INSOLVENCY — Winding up — Distribution of assets — Principal liquidation in Australia — Ancillary liquidation in England — Scheme for pari passu distribution of assets under Australian law different from English law — Whether English court should exercise discretion to direct remission of English assets to Australian liquidators — Insolvency Act 1986, s 426(4)(5)

McGrath and others v Riddell and another [2008] UKHL 21; [2008] WLR (D) 101

HL(E): Lord Hoffmann, Lord Phillips of Worth Matravers, Lord Scott of Foscote, Lord Walker of Gestingthorpe and Lord Neuberger of Abbotsbury: 9 April 2008

If the country of the principal winding up of an insolvent company was a designated “relevant country” for the purposes of s 426 of the Insolvency Act 1986 and the insolvency laws of that country would involve a pari passu distribution of assets to ordinary unsecured creditors, then an English court should accede to a request to remit assets located in England to the principal liquidators for distribution according to the foreign law even if, under that law, there would be a class of preferential creditors who would not have had priority under English insolvency law.
The House of Lords so held in allowing an appeal by (1) Anthony McGrath and Christopher Honey, the Australian liquidators of companies in the HIH insurance group and (2) Amaca Pty Ltd and Amaba Pty Ltd, insurance creditors of those companies, against the dismissal by the Court of Appeal (Sir Andrew Morritt C, Tuckey and Carnwath LJJ) [2007] Bus LR 250 of their appeal against the refusal by David Richards J [2005] EWHC 2125 (Ch) of the Australian liquidators’ application, under s 426 of the Insolvency Act 1986, 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.

LORD SCOTT OF FOSCOTE said that s 426 of the Insolvency Act 1986 was 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. 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 these 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 s 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.

Appearances: Jonathan Sumption QC, Simon Mortimore QC and Tom Smith (Norton Rose LLP) for the Australian liquidators; Geoffrey Vos QC and Peter Arden QC (Clifford Chance LLP) for the insurance creditors; William Trower QC and Jeremy Goldring (Freshfields Bruckhaus Deringer) for the English provisional liquidators.

Reported by: B L Scully, barrister