
(j)
expected changes in interest rates
(k)
the asset-backing of the underlying business of the company and the quality of the
assets
(l)
the extent to which a premium for control is appropriate
10
106
(m) whether the assessment is consistent with historical and prospective earnings.
35
We discuss below specific factors taken into consideration when assessing the appropriate
underwriting profit multiple range for DHF’s PHI business.
Listed company multiples
36 The only security exchange listed pure-play health insurer operating in Australia is NIB
Limited (NIB). NIB’s historical and forecast underwriting profit multiples are detailed below:
NIB’s underwriting profit multiple(1)
Shares on issue(2) (million)
Share price on 31 December 2011
Market capitalisation
Regulatory Surplus Capital as at 30 June 2011
Market capitalisation less Regulatory Surplus Capital
$000
466,503
1.50
699,754
(111,629)
588,125
Market capitalisation (with 32.5% control premium on market value in excess
of Regulatory Surplus Capital)(3)
Regulatory Surplus Capital as at 30 June 2011
Market capitalisation (with control premium) less Regulatory Surplus Capital
890,895
(111,629)
779,266
Recorded underwriting profit
Underwriting profit multiple (with 32.5% control premium)
Historical
FY11
$000
61,502(4)
9.6
12.7
Forecast
FY12
$000
61,628(5)
9.5
12.6
Note:
1 Multiples are calculated using share price and number of shares on issue as at 31 December 2011.
2 There are no vested and exercisable options or performance rights on issue. As per NIB’s Preliminary
Final Report 30 June 2011, NIB’s Board currently intends to continue to undertake the on-market buyback program of up to 10% of its issued capital at the time of commencement of the on-market buyback (29 August 2008). As at 31 December 2011, NIB had already bought back 24,288,196 shares,
leaving a balance of 27,498,773 shares which NIB would like to buy-back.
3 Empirical evidence undertaken by LEA indicates that the average premium paid above the listed
market price in successful takeovers in Australia ranges between 30% and 35%. However, this
includes some cases with significant synergies and furthermore, in our view, this premium should not
be applied to surplus assets, so we have only adjusted the excess of market value over Regulatory
Surplus Capital by this factor.
4 Notwithstanding that significant non-recurring items were incurred in FY11, we have assumed that the
stated underwriting result has been calculated before these significant items (that is, the underwriting
result does not include significant items).
5 Based on two analysts’ revenue forecasts (Bloomberg) and assuming a net underwriting profit margin
of 5.5% (which is the mid-point of NIB’s target margin and consistent with the margin achieved in
FY11).
11
107
37
Having regard to the above, we note the following:
(a)
NIB is a reasonably liquid stock11
(b)
NIB’s underwriting profit multiple on any given day (as opposed to over a period of
time) is likely to be less volatile than an illiquid stock
(c)
NIB is substantially larger than DHF, has greater geographical reach and a widely
known brand name (as a result of a considerably larger ongoing marketing campaign)
(d)
the membership base of NIB is not restricted and includes varying occupational
demographics. In comparison, DHF’s membership base consists of medical
practitioners and associated persons, such as their eligible relatives.
38
We have also considered estimating underwriting profit multiples for Insurance Australia
Group (IAG) and QBE Limited (QBE), which are listed insurers operating in the broader
industry. However, we concluded that the differences are so substantial as to make the
calculated multiples not relevant for assessing the appropriate multiple for DHF.
39
In particular, we note that:
(a)
QBE and IAG are substantially larger than DHF and more diversified both sectorally
and geographically
(b)
general insurers are exposed to the risk of substantial claims expenses relating to
catastrophic events. In recent years, general insurers operating in Australia have been
adversely affected by the floods in Queensland and wet weather on the east coast of
Australia and the earthquakes in New Zealand
(c)
in FY11 IAG was significantly affected by net natural peril claim costs and greater than
originally anticipated bodily injury claim inflation in the United Kingdom
(d)
in FY11 QBE also incurred substantial catastrophe claims, including severe tornados in
the United States and Cyclone Yasi, as well as a number of large individual risk claims
(e)
PHI providers are subject to a greater level of regulation than general insurance12
(f)
the margins of general insurers are generally larger than private health insurers. The
target underwriting margin for FY12 for IAG is between 10% and 12% and for QBE is
14%
(g)
the assets backing policy liabilities for general insurers (and hence the investment
income on those assets) are much larger, compared to premium income, than for health
insurers, due to the longer term nature of the liabilities13.
11 Volume traded in 12 months to 31 December 2011 was some 43 million shares, representing some 9.1% of the time
weighted average number of shares on issue of the year.
12 Tighter governance exists in relation to types of product offerings and inclusions and pricing.
13 DHF does have material amounts of premiums paid in advance (e.g. annual premium policies) on which it earns
investment income, however these amounts are still a relatively small proportion of premium compared to the policy
liabilities for some classes of general insurance business.
12
108
NIB’s historic underwriting profit multiples
40 Given that NIB is the only comparable listed company and the underwriting profit multiple
may be affected by recent short-term economic volatility, we have also had regard to NIB’s
underwriting profit multiple over time. The following table sets out the historic underwriting
profit multiple for NIB from FY09 to FY11:
NIB – historic underwriting profit multiple
Year to
30 Jun 09
Reported underwriting profit ($m)
40.2
Weighted average number of shares
(millions)(1)
506.7
Underwriting profit per share ($/share)
0.08
VWAP(2) (1 month following earnings
announcement)
Less Regulatory Surplus Capital per
share(3)
VWAP less Regulatory Surplus Capital
per share
Historical underwriting profit multiple
Historical underwriting profit multiple
(including a 32.5% control premium on
value over surplus)
Year to
31 Dec 09
49.9
Year to
30 Jun 10
47.1
Year to
31 Dec 10
57.4
Year to
30 Jun 11
61.5
495.7
0.10
495.8
0.09
493.7
0.12
478.5
0.13
1.09
1.27
1.24
1.39
1.43
(0.25)
(0.25)
(0.27)
(0.29)
(0.24)
0.84
1.02
0.97
1.10
1.19
10.5
10.1
10.2
9.5
9.3
14.0
13.3
13.5
12.6
12.3
Note:
1 Based on the diluted weighted average number of shares as per NIB’s Annual Reports and the
calculated weighted average number of shares for the relevant year.
2 Volume weighted average price.
3 Being the Regulatory Surplus Capital as at the end of financial year divided by the shares outstanding at
the end of the respective period.
41
With regard to the above, we note the following:
(a)
NIB’s underwriting profit per share has increased steadily and the share price
performance has improved over the period
(b)
we note that the legislation to increase the MLS threshold was enacted in late calendar
year 2008 and had an adverse impact on the PHI industry. These adverse impacts were
expected to impact performance in the short to medium term
(c)
NIB’s historical underwriting profit multiple has decreased over the period. We note
that the share price is typically determined based on forecast earnings and therefore a
fall in the multiple over time may be as a result of reduced growth prospects for the
company.
13
109
Transaction evidence
42 Recent transactions in the PHI sector are set out below:
Transaction multiples
Announcement
date
Target
28 Aug 08
Manchester Unity
14 Jul 08
Australian Health
Management Group
14 Dec 07
MBF
5 Jul 10
IMAN International
Acquirer
HCF
Medibank Private
BUPA
NIB
Purchase
price
A$m
256
367
2,410
23
Underwriting profit multiples
Consideration(1) Valuation(2)
11(3)
12 – 13
14(4)
20
na
12 – 13
17 – 20
na
Note:
1 As per the consideration paid for the target.
2 As per the IER valuation.
3 The consideration includes payment for Manchester Unity’s retirement and aged care business and
management fund. Since the high range value of Manchester Unity by the Independent Expert is
similar to the consideration, we have adopted the high range valuation of the PHI business
($124 million) as a proxy for the consideration paid for the PHI business. The historic (FY08) net
underwriting profit was some $11 million.
4 Based on the consideration of $367 million less $145 million of Regulatory Surplus Capital and value
of Total Health’s future incremental contribution derived from non-members. AHM’s historic (FY08)
net underwriting profit was some $15 million.
na – not available.
43
With respect of the above we note that:
(a)
Manchester Unity’s and Australian Health Management Group’s (AHM) PHI
businesses were substantially larger than DHF’s PHI business, and were not restricted
health access funds
(b)
MBF was the second largest private health insurer in Australia prior to its acquisition
and Medibank Private was the largest. The acquisition of MBF provided BUPA
Australia with a larger national membership base than Medibank Private. In addition,
the MBF transaction was announced in December 2007, which was prior to a significant
deterioration in financial market conditions. Since then, many aspects of financial
market conditions have not recovered to pre global financial crisis (GFC) levels
(c)
the acquisitions of both Manchester Unity and AHM were conducted during subdued
economic conditions, as opposed to pre-GFC. In addition, there was uncertainty at that
time with regards to increases in the threshold taxable income for the MLS
(d)
the underwriting profit multiples calculated based on consideration paid are historic
underwriting profit multiples as historic results are adopted. Historic multiples are
higher than forecast multiples in an environment where earnings are growing. When
determining the appropriate capitalisation rate for valuation purposes, more regard is
typically had to forecast earnings
(e)
all transactions involve PHI businesses acquiring other PHI businesses. The implied
multiples may reflect more significant synergies available to an acquiring private health
insurer.
14
110
Conclusion on appropriate underwriting profit multiple
44 Having considered the factors set out above, we are of the view that:
45
(a)
the smaller size, weaker brand value and restricted access nature of DHF reduce the
applicable multiple, compared to both the broadly comparable transactions and NIB
(b)
a 100% controlling basis would tend to increase the applicable multiple compared to the
minority interest (listed price) basis for NIB
(c)
while DHF have achieved substantial growth in both income and underwriting profit
over recent years, continuation of this growth is not assured.
On balance, we are of the view that an underwriting profit multiple range of 11 to 12 times
(on a controlling interest basis) is appropriate to value DHF’s PHI business.
Value of DHF’s health insurance business
46 Based on the above, we have assessed the value of the health insurance business on a 100%
controlling interest basis at $12.1 million to $15.6 million, as shown below:
Value of 100% of health insurance business
Low
$m
1.1
11.0
12.1
High
$m
1.3
12.0
15.6
Regulatory Surplus Capital
47
DHF’s total assets are attributable to its health benefit fund were some $33.4 million as at
31 December 2011. We note that this allowed for Avant agreeing (subject to certain
conditions) to reimburse various transaction costs associated with the Proposal in addition to
the $30.0 million Scheme Consideration, although in certain circumstances, DHF may need to
refund reimbursed costs to Avant.
48
The amount of Regulatory Surplus Capital adopted for valuation purposes is $16.3 million,
calculated as follows:
DHF’s Regulatory Surplus Capital
Total health fund assets(1)
Capital Adequacy Requirement(2)
Regulatory Surplus Capital
$m
33.4
(17.1)
16.3
Note:
1 Sourced from DHF’s balance sheet as at 31 December 2011.
2 Including financial liabilities of $10.8 million and based on DHF’s balance sheet as at 31 December
2011.
15
111
49
Based on the above we have assessed the value of DHF on a 100% controlling interest basis
at $28.4 million to $31.9 million, as shown below:
Low
$m
12.1
16.3
28.4
Regulatory Surplus Capital(1)
High
$m
15.6
16.3
31.9
Note:
1 Being the Regulatory Surplus Capital at 31 December 2011.
Valuation cross-checks
50
We have also considered the following valuation approaches to cross-check our overall
assessed value:
Methods used to cross-check valuation range
Method
Implied underwriting profit multiple based on
Economic Surplus Capital
Implied price to net tangible operating assets
(NTOA) multiple
Implied value per member
Reason
• Private health insurers generally hold an additional
capital buffer in excess of the regulatory minimum
capital adequacy requirement.
• Common industry practice in PHI sector
• Common industry practice in PHI sector
• Number of members is the primary driver of
premium income and hence value
Implied underwriting profit multiple based on Economic Surplus Capital
51 Although it is common practice for insurance companies to hold an additional capital buffer
in excess of the regulatory minimum capital adequacy requirement, the minimum buffers that
would be maintained by health insurers are not generally publicly available.
52
However, based on our experience and our discussion with DHF’s management we consider
that a reasonable estimate for the additional capital buffer that the private health insurers
would hold is equivalent to around 50% of their capital adequacy requirement (though the
larger, more diversified insurers may hold a lower percentage excess).
Economic surplus capital – DHF
Capital adequacy requirement(1)
Additional capital buffer(2)
Target prudential capital
Total health fund assets(1)
Economic Surplus Capital
[a]
[b]
[c] = [a] + [b]
[d]
[e] = [d] – [c]
$m
17.1
8.6
25.7
33.4
7.7
16
112
Note:
1 Including financial liabilities of $10.8 million and based on DHF’s balance sheet as at 31 December
2011.
2 Being 50% of $17.1 million.
53
Based on the Economic Surplus Capital of $7.7 million, instead of the Regulatory Surplus
Capital of $16.3 million, the underwriting profit multiple implied by our overall valuation of
DHF is between 18.8 (times) and 18.6 (times), calculated as follows:
Implied underwriting profit multiple based on target prudential capital – DHF
Low
$m
Assessed value of DHF
28.4
Less Economic Surplus Capital
(7.7)
Value of PHI business including target prudential capital
20.7
Assessed maintainable underwriting profit
1.1
