McGrath & Ors v Riddell & Ors (Conjoined Appeals)

The House of Lords allowed the Australian liquidators' request that English-held assets of four insolvent Australian insurance companies be remitted to the Australian liquidators for distribution under Australian insolvency and insurance statutes. The court held that the English court has jurisdiction to authorise remittal in ancillary proceedings and that section 426(4) and (5) of the Insolvency Act 1986 empowers the court to apply, or to facilitate application of, the foreign insolvency law where a requesting country has been designated as "relevant." The decision emphasises the principle of modified universalism and international comity as primary considerations in cross-border corporate insolvency, while confirming that differences between English and foreign distribution rules (including priorities, set-off and hotchpot) are matters for the court's discretion rather than absolute jurisdictional bars.

This is an appeal from decisions refusing to direct English provisional liquidators to remit assets to Australian liquidators for distribution under Australian law. The four companies were Australian insurance companies with significant reinsurance assets in London. Winding-up orders had been made in Australia and provisional liquidators were appointed in England at the Australian court's request. The Australian court sent a Letter of Request asking the English court to direct that the English-collected assets be paid over to the Australian liquidators after costs.

The issues were:

• Whether the English court had jurisdiction, at common law or under section 426(4)-(5) of the Insolvency Act 1986, to authorise remittal of English assets to foreign (Australian) liquidators when distribution under the foreign statutory scheme would not follow English distribution priorities; and
• Whether, if there was such jurisdiction, the court should in its discretion accede to the Australian request.

The Lords analysed the historical practice of ancillary winding-ups and the governing private international law principle of modified universalism. They concluded that there exists a common-law practice by which English ancillary liquidators may be directed to remit assets to the principal liquidator, but that where the remittal would result in distribution under a foreign law that differs from the English statutory scheme, the statutory vehicle for giving effect to that outcome is section 426. Section 426 permits an English court when faced with a request from a designated "relevant" country (here, Australia) to apply or to facilitate application of the foreign insolvency law, subject to consideration of private international law rules and discretionary factors.

On the facts, the Lords found no principle of justice or public policy preventing remittal to Australia despite differing priorities (notably Australian provisions favouring insurance and reinsurance creditors such as Insurance Act 1973 s.116(3) and Corporations Act 2001 s.562A). The Australian regime was not contrary to UK public policy and, given the companies' Australian incorporation and central management, international comity and modified universalism favoured remittal. The appeal was allowed and the requested order was to be made.

Appeal allowed. The English court has jurisdiction to authorise remittal of assets in ancillary liquidations and, where the requesting state is designated as "relevant," section 426(4)-(5) permits the court to facilitate distribution under the foreign insolvency law. Applying principles of modified universalism, comity and discretion, the House of Lords held that remittal to the Australian liquidators for distribution under Australian law was appropriate on the facts.

First instance: High Court (Chancery), David Richards J ([2005] EWHC 2125 (Ch)) — application to direct remittal refused. Court of Appeal: [2006] EWCA Civ 732 — appeal dismissed. House of Lords: appeal allowed [2008] UKHL 21.