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HIH Group was the second-largest insurance group in Australia when it collapsed in 2001. This case, the House of Lords hearing McGrath and another and others v Riddell and others [2008], concerns four companies within the group, which were authorised to carry on insurance in the UK.

The majority of the companies’ assets and liabilities were in Australia, but a significant proportion was also located in England. Winding-up orders were made in Australia in 2001 and provisional liquidators were appointed in England around the same time. In July 2005, the Supreme Court of New South Wales issued a letter of request (which facilitates co-operation between courts exercising jurisdiction in relation to insolvency) to the High Court in London under section 426 of the Insolvency Act 1986, asking that the provisional liquidators be directed, after payment of expenses, to remit the assets under their control to the Australian liquidators for distribution. The assets would be distributed in a different priority in Australia than that prescribed by English rules, and would result in insurance creditors being better off than non-insurance creditors.

In the first instance, the decision went in favour of the English provisional liquidators, and the judge held that his jurisdiction did not extend to authorising assets to be remitted for distribution, which was not pari passu but gave a preference to some creditors.

The Court of Appeal reached the same decision, but for a different reason. It held that the English Court did have the necessary discretion to allow remission, but that it should not be exercised if, as a result of the preference afforded to some creditors, others suffered a disadvantage.

Disagreement from the Lords

The House of Lords, however, found unanimously in favour of remission. They held that the assets under the control of and realised by the English provisional liquidators should be remitted to the Australian liquidators for distribution in accordance with Australian priority rules. Lords Phillips, Scott and Neuberger based their opinions on the English Court’s power derived from section 426 of the Insolvency Act 1986, which provides:

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