Implied underwriting profit multiple based on target prudential capital
18.8
High
$m
31.9
(7.7)
24.2
1.3
18.6
54
The above implied underwriting profit multiples are higher than the underwriting profit
multiples of between 11 (times) and 12 (times) adopted under our primary valuation
approach. This is because these implied underwriting profit multiples are based on the
implied value of the core PHI including the Target Prudential Capital, which is comprised of
the regulatory minimum capital adequacy requirement and an additional capital buffer,
whereas the underwriting profit multiples adopted under our primary valuation approach are
consistent with the value of the core PHI business including only the minimum regulatory
capital adequacy requirement. That is, the difference between the two measures of
underwriting profit multiples is driven by the additional capital buffer.
55
For comparative purposes, we have calculated the current underwriting profit multiple based
on notional target prudential capital for NIB, as follows:
Implied underwriting profit multiple based on target prudential capital – NIB
Portfolio
basis
$m
Market capitalisation of NIB (as at 31 December 2011)
699.8
Less Regulatory Surplus Capital
(111.6)
Value of PHI business
588.2
Add additional capital buffer(1)
160.1
Value of PHI business including additional capital buffer
748.3
Forecast underwriting profit(2)
61.6
Implied underwriting profit multiple based on target prudential capital
12.1
Controlling
basis
$m
890.9
(111.6)
779.3
160.1
939.4
61.6
15.3
Note:
1 NIB’s additional capital buffer is calculated as 50% of the capital adequacy requirement as at 30 June
2011.
2 Based on two analysts’ revenue forecasts (Bloomberg) and assuming a net underwriting profit margin
of 5.5% (which is the mid-point of NIB’s target margin and consistent with the margin achieved in
FY11).
17
113
56
We have also calculated the relevant underwriting profit multiple based on target prudential
capital which are implied by the transactions involving the target companies Manchester
Unity, AHM and MBF, as follows:
Implied underwriting profit multiple based on target prudential capital – transactions(1)
Low
x
Manchester Unity
16.2
AHM
18.4
MBF
23.3
High
x
16.9
18.6
25.8
Note:
1 Based on the Independent Expert’s assessed value of the PHI business.
57
The underwriting profit multiple based on target prudential capital multiple implied by our
valuation of DHF is broadly consistent with the relevant multiple implied by NIB (on a
controlling basis) and the Manchester Unity transaction, and is equal to the multiple implied
by the AHM transaction. While the relevant multiple implied by our valuation of DHF is less
than that implied by the MBF transaction, in our view, this is appropriate as the MBF
transaction was announced prior to the introduction of the proposed changes in the MLS
taxable income thresholds and the subdued post-GFC financial markets. Consequently, we
have concluded that the underwriting profit multiple based on target prudential capital
multiple implied by our valuation range for DHF is reasonable and appropriate.
Implied NTOA multiple
58 The NTOA multiple14 implied by our valuation of DHF is set out below:
Implied NTOA multiple – DHF
Value of DHF including Regulatory Surplus Capital
Value of DHF excluding Regulatory Surplus Capital
NTOA(1) including Regulatory Surplus Capital
NTOA(1) excluding Regulatory Surplus Capital
NTOA multiple – including Regulatory Surplus Capital
NTOA multiple – excluding Regulatory Surplus Capital
Low
$m
28.4
12.1
High
$m
31.9
15.6
22.7
6.2
22.7
6.2
1.3
2.0
1.4
2.5
Note:
1 As per DHF’s balance sheet as at 31 December 2011. Due to the short-tail nature of DHF’s PHI
operations, we have included cash as an operating asset.
59
For comparative purposes, we have calculated the NTOA multiples implied by the trading
price of NIB (including a control premium of 32.5% excluding surplus), as follows:
14 Being enterprise value divided by NTOA.
18
114
Implied NTOA multiple – trading companies(1)
DHF
NIB
NTOA multiple
including Regulatory
excluding Regulatory
Surplus Capital
Surplus Capital
x
x
1.3 – 1.4
2.0 – 2.5
2.4
3.0
Note:
1 Enterprise Value (EV) is calculated as at 31 December 2011. NTOAs are as at 30 June 2011 for NIB
and 31 December 2011 for DHF. Due to the short-tail nature of PHI company’s operations, we have
included cash as an operating asset.
60
The NTOA multiple implied by our valuation of DHF is less than that of NIB. However, NIB
is significantly larger and more diversified than DHF. Also DHF’s surplus capital as a
proportion of assets is larger than the industry average which affects the multiple including
surplus capital.
61
We have also calculated the NTOA multiples implied by the transactions involving the target
companies Manchester Unity , AHM and MBF, which are set out below:
Implied NTOA multiple – transactions
Manchester Unity(1)
AHM(2)
MBF(3)
NTOA multiple
Surplus Capital
Surplus Capital
Low
High
Low
High
x
x
x
x
1.8
2.0
2.6
3.2
1.5
1.7
2.7
3.3
2.0
2.3
4.0
5.0
Note:
1 Based on the Independent Expert’s assessed value of Manchester Unity, excluding the retirement and
aged care business, and on the net operating tangible assets as per the balance sheet as at 30 June 2008
(net of intangibles and deferred acquisition costs).
2 Based on the Independent Expert’s assessed value of AHM’s PHI business and NTOA as per the
balance sheet as at 30 June 2008 (including the impact of a property transaction and net of deferred
acquisition costs).
3 Based on the Independent Expert’s assessed value of MBF’s PHI business, and NTOA as per the
balance sheet as at 31 December 2007.
62
The NTOA multiple implied by our valuation of DHF is less than that implied by all the
broadly comparable transactions. As noted previously, the MBF transaction was announced
prior to the changes in the MLS threshold and prior to the GFC, hence we would expect the
NTOA multiple for DHF to be less than that implied by the MBF transaction. The higher
NTOA multiples implied by the transactions involving Manchester Unity and AHM, may
reflect more significant synergies available to an acquiring private health insurer, as opposed
to an acquirer operating in a different sector. Further, the operations of the target companies
are substantially larger than DHF. In addition, DHF had a higher than average level of
regulatory surplus capital so it is unsurprising that it would have a relatively low NTOA
multiple on a basis including surplus. Consequently, we have concluded that the NTOA
multiple implied by our valuation range for DHF is reasonable and appropriate.
19
115
Value per member
63 The value per member implied by our valuation of DHF’s PHI business is set out below:
Value per member – DHF
Assessed value of DHF (includes Regulatory Surplus Capital) ($m)
Value of DHF’s health insurance business (excludes Regulatory Surplus
Capital) ($m)
Number of members(1)
Low
28.4
High
31.9
12.1
7,838
15.6
7,838
Value per member – including Regulatory Surplus Capital ($)
Value per member – excluding Regulatory Surplus Capital ($)
3,623
1,544
4,070
1,990
Note:
1 Based on the number of members as at 31 December 2011.
64
For comparative purposes, we have calculated the value per member implied by the value of
NIB (including a control premium of 32.5% on value in excess of surplus capital for the high
case) and the value per member implied by the transactions involving the target companies
Manchester Unity, AHM and MBF, as follows:
Value per member – trading companies and transactions
Value per member
Surplus Capital
Surplus Capital
Low
High
Low
High
$
$
$
$
3,623
4,070
1,544
1,990
DHF
NIB(1)
Manchester Unity(2)(3)
AHM(2)
MBF(2)
1,594
1,783
2,003
2,023
2,029
2,035
2,265
2,399
1,339
1,240
1,101
1,315
1,775
1,497
1,363
1,658
Note:
1 EV is calculated as at 31 December 2011. Number of members are as at 30 September 2011.
2 Based on the value of the PHI business assessed by the Independent Expert.
3 Excludes the value of the retirement and aged care business, which is assessed by the Independent
Expert to be some $52.3 million.
Rounding errors may exist.
65
The value per member multiple implied by our valuation of DHF is greater than the relevant
multiple implied by NIB (even on a controlling basis) and that implied by the Manchester
Unity, AHM and MBF transactions. With regard to this we note:
(a)
value per member can be affected by the type of insurance policies15 and the level of
cover subscribed by members
(b)
the premiums per member and also the net underwriting profit per member achieved by
private health insurers has increased in recent years. NIB’s value per member excluding
Regulatory Surplus Capital (on a controlling basis) was calculated by the Independent
15 For example, family, single, single parent family or couple.
20
116
Expert’s for Manchester Unity and AHM schemes to be some $1,300 per member at the
time of the acquisitions of Manchester Unity and AHM. By comparison, it is
approximately $1,700 now, an increase of some 31%. If the Manchester Unity and
AHM values per member excluding Regulatory Surplus Capital implied by their
transactions are scaled up by a similar percentage, their adjusted values per member
ranges would be $1,622 to $1,958 (Manchester Unity) and $1,440 to $1,782 (AHM)
which would be comparable with the value per member range implied by our valuation
of DHF
(c)
in general the valuation metric excluding Regulatory Surplus Capital would be more
likely to be consistent across insurers given that this valuation metric has allowed for
the difference in Regulatory Surplus Capital across private health insurers. We note that
DHF’s Regulatory Surplus Capital as a proportion of the total value of the business is
significantly larger than that maintained by NIB and the target companies at the time of
acquisition.
Consequently, we have concluded that the value per member multiple implied by our
valuation range for DHF is reasonable and appropriate.
Evaluation of the Proposal
66
In our opinion, the Proposal is fair and reasonable and in the best interests of Scheme
Members, in the absence of a current better proposal. We have formed this opinion for the
following reasons.
Assessment of the Scheme
Fairness
67 Pursuant to RG 111 the Scheme is “fair” if the value of the scheme consideration is equal to
or greater than the value of the securities the subject of the scheme. This comparison is
shown below:
Comparison of Scheme Consideration to value of DHF
Value of Scheme Consideration
Extent to which the Scheme Consideration exceeds (or is less
than) the value of DHF
68
Low
$m
30.0
28.4
High
$m
30.0
31.9
Mid-point
$m
30.0
30.2
1.6
(1.9)
(0.2)
As the Scheme Consideration is within our assessed valuation range for DHF on a 100%
controlling interest basis, in our opinion, the Scheme Consideration is fair to Scheme
Members when assessed based on the guidelines set out in RG 111.
Other qualitative factors
69 Pursuant to RG 111, a transaction is reasonable if it is fair. Further, in our opinion, if the
Scheme is “fair and reasonable” it must also be “in the best interests” of Scheme Members as
a whole, in the absence of any material detriment to their position as DHF policyholders, and
in the absence of a current better proposal.
21
117
70
The Appointed Actuary Report concludes that as a result of the Proposal:
(i)
DHF policyholders benefits should remain adequately secure if the Proposal is
approved,
(ii)
future premium rates are unlikely to be impacted in a material manner by the
proposal; and
(iii) the reasonable benefit expectations of DHF policyholders are unlikely to be
71
Accordingly, in our opinion, the Scheme is also “reasonable” and “in the best interests” of
Scheme Members in the absence of a current better proposal.
72
In assessing whether the Scheme is reasonable and in the best interests of Scheme Members
LEA, has also considered, in particular:
73
(a)
the extent to which Scheme Members are being paid a share of any synergies likely to
be generated pursuant to the potential transaction
(b)
the value of DHF to an alternative offeror and the likelihood of a higher alternative offer
being made for DHF prior to the date of the Scheme meeting
(c)
the advantages and disadvantages of the Scheme from the perspective of DHF Members
(d)
other qualitative and strategic issues associated with the Scheme.
These issues are discussed in detail below.
Extent to which Scheme Members are being paid a share of synergies
74 As Avant is much larger than DHF but does not currently operate a health fund, there are
likely to be some administrative synergies, but these will be limited in size. It is more likely
given the congruence of their target markets (i.e. doctors) that there will be marketing and
customer relationship synergies. These are notoriously hard to capture and hence to value.
75
The Scheme Consideration lies within our valuation range for 100% of DHF which implies
that DHF Members are not receiving any significant benefit for the potential synergies
available to the acquirer.
Likelihood of an alternative offer
76 We have been advised by the Directors of DHF that an indicative non-binding proposal from
an alternative purchaser was received subsequent to the announcement of the Scheme on
11 August 2011.
77
We have reviewed correspondence between this potential acquirer and DHF and also
discussed this proposal with the DHF Board and note that:
(a)
the alternative purchaser proposed consideration to DHF Members of $30.0 million,
which is equal to the current Avant proposal
22
118
(b)
the alternative proposal had other conditions and features which caused the DHF Board
to have concerns as to whether it was likely to develop into a Superior Proposal16
(c)
the DHF Board had discussions with the alternative purchaser to clarify elements of
their proposal and also received advice to help assess whether the alternative proposal
was likely to become a Superior Proposal.
78
Discussions were ongoing until the alternative purchaser formally withdrew their indicative
offer before the DHF Board reached a view as to whether the alternative purchaser’s offer was
a Superior Proposal.
79
In our view, the existence of this competing proposal indicates that, were the Avant proposal
to be rejected by members, it is likely there would be at least one and possibly other
alternative proposals put to the DHF Board. There is, however, considerable uncertainty
whether any such alternative proposals would be considered acceptable by the DHF Board
and put to members, much less approved by DHF Members.
80
Accordingly, in our view, it would be a high risk strategy for DHF Members to reject the
Proposal and expect it to be replaced by a higher alternative proposal (even if no weight was
placed on the non-cash factors).
Advantages and disadvantages of the Scheme
81 The likely advantages and disadvantages of the Proposal for DHF Members are summarised
in paragraphs 19 to 21.
Conclusion
