## Facts

- Four Australian insurance companies in the HIH group petitioned for winding up in the Supreme Court of New South Wales; Australian liquidators were appointed.
- HIH held assets situated in England, largely reinsurance claims on policies placed in London.
- English provisional liquidators were appointed to protect and realize the English assets.
- The Australian court issued a letter of request to the English High Court under Insolvency Act 1986 § 426(4)–(5), asking that the English office-holders, after expenses, remit the English assets to the Australian liquidators for distribution in Australia.
- English and Australian insolvency law broadly distribute assets pari passu after costs and preferred debts, but Australian law creates special priorities for insurance companies, including:
  - restricting use of “assets in Australia” to liabilities “in Australia” unless none exist; and
  - applying reinsurance proceeds to the liabilities that were reinsured.
- Remitting the English assets for Australian distribution would alter recoveries compared to an English distribution, benefiting some creditors (including certain Australian policyholders) and disadvantaging some English creditors.

## Issues

1. Whether Insolvency Act 1986 § 426 authorizes an English court to direct remittal of English-situated assets to a designated foreign insolvency proceeding for distribution under foreign priority rules that differ from English insolvency distribution rules.
2. If jurisdiction exists, whether an English court should refuse assistance because the foreign distribution would treat creditors differently, absent a conflict with fundamental English public policy.

## Decision

- The House of Lords allowed the appeal.
- The Court held that § 426 confers jurisdiction to provide assistance by ordering remittal of English assets to Australian liquidators for distribution under Australian insolvency law, even if Australian priority rules differ from the English scheme.
- The Court held that, as a matter of discretion and comity, the English court should generally comply with a proper request from a designated court unless compliance would contravene fundamental English public policy.
- The Court directed that the English assets be remitted to the Australian liquidators, after payment of the English office-holders’ expenses.

## Legal Principles

- Insolvency Act 1986 § 426 is a cooperation provision enabling UK insolvency courts to assist designated foreign courts by applying either English insolvency law or foreign insolvency law, whichever is most appropriate to cooperation.
- Cross-border insolvency cooperation generally favors a single main proceeding (here, in the company’s home jurisdiction) with supportive measures in other jurisdictions when consistent with local public policy.
- A difference between English and foreign creditor ranking rules is not, by itself, a jurisdictional bar and is not normally a sufficient discretionary reason to refuse assistance under § 426.
- The limiting principle is fundamental public policy: assistance may be refused where the foreign distribution scheme is so inconsistent with basic domestic policy that enforcement would be unacceptable.
- In an insurance insolvency, a foreign rule earmarking reinsurance proceeds to matched insured liabilities can be implemented through § 426 assistance when not contrary to fundamental English public policy.

## Conclusion

The House of Lords held that English courts may, and ordinarily should, use Insolvency Act 1986 § 426 to support a designated foreign liquidation by remitting English-situated assets for distribution under foreign insolvency priorities, unless doing so would offend fundamental English public policy.


McGrath v. Riddell, [2008] UKHL 21 (H.L.)