House of Lords

Published April 11, 2008

McGrath and Others v Riddell and Another

Before Lord Hoffmann, Lord Phillips of Worth Matravers, Lord Scott of Foscote, Lord Walker of Gestingthorpe and Lord Neuberger of Abbotsbury

Speeches April 9, 2008

The fact that in a country of principal winding-up of a company in liquidation there would be a class of preferential creditors who would not have priority under English insolvency law was insufficient reason for an English court to refuse to exercise its discretion, under section 426 of the Insolvency Act 1986, to order remission of assets located in England to the country of principal winding-up.

The House of Lords so held in allowing an appeal by (i) Anthony McGrath and Christo-pher Honey, the Australian liquidators of companies in the HIH insurance group and (ii) Amaca Pty Ltd and Amaba Pty Ltd, insurance creditors of those companies, against the dismissal by the Court of Appeal (Sir Andrew Morritt, Chancellor, Lord Justice Tuckey and Lord Justice Carnwath) ([2007] BusLR 250) of their appeal against the refusal by Mr Justice David Richards ([2005] EWHC 2125 (Ch)) of the Australian liquidators’ application, under section 426 of the 1986 Act, for directions to the provisional English liquidators of the companies, Thomas Alexander Riddell and John Mitchell Wardrop, to transfer the assets collected by them to the Australian liquidators.

Section 426 of the 1986 Act provides: “(4) The courts having jurisdiction in relation to insolvency law in any part of the United Kingdom shall assist the courts having the corresponding jurisdiction in any other part of the United Kingdom or any relevant country or territory. “(5) For the purposes of subsection (4) a request made ... by a court in ... a relevant country ... is authority for the court to which the request is made to apply, in relation to any matters specified in the request, the insolvency law which is applicable by either court in relation to comparable matters falling within its jurisdiction. In exercising its discretion under this subsection, a court shall have regard in particular to the rules of private international law."

Mr Jonathan Sumption, QC, Mr Simon Mortimore, QC and Mr Tom Smith for the Australian liquidators; Mr Geoffrey Vos, QC and Mr Peter Arden, QC for the insurance creditors; Mr William Trower, QC and Mr Jeremy Goldring for the English provisional liquidators.

LORD SCOTT said that Australian law had certain statutory provisions relating to insurance companies which departed from the insolvency principle of a pari passu distribution of assets among unsecured creditors. Most particularly, it gave preference to insurance creditors in priority to other creditors.

However, by the Cooperation of Insolvency Courts (Designation of Relevant Countries and Territories) Order (SI 1986 No 2123) Australia had been designated a relevant country for the purposes of section 426, part of the English insolvency scheme.

To hold that the power under the section to direct the remission of assets from the country where an ancillary liquidation was being conducted (England) to the country where the principal liquidation was being conducted (Australia) could not be exercised if the effect would be to reduce the amount of dividends receivable in England by any class of creditors, or by any individual creditor, would be to deprive the section, at least in relation to remission of assets from an ancillary to a principal liquidation, of much of its intended potential to enable a single universal scheme for insolvency distribution to be achieved.

If the country of the principal winding up was a relevant country for section 426 purposes and the liquidators in that country had requested English liquidators to remit to them the assets collected in England so that the principal liquidators could, under the insolvency law of that country, implement a universal scheme of pari passu distribution to ordinary unsecured creditors, the request was one to which, in principle, the English liquidators ought to accede.

There might be other circumstances in which a refusal to remit assets pursuant to such a request might be justified. It had been suggested that a refusal would be justified if it would give rise to manifest injustice to a creditor. So indeed it might.

But reliance simply on the fact that under the insolvency scheme applicable to the principal winding-up there would be a significant class or classes of preferential creditors whose debts would not have priority under the English insolvency scheme was not sufficient to justify a refusal.

The Australian statutory scheme allowed insurance and reinsurance creditors of insolvent insurance companies to be paid in priority to ordinary creditors. There was nothing unacceptably discriminatory or otherwise contrary to public policy in those statutory provisions.

The general acceptability by English law standards of the Australian insolvency scheme was confirmed by the designation of Australia as a relevant country or territory for section 426 purposes.

There was no sufficient reason why the Australian liquidators’ request for the remission of the English assets should not be acceded to.

Lord Phillips and Lord Neuberger delivered concurring opinions; Lord Hoffmann and Lord Walker delivered opinions concurring in the result.

Solicitors: Norton Rose LLP; Clifford Chance LLP; Freshfields Bruckhaus Deringer.

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