82 Given the above analysis, we consider the Proposal for Avant to become a member of DHF
and for all other memberships in DHF to be cancelled in return for payment of the Scheme
Consideration by Avant under the Scheme is fair and reasonable and in the best interests of
Scheme Members in the absence of a current better proposal.
General
83
In preparing this report we have considered the interests of Scheme Members as a whole.
Accordingly, this report only contains general financial advice and does not consider the
personal objectives, financial situations or requirements of individual members.
84
The impact of approving the Scheme on the tax position of Scheme Members may vary with
the individual circumstances of each member. Scheme Members should read Appendix 10 of
the Scheme Booklet (Taxation Advice Letter) and consult their own professional advisers if in
doubt as to the taxation consequences of the Scheme.
16 As defined in the Agreement.
23
119
85
The ultimate decision whether to approve the Scheme should be based on each DHF
Members’ assessment of their own circumstances. If DHF Members are in doubt about the
action they should take in relation to the Proposal or matters dealt with in this report,
Members should seek independent professional advice. For our full opinion on the Proposal
and the reasoning behind our opinion, we recommend that DHF Members read our full report.
Yours faithfully
Martin Hall
Authorised Representative
Tony Coleman
Authorised Representative
24
120
Appendix A
Financial Services Guide
1
Lonergan Edwards & Associates Limited (ABN 53 095 445 560) (LEA) is a specialist
valuation firm which provides valuation advice, valuation reports and independent expert’s
reports (IER) in relation to takeovers and mergers, commercial litigation, tax and stamp duty
matters, assessments of economic loss, commercial and regulatory disputes.
2
LEA holds Australian Financial Services Licence No. 246532.
3
The Corporations Act authorises LEA to provide this Financial Services Guide (FSG) in
connection with its preparation of an IER to accompany the Scheme Booklet to be sent to
DHF members in connection with the Scheme.
4
This FSG is designed to assist retail clients in their use of any general financial product advice
contained in the IER. This FSG contains information about LEA generally, the financial
services we are licensed to provide, the remuneration we may receive in connection with the
preparation of the IER, and if complaints against us ever arise how they will be dealt with.
Financial services we are licensed to provide
5
Our Australian Financial Services Licence allows us to provide a broad range of services to
retail and wholesale clients, including providing financial product advice in relation to various
financial products such as securities, derivatives, interests in managed investment schemes,
superannuation products, debentures, stocks and bonds.
General financial product advice
6
The IER contains only general financial product advice. It was prepared without taking into
account your personal objectives, financial situation or needs.
7
You should consider your own objectives, financial situation and needs when assessing the
suitability of the IER to your situation. You may wish to obtain personal financial product
advice from the holder of an Australian Financial Services Licence to assist you in this
assessment.
Fees, commissions and other benefits we may receive
8
LEA charges fees to produce reports, including this IER. These fees are negotiated and
agreed with the entity who engages LEA to provide a report. Fees are charged on an hourly
basis or as a fixed amount depending on the terms of the agreement with the entity who
engages us. In the preparation of this IER, LEA is entitled to receive a fee of approximately
$175,000 plus GST.
9
Neither LEA nor its directors and officers receives any commissions or other benefits, except
for the fees for services referred to above.
25
121
Appendix A
10
All of our employees receive a salary. Our employees are eligible for bonuses based on
overall performance and the firm’s profitability, and do not receive any commissions or other
benefits arising directly from services provided to our clients. The remuneration paid to our
directors reflects their individual contribution to the company and covers all aspects of
performance. Our directors do not receive any commissions or other benefits arising directly
from services provided to our clients.
11
We do not pay commissions or provide other benefits to other parties for referring prospective
clients to us.
Complaints
12
If you have a complaint, please raise it with us first, using the contact details listed below.
We will endeavour to satisfactorily resolve your complaint in a timely manner.
13
If we are not able to resolve your complaint to your satisfaction within 45 days of your
written notification, you are entitled to have your matter referred to the Financial Ombudsman
Services Limited (FOS), an external complaints resolution service. You will not be charged
for using the FOS service.
Contact details
14
LEA can be contacted by sending a letter to the following address:
Level 27, 363 George Street
Sydney NSW 2000
(or GPO Box 1640, Sydney NSW 2001)
26
122
Appendix B
Qualifications, declarations and consents
Qualifications
1
LEA is a licensed investment adviser under the Corporations Act. LEA’s authorised
representatives have extensive experience in the field of corporate finance, particularly in
relation to the valuation of shares and businesses and have prepared more than 100
independent expert’s reports to shareholders.
2
This report was prepared by Mr Martin Hall and Mr Tony Coleman, who are each authorised
representatives of LEA. Mr Hall and Mr Coleman both have over 25 years experience in the
provision of valuation advice.
Declarations
3
This report has been prepared at the request of the Directors of DHF to accompany the
Scheme Booklet to be sent to DHF Members. It is not intended that this report should serve
any purpose other than as an expression of our opinion as to whether or not the Scheme is fair
and reasonable and in the best interests of DHF Members.
Interests
4
At the date of this report, neither LEA, Mr Hall nor Mr Coleman have any interest in the
outcome of the Proposal. With the exception of the fee shown in Appendix A, LEA will not
receive any other benefits, either directly or indirectly, for or in connection with the
preparation of this report.
5
LEA has had no prior business or professional relationship with DHF or Avant prior to the
preparation of this report.
Indemnification
6
As a condition of LEA’s agreement to prepare this report, DHF agrees to indemnify LEA in
relation to any claim arising from or in connection with its reliance on information or
documentation provided by or on behalf of DHF which is false or misleading or omits
material particulars or arising from any failure to supply relevant documents or information.
Consents
7
LEA consents to the inclusion of this report in the form and context in which it is included in
the Scheme Booklet.
27
123
Appendix C
Glossary
Term
ACCC
Agreement
AHM
AHSA
AIFRS
AMA
ASIC
ASX
Avant
Avant Mutual
CAGR
Corporations Act
Corporations Regulations
DCF
Defence
Deloitte
Demutualisation
DHF
DHF Member
DoHA
EBIT
EBITA
EBITDA
EGM
EGM Resolutions
EV
FIRB
FOS
FSG
FYxx
GFC
GMHBA
GST
HAMBS
HIRMAA
IAG
IER
IT
LEA
MER
MLS
NIB
NPV
Meaning
Australian Competition and Consumer Commission
Implementation Deed of 11 August 2011 between Avant and DHF, as amended
Australian Health Management Group
Australian Health Services Alliance
Australian equivalents to International Financial Reporting Standards
Australian Medical Association
Australian Securities & Investments Commission
Australian Securities Exchange
Avant Group Holdings Limited, a wholly owned subsidiary of Avant Mutual
Avant Mutual Group Limited
Compound annual growth rate
Corporations Act 2001 (Cth)
Corporations Regulations 2001
Discounted cash flow
Defence Health Ltd
Deloitte Touche Tohmatsu
The conversion of DHF from a mutual company (a company limited by
guarantee) to a company with shareholders (company limited by shares)
Each person (other than Avant) registered as a member in DHF’s register in
accordance with the DHF Constitution and the Fund Rules. A DHF Member
does not include a person who only holds a travel insurance policy underwritten
by QBE Insurance (Australia) Limited
Australian Government Department of Health and Ageing
Earnings before interest and tax
Earnings before interest, tax and amortisation
Earnings before interest, tax depreciation and amortisation
Extraordinary general meeting convened under the Constitution of DHF
Amendments to the Constitution of DHF required for the Proposal to proceed
Enterprise Value
Foreign Investment Review Board
Financial Ombudsman Services Limited
Financial year to 30 June 20xx
Global financial crisis
GMHBA Ltd
Goods and services tax
Hospital and Medical Benefits Systems
Health Insurance Restricted Membership Association of Australia
Insurance Australia Group
Independent expert’s report
Information technology
Management expense ratio
Medicare Levy Surcharge
NIB Limited
Net present value
28
124
Appendix C
Term
NTA
NTOA
PBT
PE
PHIAC
PHI
PHI Act
Proposal
QBE
RETF
RG 111
Scheme
Scheme Consideration
Scheme Meeting
Scheme Member
Taxation Advice Letter
Teachers
VWAP
Meaning
Net tangible assets
Net tangible operating assets
Profit before tax
Price earnings
Private Health Insurance Administrative Council
Private health insurance
Private Health Insurance Act 2007
Avant to become a member of DHF and all other memberships in DHF to be
cancelled for a total consideration of $30.0 million
QBE Limited
Risk Equalisation Trust Fund
Regulatory Guide 111 – Content of expert reports
Scheme of arrangement between DHF and its Members
$30.0 million payment by Avant allocated to Scheme Members in accordance
with the Allocation Rules
Court to be convened under Section 411(i) of the Corporations Act to consider
the Scheme
A DHF Member as at the Scheme Record Time or a Prescribed Member (as
defined in the Scheme Booklet).
Letter from PricewaterhouseCoopers attached as Appendix 10 of the Scheme
Booklet
Teachers Federation Health Ltd
Volume weighted average price
29
125
Appendix 8
Appointed Actuary’s Report
KPMG Actuarial Pty Ltd
Australian Financial Services Licence No. 392050
10 Shelley Street
Sydney NSW 2000
ABN: 91 144 686 046
Telephone: +61 2 9335 7000
Facsimile: +61 2 9335 7001
DX: 1056 Sydney
www.kpmg.com.au
PO Box H67
Australia Square NSW 1215
Australia
31 January 2012
Australian Financial Services Licence No. 392050
10 Shelley Street
Sydney NSW 2000
The Board of Directors
PO Box H67
Australia Square NSW 1215
Australia
PO Box 1400
31 January 2012
CROWS NEST 2065
ABN: 91 144 686 046
Telephone: +61 2 9335 7000
Facsimile: +61 2 9335 7001
DX: 1056 Sydney
www.kpmg.com.au
Dear Directors
APPOINTED
ACTUARY’S
REPORT AND FINANCIAL SERVICES GUIDE
The Doctors’ Health
Fund Limited
PO Box 1400
CROWS NEST 2065
1
Introduction
Dear Directors
The DHF Board has resolved to unanimously recommend that, in the absence of a
Superior
Proposal,
DHF Members
the Resolutions.
TheGUIDE
DHF Board has
APPOINTED
ACTUARY’S
REPORT vote
AND for
FINANCIAL
SERVICES
reached this view after carefully considering the Independent Expert’s Report and the
arguments for and against the Proposal.
1
Introduction
The
purpose
of this report is to review the impact of the Proposal on the interests of
DHF Members, including the basis upon which the financial benefit arising from the
The DHF Board has resolved to unanimously recommend that, in the absence of a
Proposal will be distributed amongst Scheme Members.
Superior Proposal, DHF Members vote for the Resolutions. The DHF Board has
reached
this view
after
carefully
considering
Independent
Expert’s
Report
and
the
I am a Fellow
of the
Institute
of Actuaries
of the
Australia.
My working
career
of 34
years
arguments
and against
the Proposal.
includes 22foryears
as a consulting
actuary and 15 years of actuarial practice within
private health insurance. I am a partner of KPMG and an Executive of KPMG Actuarial
The purpose of this report is to review the impact of the Proposal on the interests of
Pty Ltd. Currently I am the Appointed Actuary of DHF and have been so since October
DHF Members, including the basis upon which the financial benefit arising from the
2005.
I am a Fellow of the Institute of Actuaries of Australia. My working career of 34 years
includes 22 years as a consulting actuary and 15 years of actuarial practice within
private health insurance. I am a partner of KPMG and an Executive of KPMG Actuarial
Pty Ltd. Currently I am the Appointed Actuary of DHF and have been so since October
2005.
KPMG, an Australian partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG
International Cooperative ("KPMG International"), a Swiss entity.
126
KPMG, an Australian partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG
2
Disclosures
While I am not a DHF Member, and therefore have no right to any Entitlement, in my
capacity as Appointed Actuary to DHF I will earn consulting fees from providing this
report and other advice pertaining to the Proposal.
KPMG Financial Advisory Services (Australia) Pty Ltd (formerly known as KPMG
Corporate Finance (Aust) Pty Ltd) has provided corporate advisory services to Avant in
regards to various aspects of the Proposal and to date has earned fees on a time cost
basis. A fixed success fee of $100,000 is payable to KPMG Corporate Finance (Aust)
Pty Ltd on completion of the transaction.
KPMG TS Pty Limited (formerly KPMG Transaction Services (Australia) Pty Limited)
provided transaction services to DHF and earned fees on a time cost basis of $30,000.
Jefferson Gibbs a partner of KPMG and an Executive of KPMG Actuarial Pty Ltd
became the Appointed Actuary of Avant Insurance Limited effective 1 November 2011
and the Appointed Actuary of Professional Insurance Australia Pty Ltd effective 1
January 2012. KPMG Actuarial Pty Ltd will earn consulting fees from these
engagements.
KPMG’s Financial Services Guide is attached to this Report. This Report provides
general advice as it does not consider the individual needs of Policy holders.
3
Definitions
Terms appearing in this report which are defined in the Scheme Booklet have the same
meaning as that indicated in the Scheme Booklet.
4
Overview of the Proposal
An overview of the Proposal is contained in Section 2 of the Scheme Booklet.
5
Scope of Report and Overall Basis of Opinion
As the Appointed Actuary of DHF, I have been engaged to recommend an allocation
basis to the DHF Board and to comment on the fairness and reasonableness of the
Allocation Rules established by the DHF Board which set out the basis upon which the
financial benefit arising from the Proposal will be distributed amongst Scheme
Members.
My opinion will be made with regard to:

