McGrath v. Riddell

In March 2001, four Australian insurance companies in the HIH Group (debtor) presented winding-up petitions to an Australian court. Some of the companies’ assets were reinsurance claims located in England. Provisional liquidators, including Tom Riddell, were appointed in England to protect those assets. The judge in the Australian proceedings sent a letter to the High Court in London asking the court to direct Riddell and the English provisional liquidators to remit the assets to the liquidators appointed in the Australian proceeding, including Tony McGrath, so the assets could be distributed. The Australian court’s request was based on Section 426(4) and (5) of the United Kingdom’s Insolvency Act of 1986, which provides that UK courts with jurisdiction relating to insolvency law in the United Kingdom must assist courts with corresponding jurisdiction in countries designated by the Secretary of State as relevant, including Australia. The High Court judge held that the court did not have jurisdiction to direct the assets to be remitted to the Australian liquidators because Australia’s distribution rules would treat HIH’s creditors differently from how they would be treated under UK law. Some creditors would be treated better under Australia’s rules, and some would be treated worse. On appeal, the appellate court held that the lower court could have exercised jurisdiction to remit the assets to the Australian liquidators if the distribution would have advantaged the nonpreferred creditors in a way that counteracted the prejudice they suffered but that there were no such advantages to the nonpreferred creditors in this case. McGrath appealed to the House of Lords.