HIH Casualty & General Insurance Ltd & Ors v McMahon & Ors

Section 426 of the Insolvency Act 1986 gives the English court jurisdiction to consider a request from a foreign insolvency court to remit assets collected in an ancillary liquidation, even where the transfer would interfere with the English statutory distribution scheme.

The discretion must be exercised by considering all the circumstances, especially prejudice to creditors and any sufficient countervailing advantage. A transfer should not be ordered where it substantially prejudices creditors without adequate compensating advantage. The absence of an English winding-up order is not decisive where the company is insolvent and an English winding-up is likely. A request for assistance is important but not conclusive.

Four Australian companies in the HIH Group were being wound up in New South Wales and were subject to provisional liquidation in England. The New South Wales liquidators requested assistance under section 426 of the Insolvency Act 1986, including directions requiring the English provisional liquidators to remit English assets for distribution in Australia or under proposed schemes of arrangement.

David Richards J refused the requested transfer and declined to extend the English provisional liquidators’ powers. He also refused the Australian insurance creditors’ application for costs from the English assets. The Australian liquidators and insurance creditors appealed. The central issues were the scope of section 426, the effect of the English statutory insolvency scheme, the relevance of the absence of an English winding-up order, and the costs discretion.

The Court of Appeal unanimously dismissed all the appeals. The Chancellor gave the principal judgment. Lord Justice Tuckey agreed with both judgments, and Lord Justice Carnwath agreed entirely with the Chancellor’s analysis.

1. Jurisdiction under section 426. The concept of assistance under section 426 of the Insolvency Act 1986 should not be construed restrictively. The English court retains its ordinary jurisdiction and powers and may consider a request to transfer assets from an ancillary English liquidation to the principal foreign liquidation, even if the transfer would interfere with the English statutory scheme.
2. Exercise of the discretion. The request was therefore within the jurisdiction. Whether it should be granted depended on all the circumstances. The court had to consider prejudice to creditors or any class of creditors and whether any countervailing advantage, such as savings in cost or an increased distribution pool, was sufficient to offset that prejudice. The proposed transfers would substantially prejudice most creditor classes and the advantages identified were insufficient.
3. Private international law. Section 426(5) did not permit the court to disregard creditor interests merely because the principal liquidation was in Australia. No relevant rule of private international law required departure from English insolvency principles. The fact that the companies had not yet been wound up in England was immaterial because they were insolvent and English winding-up orders were likely if the schemes failed.
4. Costs. The first-instance costs order was discretionary. The judge had considered the relevant circumstances and authorities, and no error of principle justified appellate interference.

1. High Court of Justice, Chancery Division, Companies Court. By order dated 24 October 2005, David Richards J refused to direct or authorise the English provisional liquidators to remit the English assets to the Australian liquidators and refused the Australian insurance creditors’ application for costs from those assets.
2. Court of Appeal (Civil Division). All appeals were dismissed. The court invited counsel to consider whether the form of the first-instance order required amendment in light of its conclusions.