Section 126-42(5) of the Private Health Insurance Act;

PHIAC’s requirements for an Application for conversion to for profit status; and

The Allocation Rules established by the DHF Board.
2
127
Also, I have been engaged to provide an opinion on the impact of the Proposal on DHF
Policy holders in respect of the following areas:

Whether the policy benefits would remain adequately secure should the Proposal
proceed;

Whether future premium rates are likely to be affected by the Proposal; and

Whether the Proposal, if approved and implemented, will have an adverse impact
on the reasonable benefit expectations of the Policy holders under the policies
issued by DHF.
The opinions provided in this report rely in part on Avant’s current intentions and
certain commitments given by Avant in relation to the continuation of the DHF business
and any changes to the DHF business.
Section 10.5 of the Scheme Booklet states that Avant’s stated current intentions may
change. Accordingly, the opinions contained in this report are subject to and
conditional upon Avant’s stated current intentions and commitments, as previously
provided and detailed in Section 10 of the Scheme Booklet.
6
Data
To assist in my assessment of the key areas described above, I have relied upon the
data provided to me.
Key sources of data include:

The Scheme Booklet.

The Implementation Deed.

Membership data (de-identified) and financial information from DHF.

Avant’s 2011 Financial Year statements.
7
Allocation Rules
7.1
Introduction
The allocation basis upon which the financial benefit arising from the Proposal will be
distributed amongst Scheme Members, as determined by the Board, is set out in the
Allocation Rules (Appendix 4 of the Scheme Booklet). Prior to the Board’s adoption of
the Allocation Rules, I raised with the Board a number of considerations which could
influence the determination of an allocation basis including:

Who should be eligible to participate?

What rights, if any, are being forfeited?

What contribution has been made to retained profits by each individual or group?

Is the method easy to understand?
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128

Can the allocation basis be readily determined?

Is the allocation basis acceptable to those involved?

Are there any relevant precedents?
The Board of DHF reviewed these considerations in establishing a set of allocation
principles. Once the allocation principles were established by the Board, I used these
principles to develop potential allocation bases. From the potential bases, I
recommended an allocation basis to the Board and the Board accepted this basis.
7.2
Calculation Date
A key component of the Allocation Rules is the Calculation Date.
To be able to advise each DHF Member of their Initial Entitlement in the letter sent with
the Scheme Booklet requires the Initial Entitlement to be calculated prior to the date
the Scheme Booklet is sent. The Calculation Date has been selected as the latest
practical time to collect all the data necessary to determine Initial Entitlements.
Under the Allocation Rules, the length of time a DHF Member had a Policy and the
length of time a DHF Member had hospital and/or extras cover (“tenure”) is assessed
from the date the DHF Member’s Policy started, which is called the Join Date in the
Allocation Rules. If the DHF Member’s Join Date is before the Calculation Date, tenure
is assessed from the DHF Member’s Join Date to the Calculation Date, with any period
during which the DHF Member’s Policy was suspended excluded. If the DHF Member’s
Policy Join Date is after the Calculation Date, and the DHF Member’s policy has not
been suspended prior to the Scheme Record Time, the DHF Member’s tenure is
deemed to be one year.
7.3
Assessment of Allocation Rules against allocation principles
I have assessed the Allocation Rules against the nine allocation principles established
by the Board. I believe the allocation principles represent a fair and reasonable basis
upon which to assess the Allocation Rules.
1. Company Members (as Contributing Members) should be rewarded
Only Scheme Members at the Scheme Record Time will be rewarded.
2. The rights of the Company Members being given up are not considered to be
significant to the overall financial benefit.
The Allocation Rules reward not only membership rights, but also loyalty and the notion
of contribution to the value of DHF. All DHF Members have access to an allocation by
virtue of their membership and membership rights being given up. However the size of
the allocation is based on the notion of contribution to the value of DHF rather than the
membership rights being given up.
4
129
3. The financial benefit can be considered to be in the nature of a windfall gain.
The Allocation Rules recognise this and use other principles to guide the allocation
rather than determine it precisely.
4. The allocation should take into consideration the contribution to value, but should not
be driven by it. In considering the contribution to value:

The Allocation Rules should take into consideration the member’s duration of
membership on various levels of insurance cover as a Contributing Member.

In determining the various levels of insurance cover, consideration should be given
to the Fund’s Hospital Cover compared to Extras Cover.

Ideally, and data permitting, the membership tenure should extend back to the
formation of the DHF health benefits fund in 1977.

It should be considered that new members are able to join the health benefits fund
after the Calculation Date and up to the Scheme Record Time.
I have considered the contribution to value in identifying DHF’s net asset balance at the
end of each year to 30 June 2011. However there is insufficient historical data to
identify the contribution to value by each level of insurance cover.
The Allocation Rules give regard to each Scheme Member’s tenure. The period of
tenure is then classified according to the type of Policy held (Family Policy or Single
Policy) and the type of cover (Hospital Cover and/or Extras Cover) provided under the
Policy.
Other than in some respects which are not considered material, relevant data from the
establishment of the DHF health benefits fund in 1977 is capable of verification and is
of sufficient quality for the purposes of the recommended allocation basis.
DHF Members joining after the Calculation Date and not suspending their Policy before
the Scheme Record Time get an allocation equivalent to one year’s tenure based on
their Policy type and cover on their Join Date. While there is some risk that DHF
Members joining after the Calculation Date may select their Policy type and/or cover to
maximise their entitlement, the financial incentive is small, and I have assessed the risk
of this occurring as very low. In addition, DHF Members joining after the Calculation
Date and suspending their Policy before the Scheme Record Time do not get an
allocation, reducing the risk of DHF Members joining solely to take advantage of the
allocation.
5. The allocation basis should recognise that the contribution to value cannot be
accurately determined.
The recommended Allocation Rules reflect the notion of both historical contribution to
value and expected future contribution, but also recognise that this can only be
5
130
determined approximately and so also consider the desirability of simplicity and
industry precedents.
6. The allocation basis should be as simple as practical given the above considerations
and based on data that can be verified by the organisation.
While the Allocation Rules are slightly more complex than some alternative allocations
considered, the basis is relatively straight forward and able to be explained in practical
terms. Other than in some respects which are not considered material, the data
adopted is capable of verification.
7. The allocation basis should have a mechanism for dealing with issues that may take
time to be resolved. We note that prior demutualisations in the private health insurance
industry have allowed for an amount to be set aside as a “Residual Amount” held over
from the initial allocation to deal with disputes. The Board ask that you form a view in
relation to the value that should be assigned to a Residual Amount.
A Residual Amount will be set aside so that in the event of a dispute the Review
Committee can make good any error in the allocation provided to a Scheme Member.
In addition, the Residual Amount will be used to provide an Initial Entitlement to
Scheme Members who were not DHF Members at the Calculation Date.
Based on my recommendation, the Residual Amount has been set by the Board to be
$0.75 million. Subsequently the Residual Amount will be increased to include the
aggregate amount of Initial Entitlements allocated but not paid to persons who cease to
be DHF Members before the Scheme Record Time plus the amount arising from the
rounding down of the Initial Unit Value to the nearest whole cent. The Residual Amount
so adjusted is the Final Residual Amount.
8. The allocation rules should represent a normal view of fairness where loyalty to the
organisation is recognised and valued.
The Allocation Rules are based on tenure as a DHF Member which is consistent with
the expectations of the Directors who have expressed this view on behalf of DHF
Members.
In particular:

Consideration has been given to continuous Policy ownership only.

For DHF Members who lapsed their Policy or had their Policy terminated and then
took out another Policy with DHF (potentially with the same member identification
number), any period of membership prior to the Policy lapse or Policy termination
will not be counted as tenure for the purposes of the Allocation Rules.

For DHF Members joining before the Calculation Date, any period during which a
DHF Member’s Policy was suspended is not counted as tenure.
6
131
9. The allocation basis should take into consideration past demutualisations and should
not be significantly out of step with the allocation bases that have previously been
adopted, without proper reason.
The Allocation Rules take into account more historical factors (both Policy type and
cover) than other recent industry allocations. Also, there is no base allocation which
was adopted in three of the past four demutualisations. However, there are valid
reasons for these departures from allocation bases previously adopted and overall the
allocation factors are not significantly out of step with the allocation bases that have
been adopted previously.
7.4
Assessment of Allocation Rules against Section 126-42 of the Private
Health Insurance Act
Section 126-42(5) of the Private Health Insurance Act states that in respect of an
application of a private health insurer to convert to for profit status, “…the Council must
approve the application if:
(a) the insurer has complied with subsection (2) in relation to the application, and given
to the Council such further information as the Council has required under
paragraph (4)(b); and
(b) the Council is satisfied that the conversion scheme would not result in a financial
benefit to any person who is not a policy holder of, or another person insured
through, a health benefits fund conducted by the insurer; and
(c) the Council is satisfied that the conversion scheme would not result in financial
benefits from the scheme being distributed inequitably between such policy holders
and insured persons.”
The Private Health Insurance Act was considered when assessing the Allocation
Rules. A financial benefit will be paid only to Scheme Members, being Policy holders
(as DHF Members) and, in some exceptional cases, insured persons (as Prescribed
Members). In addition, I believe the financial benefits from the Scheme will be
distributed equitably among Scheme Members. While insured persons who are not
Scheme Members are not rewarded directly, the Allocation Rules allow for a higher
allocation to be paid in respect of policies where there is more than one person
insured. Due to the principles considered above and industry precedents, I believe the
Allocation Rules satisfy the requirements of Section 126-42 of the PHI Act as noted
above.
7.5
Conclusion
On the assessment against the allocation principles established by the Board and
Section 126-42 of the PHI Act, I consider the Allocation Rules adopted by the Board
represent a fair and reasonable basis upon which the financial benefit arising from the
7
132
8
Impact of the Proposal on Policy holders
8.1
Introduction
In a transaction of this nature, it is important for the Board to consider:

whether Policy benefits would remain adequately secure should the Proposal
proceed; and

the reasonable benefit and premium expectations of Policy holders, and whether
these expectations will be impacted in a material or adverse manner by the
Proposal.
The following sections consider these issues and are based on discussions with the
Board and Executive of DHF, investigations performed by me in providing previous
advice to the Board of DHF and material provided by Avant (as listed in Section 6 of
this Report) as well as the legislative and political environment.
PHIAC’s requirements for an application for conversion to for profit status include the
requirement for a statement from the Appointed Actuary as to what effect the change of
registration is likely to have on the premium under each policy group over the next
three years. Effectively, the Private Health Insurance Act defines a policy group as all
those policies referable to policy owners who live in the same state or territory of
Australia (except for the Australian Capital Territory which for this purpose is
considered part of New South Wales).
For hospital products, DHF has two “state” prices:

one for residents of New South Wales, The Australian Capital Territory, The
Northern Territory and Western Australia; and

one for residents of Victoria, South Australia, Tasmania and Queensland.
Underlying this pricing regime are the different hospital costs by state in Australia.
For general treatment products, DHF has one price, irrespective of state of residence,
reflecting the more uniform cost structure for general treatment services (e.g. dental,
optical, physiotherapy) across the states.
For each hospital product, it is current DHF practice to apply the same percentage
increase to the premium rate in each state and for the same benefit changes to be
applied to a product irrespective of state.
Due to various characteristics of private health insurance in Australia, including
community rating, guaranteed acceptance and portability, the pricing of health
insurance is complex. In determining the premium rates and benefits offered under one
DHF product, consideration has to be given to the premium rates and benefits offered
under all other DHF products. Consequently in assessing what effect the change of
8
133
registration is likely to have on premiums over the next three years, it is appropriate to
consider all Policy holders together, as the premium rate for a particular product is not
determined in isolation.
Consequently for the purposes of this report, I have not given separate consideration to
each policy group as, notwithstanding the two state pricing regime, DHF manages its
business as one policy group. Nor have I given separate consideration to each product,
as the price of each product is related implicitly to the price of each other product.
8.2
Financial projections
To provide advice to the Board of DHF on the potential financial impact of the
Proposal, and to meet PHIAC’s requirements for an application for conversion to for
profit status, I have performed a number of projections (to June 2015) based on a
range of assumptions about future experience, including the alternate assumptions
that:

the Proposal proceeds, and

the Proposal does not proceed.
Generally the method and assumptions that form the basis of the financial projections
are consistent with those adopted in previous advice to the Board of DHF. The material
differences in assumptions between the two projections relate to tax, growth in
policyholder numbers and management expenses.

If the proposal does not proceed, DHF will continue to be a non-taxed entity. If the
proposal does proceed, then future profits of DHF will be taxed at the corporate
rate and the future prudential capital requirements of DHF will reduce due to DHF’s
ability to recognise future tax losses in the determination of the capital adequacy
reserve.

If the proposal does not proceed, it has been assumed that the rate at which DHF
will continue to attract policyholders will be consistent with recent experience
utilising internal marketing resources, supplemented by an internet based broker
service. If the proposal does proceed, then it has been assumed that future growth
in policyholder numbers will be significantly higher because of the additional
marketing resources, brand awareness and client base of the Avant Group to
facilitate the marketing and promotion of DHF’s products.

If the proposal does not proceed, it has been assumed that management expenses
will continue to increase at a modest rate consistent with increases in average
weekly earnings (AWE) and CPI. If the proposal does proceed, then it is assumed
that future management expenses will increase at a greater rate than either AWE
or CPI because of the need to staff a larger organisation to support the assumed
higher growth in policyholder numbers.
9
134
In my opinion:

The model is suitable, and provides output that is appropriate and sufficient for the
purposes of projecting the experience of the health benefits fund.

The assumptions adopted in the projection were determined in conjunction with
management and are within the range of assumptions that I regard as reasonable
and appropriate for projecting the future experience of the health benefits fund.
While there are differences in the financial results and the financial position of the
health benefits fund under the two scenarios, under both scenarios the health benefits
fund continues to be in a sound financial position with surpluses emerging each year,
net assets increasing each year and the prudential capital requirements being well
covered.
8.3
For profit insurer
As set out in the Scheme Booklet, under the Proposal DHF will demutualise and
convert to a “for-profit” insurer. This will allow profits from DHF’s Health Benefits Fund
to be distributed to Avant as dividends.
Some may consider that over time the payment of tax and dividends may lead to a
reduction in Policy holder security, an increase in premiums and/or a reduction in
Policy holder benefit entitlements.
I do not support this view.
While my comments on each these issues are addressed in Sections 8.4 to 8.6 below,
for clarity, I have summarised some salient points below.

While the conversion to a for-profit insurer will result in additional cash outflows
from DHF, these outflows will be significant only when the business is making
profits and any dividends will be paid from after tax profits.

The Proposal to become a for-profit private health insurer owned by a significantly
larger organisation should provide increased business opportunities and scope for
cost savings which should lead to a reduction in the management expense ratio
(i.e. the ratio of management expenses to premium income). This could result in
either an increase in the underwriting profit for DHF or lower increases in premiums
compared to the outcomes if DHF remains as a small not-for-profit insurer.

The need to pay tax will impact the profits available to fund future operations and
will result in DHF’s asset base growing more slowly than it may otherwise have
done had the Proposal not been implemented. However as the pricing policy of
DHF does not incorporate an allowance for investment income, any reduction in
investment income associated with a reduced asset base would have no bearing
on insurance premiums.
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
All DHF Policy holders will continue to be covered by the protections provided
under the Private Health Insurance Act, as Policy holders of health insurance
products. In particular there is no change to the requirement for DHF to continue to
meet the regulatory capital requirements at all times.

If the Proposal is implemented it is anticipated that DHF, consistent with its current
capital management policy will continue to hold net assets significantly in excess of
the regulatory capital requirement. DHF, as part of the larger Avant group, will have
access to capital reserves held by Avant Mutual which currently are substantial.
Therefore the potential to access capital is a significant advantage of this Proposal.

The private health insurance market is already very competitive with both for-profit
and not-for-profit insurers competing in the same market with comparable products.
Should Policy conditions be changed in an adverse manner, portability provides
members with the opportunity to switch to another private health insurer with only
minor inconvenience. To reduce benefits unnecessarily without an offsetting factor
such as a reduction in premium rates would impact DHF’s competitiveness, would
be contrary to the growth strategy of Avant and would risk placing DHF at a
commercial disadvantage.
8.4
Whether the Policy benefits would remain adequately secure should the
Proposal proceed;
8.4.1
Regulatory capital requirements
Private health insurers are subject to regulatory capital requirements in excess of their
policy liabilities which are designed to provide security for Policy holders under a range
of adverse scenarios.
The regulatory capital requirements are structured as a two-tiered system: the
Solvency Standard and the Capital Adequacy Standard.

The Solvency Standard is intended to ensure, as far as practicable, that at any time
the financial position of a health benefits fund is such that the private health insurer
will be able to meet all liabilities that are referable to the fund as those liabilities
become due.

The Capital Adequacy Standard is intended to ensure, as far as practicable, that
there are sufficient assets in a health benefits fund to provide adequate capital for
the conduct of the fund in accordance with the Private Health Insurance Act and in
the interests of the policy holders of the fund.
The security of Policy holders’ benefits can be assessed by evaluating the adequacy of
DHF’s total capital to meet the regulatory capital standards as specified in the Private
Health Insurance Act and accompanying Private Health Insurance (Health Benefits
Fund Administration) Rules.
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8.4.2
DHF’s Capital Management Policy
While generally a larger asset base provides greater security of benefits, the exact
amount necessary to secure benefits is not capable of precise measurement. In
addition security cannot be provided with 100% certainty.
The concept of capital management is well established within insurance industries and
insurance industry practice is to adopt a capital management policy.
To ensure its health benefits fund meets the regulatory capital requirements with a high
probability of adequacy, DHF has a capital management policy which specifies a target
range of net assets above the capital adequacy reserve.
8.4.3
Ongoing security of Policy holders’ benefits
The ongoing security of Policy holders’ benefits will be protected through numerous
legislative safeguards which are unaffected by this Proposal or other industry
transactions.
The two-tier regulatory capital system is designed to provide protection under a range
of adverse circumstances, and solvency and capital adequacy information is provided
to PHIAC quarterly and is subject to audit annually.
In assessing the impact of the Proposal upon the security of DHF Policy holders’
benefits, I have considered DHF’s projected solvency and capital adequacy position
over a three year period under a range of hypothetical scenarios including:

the Proposal is implemented and DHF operates as a for-profit private health insurer
and as a subsidiary of Avant; and

the Proposal is not implemented and DHF continues as a not-for-profit private
health insurer.
If the Proposal is implemented:
In Section 10 of the Scheme Booklet Avant states:
“If the Proposal is implemented, Avant has committed to procure, insofar as it is able as
a shareholder in DHF to do so, that capital is made available to DHF to the extent that
it is needed to ensure that:

DHF’s Health Benefits Fund is in a position to meet its capital requirements in
accordance with the solvency and capital adequacy prudential standards under the
PHIA; and

DHF has sufficient capital to support its business, to the extent that it is conducted
in accordance with DHF’s business plan in place as at the date of the
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Implementation Deed and any subsequent DHF business plan which Avant may
approve from time to time.”
If the Proposal is implemented it is anticipated that DHF, consistent with its current
capital management policy will hold net assets significantly in excess of the regulatory
capital requirement over the following three years.
DHF, as part of the larger Avant group, will have access to capital reserves held by
Avant Mutual which currently are substantial. Therefore the potential to access capital
is a significant advantage of this Proposal.
While as a for-profit insurer, DHF would have the ability to pay dividends or return
capital to Avant, I do not believe that this is material in respect of the level of capital
likely to remain as:

DHF will continue to be required to meet the aforementioned regulatory capital
requirements;

DHF will be required to advise its Appointed Actuary of such an event (a notifiable
circumstance under the Private Health Insurance Act) and such an event is likely to
require actuarial advice; and

PHIAC monitors a private health insurer’s level of capital on a quarterly basis and
has the ability to issue directions to an insurer should their level of capital be
deemed insufficient.
The conversion to for-profit will also mean DHF becomes subject to income tax. While
this will result in additional cash outflows from DHF, these outflows will only be
significant in times when the business is making profits. Given DHF must meet
regulatory capital requirements and that dividends are paid from after tax profits, I do
not believe the additional cost of tax has a materially adverse impact on the security of
Policy holder benefits.
It should be noted that there is no guarantee that Avant will always have its current
structure and ownership or have the same objectives and principles of operation.
If the Proposal is not implemented:
If the Proposal is not implemented, it is anticipated that DHF, consistent with its current
capital management policy, will hold net assets significantly in excess of the regulatory
capital requirement over the following three years.
However the capital in DHF’s health benefits fund could be eroded because of other
strategies, such as aggressive growth programmes or significant adverse experience.
In the event of such erosion of capital, DHF would have limited access to external
capital.
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8.4.4
Impact of the Proposal on Policy holder’s security of benefits
Having considered the points above, including :

The security provided by the regulatory capital requirements;

DHF’s capital policy to hold capital above regulatory capital standards, which it is
anticipated will continue;

The ongoing safeguards provided by legislation; and

Avant’s commitment to procure, insofar as it is able as a shareholder in DHF to do
so, that capital is made available to DHF to the extent that it is needed to ensure
DHF’s health benefits fund meets the prudential capital requirements and has
sufficient capital to support its business plans,
I consider that Policy holders’ benefits should remain adequately secure if the Proposal
is approved.
8.5
Whether future premium rates are likely to be affected by the Proposal
Over the past few years, premium rates for DHF have been set having regard to pricing
principles to achieve appropriate gross and net margins to meet the target level of
capital in the context of commercial considerations.
Avant has indicated that it is not intending to change DHF’s approach to key aspects of
the business as stated in Section 10.5 of the Scheme Booklet:
“If the Proposal is implemented, Avant’s current intention is that DHF will retain its
existing product range, including DHF’s Top Cover hospital product and the range of
benefits offered under each of DHF’s products.”
The longer term impact on premiums is harder to assess. It is possible that premiums
could be set to achieve a target gross or net margin, or to meet Avant’s capital or
dividend policy.
I also note that:

Private health insurance is a competitive industry where it is easy to change insurer
because of the legislative requirement of full portability between insurers, and
premium rates must be set having regard to the insurer’s competitive position and
the response of customers and competitors to price changes.

All changes in premium rates are subject to regulatory review and must be
approved by the Commonwealth Minister for Health.

For-profit insurers and not-for-profit insurers operate in the private health insurance
market, offering comparable competitive products.
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
The Proposal to become a for-profit private health insurer owned by a significantly
larger organisation should provide increased business opportunities and scope for
cost savings which should lead to a reduction in the management expense ratio
(i.e. the ratio of management expenses to premium income). This could result in
either an increase in the underwriting profit for DHF or lower increases in premiums
compared to the outcomes if DHF remains as a small not-for-profit insurer.

Changing to a for-profit status will mean that DHF becomes subject to corporation
income tax and have the ability to pay dividends to its shareholder (Avant). The
need to pay tax will impact the profits available to fund future operations and will
result in DHF’s asset base growing more slowly than it may otherwise have done
had the Proposal not been implemented. However as noted above, there are likely
to be a number of other factors that will ensure that the premium rate increases
pursued by DHF will remain competitive. In particular, DHF’s focus on the gross
and net margin which does not include investment income means that any
reduction in investment income associated with a reduced asset base would have
no bearing on insurance premiums.
Having considered the relevant statements made by Avant, the competitiveness of and
the legislative safeguards in the private health insurance industry, I believe that future
premium rates are unlikely to be impacted in a material manner by the Proposal.
8.6
Whether the Proposal, if approved and implemented, will have an adverse
impact on the reasonable benefit expectations of the Policy holders under
the Policies issued by DHF.
Avant has indicated that it is not intending to change the policy conditions of DHF
policies and has clearly stated in Section 10.5 of the Scheme Booklet that:
“If the Proposal is implemented, Avant’s current intention is that DHF will retain its
existing product range, including DHF’s Top Cover hospital product and the range of
benefits offered under each of DHF’s products.”
Health insurance is a very competitive market and should policy conditions be changed
in an adverse manner, portability provides members with the opportunity to switch to
another private health insurer with only minor inconvenience. To reduce benefits
unnecessarily without an offsetting factor such as a reduction in premium rates would
impact DHF’s competitiveness, would be contrary to the growth strategy of Avant and
would risk placing DHF at a commercial disadvantage.
There is no guarantee that Avant will always have its current structure and ownership
or have the same objectives and principles of operation. Nevertheless, the
characteristics of the private health insurance market relating to portability, competitive
market pressures, Ministerial approval of premium rates, as well as Avant’s size,
provide a degree of protection to DHF Policy holders over the longer term.
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I believe that the reasonable benefit expectations of DHF Policy holders are unlikely to
be impacted in a materially adverse manner by the Proposal.
8.7
Conclusion
I conclude that as a result of the Proposal:

Policy holders’ benefits should remain adequately secure if the Proposal is
approved.

Future premium rates are unlikely to be impacted in a material manner by the
Proposal.

The reasonable benefit expectations of DHF Policy holders are unlikely to be
9
Reliances and limitations
My review was limited in scope as discussed in Section 5 of this Report.
My advice is general in nature and does not take into account the specific
circumstances of individual DHF Members. DHF Members should seek appropriate
independent professional advice that considers the implication of their own specific
circumstances. KPMG Actuarial Pty Ltd and KPMG disclaim all responsibility and
liability to any other party (including, without limitation, to each DHF Member) for any
loss or liability that the other party may suffer or incur (including, without limitation, any
direct or indirect or consequential costs, loss or damage or loss of profits) arising from
or relating to or in any way connected with the contents of my advice or the provision of
my advice to the other party or the reliance on my advice by the other party.
The statements and opinions given in this Report are given in good faith and the belief
that such statements and opinions are not false or misleading. In performing my
procedures in line with the scope of my work I relied on the accuracy and
completeness of all information. In general, reliance was placed on but not limited to
the information provided. I have used the information without independent verification.
However, it was reviewed where possible for reasonableness and consistency. This
review process included comparative analysis with data available from a range of
sources.
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Yours sincerely
David Torrance
Appointed Actuary, DHF
Fellow of the Institute of Actuaries Australia
Director and Representative
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Dated 31 January 2012
What is a Financial Services Guide (FSG)?
This FSG is designed to help you to decide whether to use any of the general financial product
advice provided by KPMG Actuarial Pty Ltd ABN 91 144 686 046, Australian Financial Services
Licence Number 392050 (KPMG Actuarial) or David Torrance as an authorised representative of
KPMG Actuarial (Authorised Representative), authorised representative number 406115.
This FSG includes information about:

KPMG Actuarial and its Authorised Representative and how they can be contacted.

The services KPMG Actuarial and its Authorised Representative are authorised to provide.

How KPMG Actuarial and its Authorised Representative are paid.

Any relevant associations or relationships of KPMG Actuarial and its Authorised
Representative.

How complaints are dealt with as well as information about internal and external dispute
resolution systems and how you can access them; and

The compensation arrangements that KPMG Actuarial has in place.
The distribution of this FSG by the Authorised Representative has been authorised by KPMG
Actuarial.
This FSG forms part of the Appointed Actuary’s Report (Report) which has been prepared for
inclusion in the Scheme Booklet The purpose of the disclosure document is to help you make an
informed decision in relation to a financial product. The contents of the disclosure document, as
relevant will include details such as the risks, benefits and costs of acquiring the particular
financial product.
Financial services that KPMG Actuarial and the Authorised Representative are
authorised to provide
KPMG Actuarial holds an Australian Financial Services Licence, which authorises it to
provide financial product advice for the following classes of financial products:

derivatives;

general insurance products;

debentures, stocks or bonds issued or proposed to be issued by a government;

life products including:
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o
investment life insurance products as well as any products issued by a
Registered Life Insurance Company that are backed by one or more of
its statutory funds; and
o
life risk insurance products as well as any products issued by a
Registered Life Insurance Company that are backed by one or more of
its statutory funds;

interests in managed investments schemes including investor directed portfolio
services;

