McGrath & Ors v Riddell & Ors (Conjoined Appeals)

Factual and Procedural Background

Four insolvent Australian insurance companies (collectively, “Company A”) held significant assets in England, principally re-insurance receivables. After winding-up orders were made in Australia, the Australian court issued a request under section 426 of the Insolvency Act 1986 asking the High Court in London to direct the English provisional liquidators to remit the English assets to the Australian liquidators for distribution under Australian law.

The English High Court (Judge A) refused the request, holding that the English statutory scheme—particularly the pari passu rule in section 107 of the Insolvency Act 1986—could not be displaced. The Court of Appeal (Judge B, Judge C and Judge D) agreed that jurisdiction existed but declined to order remittal on discretionary grounds. The Appellants (the Australian liquidators, supported by two insurance creditors) appealed to the House of Lords, contending that the courts should give effect to the principle of modified universalism and accede to the foreign request.

Legal Issues Presented

1. Whether an English court has jurisdiction—at common law and/or under section 426(4)–(5) of the Insolvency Act 1986—to direct English provisional liquidators to remit assets to the court of the principal liquidation when the foreign law of distribution differs from English law.
2. If such jurisdiction exists, whether the court should exercise its discretion to order remittal in circumstances where some classes of creditors would receive smaller dividends than under an English distribution.

Arguments of the Parties

Appellants’ Arguments

• The long-standing common-law principle of modified universalism recognises a single, unitary insolvency proceeding, permitting English ancillary liquidators to remit assets to the principal jurisdiction.
• Section 426 expressly authorises the English court to “apply” the foreign insolvency law or to use its own powers to assist the requesting court; Australia is a designated “relevant country.”
• Differences in creditor priorities are matters of policy for the foreign legislature and do not amount to injustice or offend UK public policy, especially as the UK has since adopted similar insurance-priority rules.

Respondents’ Arguments

• The English statutory scheme requires pari passu distribution after fixed preferences; the court lacks power to disapply that scheme for creditors proving in an English liquidation.
• Remittal would prejudice non-insurance creditors without producing compensating administrative savings because parallel schemes of arrangement had already been agreed.
• Judicial statements in earlier cases indicate that ancillary liquidations are premised on the foreign proceeding applying pari passu principles substantially similar to English law.

Table of Precedents Cited

Court's Reasoning and Analysis

Jurisdiction. A majority held that jurisdiction existed on two overlapping bases:

• Common Law: The historic power to direct ancillary liquidators to remit assets flows from the principle of modified universalism; it is a choice-of-forum decision rather than a choice-of-law decision.
• Statute: Section 426(4)–(5) expressly authorises English courts to assist “relevant” foreign courts and, where appropriate, to apply the foreign insolvency law. Australia is a designated relevant country, so the section forms part of the English statutory scheme.

Discretion. In exercising that jurisdiction the House considered:

• The companies were incorporated, managed and primarily regulated in Australia; thus Australia is the natural forum for a global liquidation.
• