McGrath and another (Appellants) and others v Riddell and others (Respondents) McGrath and another and others (Appellants) v Riddell and others (Respondents) (Conjoined Appeals)

Where an English court receives an insolvency request from a designated relevant country, sections 426(4) and (5) of the Insolvency Act 1986 give it jurisdiction to facilitate distribution under the foreign insolvency regime. A difference between foreign and English priorities does not remove that power.

The discretion should promote modified universalism by supporting a single system of distribution, so far as justice and United Kingdom public policy permit. The fact that some creditors would receive less under the foreign regime is not, by itself, sufficient reason to refuse assistance. Relevant considerations include the companies’ connection with the principal jurisdiction, creditors’ legitimate expectations, unfair discrimination and any conflict with fundamental domestic policy.

Four Australian insurance companies in the HIH group entered compulsory liquidation in Australia. Their substantial English assets, principally London reinsurance claims, were placed under the control of English provisional liquidators. The Supreme Court of New South Wales requested that the assets be remitted for distribution under Australian law, whose insurance-creditor priorities would produce different dividends from an English distribution.

The High Court refused the request in [2005] EWHC 2125 Ch. The Court of Appeal accepted that jurisdiction existed but dismissed the appeal in [2006] EWCA Civ 732, holding that no sufficient benefit counteracted the prejudice to creditors disadvantaged by Australian priorities. The central questions were whether the English court could authorise remittal despite those differences and whether it should exercise its discretion to do so.

1. Disposition. The House unanimously allowed the appeal. The English assets were to be dealt with under the agreed arrangement reflecting distribution by the Australian liquidators in accordance with Australian insolvency law.

2. Statutory jurisdiction. Lord Phillips identified as common ground among all five Law Lords that sections 426(4) and (5) of the Insolvency Act 1986 gave the court jurisdiction to accede to the Australian request and that it ought to do so. Section 426 forms part of the English statutory insolvency scheme. It permits assistance involving foreign insolvency law even though the resulting distribution differs from that prescribed by English law. Lord Scott and Lord Neuberger treated section 426 as the necessary statutory basis for permitting Australian distribution.

3. Exercise of discretion. Lord Hoffmann’s analysis of modified universalism was expressly accepted by Lord Walker and adopted by Lord Phillips when deciding how the statutory discretion should be exercised. English courts should, so far as justice and United Kingdom public policy permit, cooperate with the court conducting the principal liquidation so that the company’s assets are administered under a single system. A foreign preference which makes some creditors better off and others worse does not, without more, justify refusal.

4. The companies were incorporated, managed and principally situated in Australia, where most of their assets and liabilities were located. Creditors dealing with Australian insurers could reasonably expect Australian insolvency law to govern. Australian preferences for insurance creditors were neither fundamentally unjust nor improperly discriminatory. Comparable protection had subsequently been introduced into English insurance-insolvency law. The location of reinsurance claims in London was adventitious and did not require a separate English distribution.

5. Common-law issue. No majority basis emerged on whether section 426 was essential. Lord Hoffmann, with Lord Walker’s express agreement, considered that the established common-law practice governing ancillary liquidations independently permitted remittal under a different distribution regime, with differences relevant only to discretion. Lord Scott and Lord Neuberger considered that, without section 426, the English statutory distribution regime could not be displaced. Lord Phillips expressly reserved that question.

1. House of Lords: In [2008] UKHL 21 , unanimously allowed the appeal and authorised the assets to be dealt with under the arrangement reflecting Australian distribution.
2. Court of Appeal: In [2006] EWCA Civ 732 , held that jurisdiction existed but dismissed the appeal because the disadvantages to some creditors were not counteracted by sufficient benefits.
3. High Court: In [2005] EWHC 2125 Ch, refused to direct remittal, holding that English assets could not be transferred for distribution under a materially different priority regime.