securities; and

superannuation;
to retail and wholesale clients. We provide financial product advice when engaged to
prepare a report in relation to a transaction relating to one of these types of financial
products. The Authorised Representative is authorised by KPMG Actuarial to provide
financial product advice on behalf of KPMG Actuarial.
KPMG Actuarial and the Authorised Representative's responsibility to you
KPMG Actuarial has been engaged by Doctors’ Health Fund Limited (Client) to provide
general financial product advice in the form of a Report to be included in the Scheme
Booklet.
You have not engaged KPMG Actuarial or the Authorised Representative directly but
have received a copy of the Report because you have been provided with a copy of the
Scheme Booklet. Neither KPMG Actuarial nor the Authorised Representative are acting
for any person other than the Client.
KPMG Actuarial and the Authorised Representative are responsible and accountable
to you for ensuring that there is a reasonable basis for the conclusions in the Report.
General Advice
As KPMG Actuarial has been engaged by the Client, the Report only contains general
advice as it has been prepared without taking into account your personal objectives,
financial situation or needs.
You should consider the appropriateness of the general advice in the Report having
regard to your circumstances before you act on the general advice contained in the
Report.
Also you should consider the other parts of the Scheme Booklet before making any
decision in relation to the Proposal.
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Fees KPMG Actuarial may receive and remuneration or other benefits received
by our representatives
KPMG Actuarial charges fees for preparing reports. Usually these fees will be agreed
with, and paid by, the Client. Fees are agreed on either a fixed fee or a time cost basis.
In this instance, the Client has agreed to pay KPMG Actuarial fees on a time cost basis
for preparing the Report. These fees could be in the range $240,000 to $280,000
(exclusive of GST). KPMG Actuarial and its officers, representatives, related entities
and associates will not receive any other fee or benefit in connection with the provision
of the Report.
KPMG Actuarial officers and representatives (including the Authorised Representative)
receive a salary or a partnership distribution from KPMG’s Australian professional
advisory and accounting practice (the KPMG Partnership). KPMG Actuarial’s
representatives (including the Authorised Representative) are eligible for bonuses
based on overall productivity. Bonuses and other remuneration and benefits are not
provided directly in connection with any engagement for the provision of general
financial product advice in the Report.
Further details may be provided on request.
Referrals
Neither KPMG Actuarial nor the Authorised Representative pay commissions or
provide any other benefits to any person for referring customers to them in connection
with a Report.
Associations and relationships
Through a variety of corporate and trust structures KPMG Actuarial is controlled by and
operates as part of the KPMG Partnership. KPMG Actuarial’s directors may be partners
in the KPMG Partnership. The Authorised Representative is a partner in the KPMG
Partnership. The financial product advice in the Report is provided by KPMG Actuarial
and the Authorised Representative and not by the KPMG Partnership.
From time to time KPMG Actuarial, the KPMG Partnership and related entities (KPMG
entities) may provide professional services, including audit, tax and financial advisory
services, to companies and issuers of financial products in the ordinary course of their
businesses.
KPMG entities have provided, and continue to provide, a range of advisory services to
the Client for which professional fees are received. Over the past two financial years
(i.e. to 30 June 2011) professional fees of $130,070 (inclusive of GST) have been
received from the Client. None of those services have related to the transaction or
alternatives to the transaction.
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145
As noted in the Report, KPMG Financial Advisory Services (Australia) Pty Ltd (formerly
known as KPMG Corporate Finance (Aust) Pty Ltd) has provided corporate advisory
services to Avant in regards to various aspects of the Proposal and to date has earned
fees on a time cost basis. A fixed success fee of $100,000 is payable to KPMG
Corporate Finance (Aust) Pty Ltd on completion of the transaction.
KPMG TS Pty Limited (formerly KPMG Transaction Services (Australia) Pty Limited)
provided transaction services to DHF and earned fees on a time cost basis of $30,000.
In addition, Jefferson Gibbs a partner of KPMG and an Executive of KPMG Actuarial
Pty Ltd became the Appointed Actuary of Avant Insurance Limited effective 1
November 2011 and the Appointed Actuary of Professional Insurance Australia Pty Ltd
effective 1 January 2012. KPMG Actuarial Pty Ltd will earn consulting fees from these
engagements.
No individual involved in the preparation of this Report holds a substantial interest in, or
is a substantial creditor of, the Client or has other material financial interests in the
transaction.
Complaints resolution
Internal complaints resolution process
If you have a complaint, please let either KPMG Actuarial or the Authorised
Representative know. Formal complaints should be sent in writing to The Complaints
Officer, KPMG, PO Box H67, Australia Square, Sydney NSW 1213. If you have
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on 02 9335 7000 and they will assist you in documenting your complaint.
Written complaints are recorded, acknowledged within 5 days and investigated. As
soon as practical, and not more than 45 days after receiving the written complaint, the
response to your complaint will be advised in writing.
External complaints resolution process
If KPMG Actuarial or the Authorised Representative cannot resolve your complaint to
your satisfaction within 45 days, you can refer the matter to the Financial Ombudsman
Service (FOS). FOS is an independent company that has been established to provide
free advice and assistance to consumers to help in resolving complaints relating to the
financial services industry.
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146
Further details about FOS are available at the FOS website www.fos.org.au or by
contacting them directly at:
Address:
Financial Ombudsman Service Limited, GPO Box 3, Melbourne Victoria
3001
Telephone:
1300 78 08 08
Facsimile:
(03) 9613 6399
Email:
info@fos.org.au.
The Australian Securities and Investments Commission also has a freecall infoline on
1300 300 630 which you may use to obtain information about your rights.
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KPMG Actuarial has professional indemnity insurance cover as required by the
Corporations Act 2001(Cth).
Contact Details
You may contact KPMG Actuarial or the Authorised Representative using the contact
details:
10 Shelley St
Sydney NSW 2000
PO Box H67
Australia Square
NSW 1213
Telephone:
(02) 9335 7000
Facsimile:
(02) 9335 7200
David Torrance
C/- KPMG
PO Box H67
Australia Square
NSW 1213
Telephone:
(02) 9335 7000
Facsimile:
(02) 9335 7200
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Appendix 9
Independent Actuary’s Report
Synge & Noble Pty Ltd
ACN 139 559 096
Level 5, 44 Pitt St
Sydney NSW 2000
PO Box R1048
Royal Exchange NSW 1225
1 February 2012
Phone: +61 2 8220 8520
www.SyngeAndNoble.com
Doctors Health Fund Limited
PO Box 1400
Crows Nest
Dear Directors,
Independent Actuary’s Report
1. Introduction
The Doctors Health Fund Limited (DHF) proposes to demutualise and to be acquired by Avant
Group Holdings Limited (Avant) via a scheme of arrangement with the proceeds of the
demutualisation being distributed as cash to Scheme Members in return for giving up their
membership rights in accordance with a set of Allocation Rules contained in the Scheme Booklet.
As part of this process DHF has engaged Synge & Noble to prepare an independent actuary’s
report including opinions as to:
n
n
n
n
whether or not the proposed allocation methodology is fair and reasonable;
whether policy holder benefits remain adequately secure;
whether future premium rates are likely to be affected; and
whether there will be an adverse impact on policy holder reasonable benefit expectations.
I am a Fellow of the Institute of Actuaries Australia with 23 years experience as a consulting actuary
and I have been involved in a number of recent demutualisations of Australian health insurers.
While I am not a member or policy holder of DHF or Avant and have no entitlement under the
Scheme I will receive a fee for preparation of this report.
In this report capitalised words, where defined in Section 12 of the Scheme Booklet, have that
meaning.
2. Allocation Methodology
The proceeds of the demutualisation will be allocated to Scheme Members in accordance with a set
of Allocation Rules adopted by the Board of DHF as recommended by the Appointed Actuary, Mr
David Torrance of KPMG in his Allocation Rules report dated 31 January 2012. In preparing his
recommendation Mr Torrance had regard to a set of allocation principles set by the Board.
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2
In considering whether the allocation methodology is fair and reasonable I have considered the
principles set by the board, and also the rights being forfeited in the demutualisation and who
should be eligible for an allocation.
Rights of Members and Eligibility
A demutualisation usually occurs through a vote of members of the organisation. In considering who
is affected it is usual to consider members’ rights on wind up of the entity and member voting rights.
DHF is registered as a company under the Corporations Act 2001 and is also registered as a private
health insurer under the Private Health Insurance Act 2007
In the case of DHF the members have no rights on wind up to surplus assets as the constitution
requires the assets to be given to another similar organisation and not to members. This is very
common and the main driver for participation in the demutualisation is therefore the voting rights of
members that are being given up in exchange for the proceeds of the demutualisation.
The DHF Members, who are members under the constitution, have the right to vote at meetings of
members and have the right to elect directors.
Through the right to vote the DHF Members can bring about change in the company and are being
asked to give up this right to Avant. As they are the only ones giving up rights DHF Members
should clearly participate in the allocation.
As a result of administrative rules put in place by the Board under the constitution only current
Contributing Members of the benefit fund can be DHF Members and, therefore, Contributing
Members are also DHF Members and, in turn Scheme Members. As it is the benefit fund that gives
rise to the value of DHF, it is appropriate to determine the allocation to Scheme Members having
regard to their membership of the benefit fund.
Under the Proposal, DHF Members joining after the announcement of the scheme and before the
Scheme Record Time are eligible for an allocation. Hence there is an option for people to take out a
DHF insurance policy in order to receive an allocation that could be considered unfair. To reduce
the risk of DHF Members joining solely to achieve an allocation, no allocation will be paid to DHF
Members who join after the Calculation Date and suspend their policy before the Scheme Record
Time. The Appointed Actuary does not consider there is a large risk of many people joining to take
advantage of the allocation as the benefit is small relative to the effort and cost involved and hence
any impact on existing DHF Members will be minimal. I consider this a reasonable view and note
the Residual Amount that has been set aside to fund, among other things, the allocation for new
members after the Calculation Date.
The Board has determined that only DHF Members satisfying the eligibility requirements to be
Scheme Members will participate and I consider this to be a fair and reasonable basis for
participation.
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3
Allocation Methodology
The allocation methodology is expressed as the Allocation Rules adopted by the Board. These are
recommended by the Appointed Actuary in accordance with a set of nine allocation principles
determined by the Board.
The Allocation Principles set by the Board are:
“1. Company Members (as Contributing Members) should be rewarded
2. The rights of the Company Members being given up are not considered to be significant
to the overall financial benefit.
3. The financial benefit can be considered to be in the nature of a windfall gain.
4. The allocation should take into consideration the contribution to value, but should not be
driven by it. In considering the contribution to value:
• The Allocation Rules should take into consideration the member’s duration of
membership on various levels of insurance product as a Contributing Member.
• In determining the various levels of insurance cover, consideration should be given to
the Fund’s Hospital Cover compared to Extras Cover.
• Ideally, and data permitting, the membership tenure should extend back to the
formation of the DHF health benefits fund in 1977.
• It should be considered that new members are able to join the health benefits fund
after the Calculation Date and up to the Scheme Record Time.
5. The allocation basis should recognise that the contribution to value cannot be accurately
determined.
6. The allocation basis should be as simple as practical given the above considerations and
based on data that can be verified by the organisation.
7. The allocation basis should have a mechanism for dealing with issues that may take time
to be resolved. We note that prior demutualisations in the private health insurance industry
have allowed for an amount to be set aside as a “Residual Amount” held over from the initial
allocation to deal with disputes. The Board ask that you form a view in relation to the value
that should be assigned to a Residual Amount.
8. The allocation rules should represent a normal view of fairness where loyalty to the
organisation is recognised and valued.
9. The allocation basis should take into consideration past demutualisations and should not
be significantly out of step with the allocation bases that have previously been adopted,
without proper reason.”
I have carefully considered these principles and the way they have been addressed in the
Appointed Actuary’s Report and the Allocation Rules as well as compared them to those in other
health insurance demutualisations.
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I note in particular that the Allocation Rules have had regard to available information and recognise
historical changes between family and single status which has generally not been done in other
demutualisations.
The allocation of the proceeds of a demutualisation is a complex matter because of the need to
allocate value built up over a period of time in changing conditions to those members now eligible to
participate. It is further complicated by the requirement to use community rating for health
insurance that means individual policy holders do not pay a premium that reflects their expected
cost to the fund. As a result the contribution to surplus from a product or generation of policy holders
cannot be readily determined in total nor allocated to groups of policy holders. Any allocation must
necessarily be highly subjective and the use of principles that are generally seen to be fair is a
reasonable way of achieving broad equity.
While there exists any number of ways of allocating the proceeds of the demutualisation, overall I
consider that the allocation principles reasonably address relevant considerations for the allocation
and that the Allocation Methodology as represented by the Allocation Rules is fair and reasonable.
3. Impact on Policy holders
Rule 12 (1)(d) of the Private Health Insurance (Health Benefits Fund Administration) Rules 2007
requires a report from the Appointed Actuary to be submitted to PHIAC addressing a number of
issues including:
n how the arrangement will affect the ability of the insurer to comply with the solvency
standard, and the capital adequacy standard in the future
n what effects the arrangement is likely to have on the premiums for, and benefits under
continuing policies.
The required considerations and declarations are contained in the Appointed Actuary’s Report
which also specifically addresses:
n whether Policy benefits would remain adequately secure
n whether future premium rate are likely to be affected
n whether the Proposal will have an adverse impact on the reasonable expectations of
policy holders.
Mr Torrance has considered these issues, including the time horizons as required by the Private
Health Insurance Act, noting the expected ability of DHF to support the payment of taxes and
dividends without unreasonably affecting policy holders’ security, premiums or reasonable
expectations.
As a result of the Proposal DHF will become a for profit fund paying tax on profits and Avant will
become the single shareholder, entitled to dividends out of profits. An important consideration
therefore is Avant’s stated intentions in relation to the business which are set out in Section 10.5 of
the Scheme Booklet. In summary it is Avant’s current intention, subject to future circumstances and
resources, to provide necessary capital support, to manage DHF separately from Avant’s other
businesses, and provide continuity of policies, products and range of benefits.
Comfort about the future can also be gained by the protection of policy holders provided under the
Private Health Insurance Act which sets strict minimum capital requirements for all insurers and also
151
5
5
requires changes to premium rates to be approved by the minister administering the Private Health
Insurance Act.
I have carefully considered the information made available to me including Mr Torrance’s opinions
and the reasoning supporting them. While the future impact on policy holders will be a function of
future experience and circumstances which cannot be reliably predicted or guaranteed I consider
that:
n
n
n
policy holders’ benefits should remain adequately secure if the Proposal is approved
future premium rates are unlikely to be impacted in a material manner by the Proposal
the reasonable benefit expectations of DHF Policy holders are unlikely to be impacted in a
materially adverse manner by the Proposal
4. Summary of Conclusions
I summary I consider that:
n
n
n
n
the Allocation Methodology as represented by the Allocation Rules is fair and reasonable.
policy holders’ benefits should remain adequately secure if the Proposal is approved
future premium rates are unlikely to be impacted in a material manner by the Proposal
the reasonable benefit expectations of DHF Policy holders are unlikely to be impacted in a
materially adverse manner by the Proposal
5. Work Performed
In reaching my conclusion I had extensive conversations with Mr Torrance regarding his logic in
recommending the allocation rules and views on the potential impact of the Proposal on the
Scheme Members. I also reviewed a number of documents prepared by Mr Torrance including the
Appointed Actuary's Report, the Allocation Rules Report, and the DHF Financial Condition report at
30 June 2011.
I also considered a number of other documents such as the Scheme Booklet, the Implementation
Deed, the allocation principles set by the board, the Constitution of DHF, the Benefit Fund Rules of
DHF and legal advice in relation to the Proposal.
I have had regard to the Private Health Insurance Act which sets out a number of requirements for
the acquisition of a health fund and conversion to for profits status.
Lastly, I considered similar transactions involving NIB, MBF, ahm and Manchester Unity.
6. Reliance and Limitations
The advice in this report is general in nature and does not take into account the individual
circumstances of DHF Members who should seek their own independent advice as they deem
appropriate before deciding how to vote on the Proposal.
152
6
In forming my opinions I have relied on information both written and verbal and my opinions are
dependent on the accuracy and completeness of that information. I have used the information
without independent verification.
My views have been based on the current environment and information which may change in the
future and cause my views to be incorrect.
This report has been prepared for inclusion in the Doctor’s Health Fund Scheme Booklet. I have not
been involved in the preparation or writing of the rest of the Booklet and take no responsibility for it.
David Goodsall
Fellow of the Institute of Actuaries of Australia
Director
153
Appendix 10
Tax Advice Letter
The Doctors' Health Fund Limited
Level 5
69 Christie Street
ST LEONARDS NSW 2065
30 January 2012
Dear Directors
Demutualisation of The Doctors’ Health Fund Limited (DHF)
We have been asked to provide an Independent Tax Expert’s Report to individual Members of DHF in
relation to the major Australian income tax implications to those Members of the proposed
demutualisation of DHF (the Proposal).
We have not been requested to provide any taxation advice regarding the taxation implications of the
Proposal to the future operations of DHF itself.
It is understood that this report will be included in a Scheme Booklet that relates to the Proposal and
should be read in conjunction with the information included in the Scheme Booklet.
The taxation summary contained in this Report:

does not purport to be a complete analysis of the potential tax consequences of the Proposal,

