HIH Casualty and General Insurance Ltd, Re; McGrath and Others v Riddell and Another
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE DAVID RICHARDS,Mr Justice David Richards |
| Judgment Date | 07 October 2005 |
| Neutral Citation | [2005] EWHC 2125 (Ch) |
| Docket Number | Case No: 4519, 4520, 4521 and 4522 of 2001 |
| Court | Chancery Division |
| Date | 07 October 2005 |
[2005] EWHC 2125 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice David Richards
Case No: 4519, 4520, 4521 and 4522 of 2001
In the Matter of Hih Casualty and General Insurance Limited
And In the Matter of Fai General Insurance Company Limited
And In the Matter of World Marine & General Insurances Pty Limited
And In the Matter of Fai Insurances Limited
Hearing dates: 26, 27 and 28 July 2005
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Introduction
The applications in this case raise an important point of principle in the conduct of cross-border insolvencies. Where a foreign company is in liquidation both in its country of incorporation and in England, and there are material differences in the basis of distribution of assets among unsecured creditors under the laws of the two countries, does the English court have power to direct the English liquidator to remit the proceeds of assets to the foreign liquidator for distribution by him in accordance with the law of that country?
The applications are made in relation to four companies incorporated in Australia (the Companies). They are all companies within the HIH group, which was the second largest insurance group in Australia until its collapse in March 2001. The Companies at various times conducted business in England as well as in Australia and elsewhere. Three of the Companies were registered in England and Wales as overseas companies under the Companies Act 1985 and were authorised under the Insurance Companies Act 1982 to carry on insurance business in the United Kingdom.
The Companies have been ordered to be wound up by the Supreme Court of New South Wales (the Australian Court). Winding-up petitions against the Companies have been presented to the High Court in England (the English Court) and joint provisional liquidators (the JPLs) have been appointed by the English Court.
The Companies are insolvent and it is common ground that the most satisfactory way forward for the Companies and their creditors is to promote schemes of arrangement under section 411 of the Corporations Act 2001 in Australia and section 425 of the Companies Act 1985 in England. The schemes would be designed to reflect the priorities applicable to the distribution of assets among creditors if the liquidations were to run their ordinary course. On the basis of legal advice, the Australian liquidators and the JPLs considered that, in light of the differences in the legal bases of distribution in the two countries, the schemes would have to reflect those differences in the distribution of assets realised in the Australian liquidations and in the distribution of assets realised in England. There would in effect be a separate fund comprising the English assets which would be distributed in accordance with English insolvency law.
This view has been challenged by some creditors in Australia. They argue that the English Court would direct the JPLs, and the English liquidators in the event of a winding-up order, to transmit the assets realised by them to the Australian liquidators for distribution in accordance with Australian law. Both the Australian liquidators and the JPLs consider that this issue needs to be determined and on 14 June 2005 the Australian liquidators demanded payment to them of sums realised by the JPLs after deduction of costs and expenses. This has led to the two applications which are now before this court.
The Applications
On 25 June 2005 the JPLs issued applications for directions in respect of each company. The directions sought are as follows:
1. Whether, in the event of a winding-up order being made on the petition presented against the Company on 16 July 2001 and, having regard to the operation and application of section 562A of the Australian Corporations Act 2001 (section 562A) and section 116 of the Australian Insurance Act 1973 (section 116), the liquidators appointed in England (the English Liquidators) would be directed, authorised or otherwise obliged to:
(a) remit to the liquidators appointed by the Supreme Court of New South Wales (the Australian Liquidators), all or any of the assets got in, or to be got in, by the English Liquidators (the Company's English Assets); or
(b) distribute the Company's English Assets within the liquidation in England in a manner that would give effect to the operation and application of section 562A and section 116; or
(c) distribute the Company's English Assets within the liquidation in England in accordance with the Insolvency Act 1986, and in making such distributions require any dividends received by creditors from other sources, including distributions made in the Company's Australian winding-up, to be brought into hotchpot.
2. Whether the English provisional liquidators may, in light of the conclusions reached in response to Direction Question 1, cause the Company to propose a Scheme of Arrangement pursuant to section 425 of the Companies Act 1985 having the effect of providing for:
(a) distribution of the Company's English Assets under the Insolvency Act, applying the principle of hotchpot (in substantially the form of the draft scheme of arrangement attached); or
(b) in the alternative, distribution of the Company's English Assets in a manner that would give effect to the operation and application of section 562A and section 116 to the Company's English Assets (including the possibility of specific priority for individual creditor claims as a result of any section 562A(4) orders by the Australian Court).
3. Whether any Scheme of Arrangement proposed pursuant to section 425 of the Companies Act 1985 having the effect set out in Direction Question 2(b) above, would require division of the creditors into more than one class for voting purposes.
The other applications now before the court were issued by the Australian liquidators on 4 July 2005 under section 426 of the Insolvency Act 1986 and, pursuant to a letter of request from the Australian Court to the English Court, seeks determination of the following questions:
(a) Whether the [JPLs] should be directed to pay over to the Australian Liquidators all sums collected, or to be collected, by them in their capacity as the [JPLs], after paying or providing for all proper costs, charges and expenses of the [JPLs], pursuant to the demand of the Australian Liquidators dated 14 June 2005, so that such sums may be applied in the due course of the winding up of the [Companies] under the provisions of the [Corporations Act] or in accordance with a scheme of arrangement, if such scheme is sanctioned by the [Australian Court] under s. 411 of the [Corporations Act] and/or by the [English Court] under s. 425 of the [CA 1985]; and
(b) Whether the powers of the [JPLs] as set out in the order of [the English Court] dated 14 September 2001 should be extended and amended so as to enable them to pay over to the Australian Liquidators all sums collected, or to be collected, by them in their capacity as [JPLs], after paying or providing for all proper costs, charges and expenses of the [JPLs].
If those questions are answered affirmatively, the application also seeks, pursuant to the letter of request, a direction to the JPLs to pay the funds collected by them to the Australian liquidators and an order extending and amending the JPLs' powers to enable them to do so. However, the Australian liquidators do not seek an order and direction in these terms at this stage, but request only the determination of the above issues.
The JPLs and the Australian liquidators have been represented on these applications. The JPLs have made submissions in order to protect the position of those creditors who would be prejudiced by a distribution of assets realised by the JPLs in accordance with Australian insolvency laws, while the Australian liquidators' submissions are directed in favour of payment to them of the relevant funds, thereby protecting the position of the creditors who would accordingly benefit. Amaca Pty Limited and Amaba Pty Limited (together Amaca) are respondents to the applications. They are Australian companies which are or claim to be creditors of HIH Casualty and General Insurance Limited. They have been represented and made submissions in support of the Australian liquidators' position. I have also received written submissions from two other Australian parties claiming to be creditors, to which I refer later in this judgment.
Factual Background
The HIH Group comprised 274 companies which carried on business in many countries, including Australia, England and the United States. The holding company is HIH Insurance Limited.
The Companies to which these applications relate are HIH Casualty and General Insurance Limited (HIH C&G), FAI General Insurance Company Limited (FAIG), World Marine & General...
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