is intended as a general guide to the Australian income tax implications only

should not be a substitute for advice from an appropriately qualified professional adviser
having regard to a Member’s individual circumstances.
All Members of the DHF are strongly advised to obtain their own independent professional advice on
the income tax implications specific to their own circumstances when considering the consequences of
the Proposal.
Unless otherwise indicated, all statutory references refer to the Income Tax Assessment Act 1936
(ITAA 1936) or the Income Tax Assessment Act 1997 (ITAA 1997).
PricewaterhouseCoopers, ABN 52 780 433 757
PricewaterhouseCoopers Centre, 26 Honeysuckle Drive, PO Box 798, NEWCASTLE NSW 2300
T: +61 2 4925 1100, F: +61 2 4925 1199, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
154
1
The Proposal
We understand that the demutualisation is proposed to occur broadly as follows:
1.
DHF and Avant Group Holdings Limited (Avant) enter into an Implementation Deed whereby
Avant will acquire DHF on the terms and conditions included in that Deed.
2. DHF Members vote to adopt the Proposal, and the Federal Court of Australia approves the
arrangement.
3. Avant becomes a Member of DHF.
4. Avant deposits Consideration of $30 million into a Trust Account as pre-payment for the
acquisition of shares in DHF.
5.
All DHF Membership interests (other than that held by Avant) are cancelled and the liability of
each DHF Member (other than Avant) as a guarantor on a winding up of DHF are extinguished in
return for release and payment of the Consideration to Members, based upon predetermined
allocation principles.
6. DHF changes its structure from a public company limited by guarantee to a private company
limited by shares, amends its Constitution to reflect this change in status, and issues shares to
Avant for a subscription price of $30 million.
7.
DHF obtains approval from the Private Health Insurance Administration Council for conversion of
registration to a ‘for-profit insurer’ under the Private Health Insurance Act 2007 (PHIA).
2
Income Tax Consequences
2.1
General Framework
Division 315 ITAA1997 applies to the demutualisation of an entity if the conditions set out in section
315-15 are satisfied. The proposed DHF demutualisation should satisfy these conditions as we
understand that
1.
DHF is, prior to the demutualisation, a private health insurer within the meaning of the
PHIA that was not carried on for profit or gain of its individual members;
2. at no time has DHF been registered under the Life Insurance Act 1995;
3. DHF is not, prior to demutualisation, a company limited by shares; and
4. DHF will convert to a ‘for-profit insurer’ under subsection 126-42(5) of the PHIA.
2
155
2.2
Income Tax Consequences for Individual DHF Members
Each individual DHF Member will have a capital gains tax event occurring when their DHF
Membership interest is cancelled.
In the absence of specific concessions, the DHF Member would need to consider whether their
membership interest commenced before the introduction of capital gains tax in September 1985 (in
which case no capital gain should arise) or alternatively calculate the amount of the capital gain based
upon the consideration received and the cost to them of that membership interest.
Any capital gain or loss relating to the DHF demutualisation should be disregarded by the Member
where

the CGT Event happens under a demutualisation to which Division 315 applies (as described
above);

the individual is, or has been, a policy holder of the demutualising health insurer; and

the individual has a membership interest, or an interest as a policyholder, or a right or interest
of another kind, in the demutualising health insurer.
The taxation legislation also includes provisions to ensure that any amount received as a consequence
of the demutualisation is not considered assessable as ordinary income or statutory income.
Accordingly, on the basis that the demutualisation of DHF is covered by the general
framework detailed above, the amount Members receive from the demutualisation of
DHF should not be subject to income tax.
2.3
Non-Resident members
The above information has been prepared for taxpayers who are residents of Australia for taxation
purposes. Any DHF Members who are taxation residents of another country (a non-resident member)
must seek their own independent advice, as the taxation rules of that other country will control how
the receipt of Consideration upon demutualisation will be treated in that country.
For Australian taxation purposes, the non-resident member will be treated the same as described
above, and should not be subject to income tax in Australia on the amount received from the DHF
demutualisation.
2.4
Taxation of Benefit Payments
There will be no change to the taxation treatment of health insurance benefit payments received by
Members under their insurance policies as a result of the Proposal.
3
156
About our Report
This advice has been given on the basis that the Proposal will be carried out in the manner described in
the Scheme Booklet and other associated documents. In providing this advice we have relied on the
facts set out in the Implementation Deed and these facts have not been independently verified or
reviewed by PricewaterhouseCoopers.
The information contained in this Report does not constitute "financial product advice" within the
meaning of the Corporations Act 2001 (Cth) (Corporations Act). The PricewaterhouseCoopers
partnership which is providing this advice is not licensed to provide financial product advice under the
Corporations Act. To the extent that this Report contains any information about a "financial product"
within the meaning of the Corporations Act, taxation is only one of the matters that must be
considered when making a decision about the relevant financial product. This material has been
prepared for general circulation and does not take into account the objectives, financial situation or
needs of any recipient. Accordingly, any recipient should, before acting on this material, consider
taking advice from a person who is licensed to provide financial product advice under the Corporations
Act . Any recipient should, before acting on this material, also consider the appropriateness of this
material having regard to their objectives, financial situation and needs, and consider obtaining
independent financial advice.
The comments above are based on our opinion of the law and understanding of the practice of the tax
authorities in Australia as at the date of this document. The law is complex and subject to change
periodically as is their interpretation by the courts and the Australian Taxation Office (ATO). We have
not sought to have our opinion ruled upon by the ATO and therefore there is a risk that the ATO may
not agree with our opinion or aspects of it.
It should be noted that although PricewaterhouseCoopers has given its consent to the inclusion of this
Report into the Scheme Booklet, we give no assurance or guarantee in respect of the successful
operation or performance of DHF or the proposed demutualisation and that consent should not be
taken as an endorsement or recommendation.
Yours sincerely
Murray Evans
Partner
4
157
Appendix 11
Explanation of Constitutional Changes proposed at EGM
No.
Existing Provision
Proposed Provision
(a)
7.1 Admitting Members
By deleting clause 7.1 in its entirety and
A person who applies to become (or has
become) a Contributing Member of a
Health Benefits Fund is taken to have applied
to be a member of the Company. Subject to
clause 7.2, upon becoming a Contributing
Member, a person will become a member
of the Company.
replacing it with the following:
7.1 Admitting Members
(a)A person who applies to become
(or has become) a Contributing
Member of a Health Benefits Fund
is taken to have applied to become
a member of the Company. Subject
to clause 7.2, upon becoming a
Contributing Member, a person will
become a member of the Company.
Comment on Change
Presently, only a Contributing
Member can become a DHF
Member. Under the proposed
clause 7.1, although Avant
cannot become a Contributing
Member (because it will never
hold a Policy), Avant can become
a DHF Member while the
Implementation Deed is in effect
and has not been terminated.
(b)In addition to clause (a) above, while
the Implementation Deed is in effect
and has not been terminated, Avant
may on application be admitted as
a member of the Company by the
directors or pursuant to a delegation
under clause 7.3.
(b)
11.1Cessation
A person ceases to be a member of
the Company:
[subclauses (a) and (b) set out various
circumstances such as death, resignation etc]
(c)
11.3Resignation
(d) Once a member has ceased to be a
Contributing Member, the member
ceases to be a member of the Company.
(d)
15.2Number of votes
On a show of hands (or on voices) or on
a poll, a member of the Company (being a
Contributing Member):
(a)who is, under clause 15.1, entitled
to vote and who has single or single
parent family membership of a Health
Benefits Fund, as defined in the Rules,
has only one vote; or
(b) who is, under clause 15.1, entitled to
158
By deleting the full stop at the end of
clause (b)(iii) of clause 11.1 and replacing it
with “; or” and inserting a new clause (c)
into clause 11.1 as follows:
(c)in the case of Avant, if the
Implementation Deed is terminated
before the Implementation Time or
the Implementation Time has not
occurred by the End Date.
By deleting clause 11.3(d) in its entirety
and replacing it with the following:
11.3Resignation
(d)For any member (other than Avant),
once the member has ceased to
be a Contributing Member, the
member ceases to be a member of
the Company.
15.2Number of votes
On a show of hands (or on voices) or
on a poll:
(a)a member of the Company (being a
Contributing Member):
(i)who is, under clause 15.1,
entitled to vote and who has
single or single parent family
The existing clause sets out
when a DHF Member ceases
to be a member of DHF. New
clause 11.1(c) is inserted so that
Avant ceases to be a member
of DHF if the Implementation
Deed is terminated before the
Scheme is implemented or if it
is not implemented before the
End Date.
As Avant will never be a
Contributing Member, clause
11.3(d) cannot apply to Avant.
Accordingly, Avant has been
excluded from its operation.
Clause 11.1(c) governs when
Avant ceases to be a member
of DHF.
Presently, only a Contributing
Member can become a DHF
Member. Under the proposed
clause 15.2(b), Avant is given
one vote.
No.
Existing Provision
Proposed Provision
membership of a Health Benefits
Fund, as defined in the Rules, has
only one vote; or
vote and who has couples or family
membership of a Health Benefits Fund, as
defined in the Rules, has 2 votes.
For the avoidance of doubt, a Contributing
Member of more than one Health Benefits
Fund conducted by the Company is entitled to
only one vote as a member of the Company.
Comment on Change
(ii) who is, under clause 15.1,
entitled to vote and who has
couples or family membership
of a Health Benefits Fund, as
defined in the Rules, has 2
votes; and
(b)whilst it remains a member of the
Company, Avant has 1 vote.
For the avoidance of doubt, a Contributing
Member of more than one Health
Benefits Fund conducted by the Company
is entitled to only one vote as a member
of the Company.
(e)
No equivalent provision
By inserting a new clause 15.13 as follows:
15.13
Sole members
If the Company has only one member, and
the member records in writing his or her
decision on a question, it counts as the passing
of a resolution. The record also counts as the
minutes of the passing of the resolution.
(f)
16.3Term of office
Each director holds office until the director:
By inserting at the end of clause 16.3(g)
the following:
[subclauses (a) to (f) set out various
circumstances such as removal from office,
resignation etc]
(except this paragraph ceases to apply with
effect at and from the Implementation Time)
(g)ceases to be a member of
the Company;
16.3Term of office
Clause 16.3 will relevantly appear as follows:
Each director holds office until the director:
From the time that the
memberships of DHF
Members (other than Avant)
are cancelled, Avant will be the
only member of DHF and this
clause enables DHF to pass
resolutions as the only member
of DHF by preparing a written
resolution. The clause will not
apply before that time. This
power enables Avant to finalise
the implementation of the
Scheme efficiently.
The words underlined at
the end of subclause (g) are
added because, from the
Implementation Time, there is
proposed to be no obligation
for directors of DHF to be a
member of DHF (because
Avant will be the only member
of DHF).
[subclauses (a) to (f) set out various
circumstances such as removal from office,
resignation etc]
(g)ceases to be a member of the
Company (except this paragraph
ceases to apply with effect at and
from the Implementation Time);
159
No.
Existing Provision
(g)
16.4Director qualifications
A director must:
Proposed Provision
(a) be a member of the Company; and
(b) not be a disqualified person.
16.4Director qualifications
Directors must be appointed in accordance
A director must not be a disqualified person.
with clause 16.5. At any time no fewer than 2
directors must be Medically Qualified Directors.
Until the Implementation Time, each
director must be a member of the
Company. With effect at and from the
Implementation Time, a director need not
be a member of the Company.
Comment on Change
The proposed clause 16.4
maintains the requirement for
a director to be a member
of the Company until the
Implementation Time
and, from that time, that
requirement ceases to apply.
The other director qualification
requirements continue.
Directors must be appointed in
accordance with clause 16.5. At any
time no fewer than 2 directors must be
Medically Qualified Directors.
(h)
No equivalent definitions
By inserting the following definitions into
Schedule 1:
Avant means Avant Group Holdings
Limited ABN 72 077 283 884.
End Date has the meaning set out in the
Implementation Deed means the
implementation deed, dated 11 August
2011 (as amended), between the
Company and Avant which sets out
the terms and conditions on which the
Proposal will be implemented.
Implementation Time has the meaning
set out in the Implementation Deed.
Proposal means the acquisition of
the Company by Avant through the
granting of membership to Avant and the
implementation of the Scheme.
Scheme has the meaning set out in the
160
These are definitions used in
the proposed provisions that
were not previously defined in
the Constitution.
_NOTES
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163
Corporate Directory
The Doctors’ Health Fund Limited (DHF)
Ground Floor
69 Christie Street
St Leonards NSW 2065
Legal Advisers to DHF
mackenzie thomas
Level 5
44 Pitt Street
Sydney NSW 2000
Tax Adviser to DHF
PricewaterhouseCoopers
PricewaterhouseCoopers Centre
26 Honeysuckle Drive
Newcastle NSW 2300
Independent Expert
Level 27
363 George Street
Sydney NSW 2000
Appointed Actuary to DHF
David Torrance of KPMG Actuarial Pty Ltd
10 Shelley Street
Sydney NSW 2000
Independent Actuary
David Goodsall of Synge & Noble Pty Ltd
Level 5
44 Pitt Street
Sydney NSW 2000

Scheme Booklet - Doctors Health Fund

Transcription

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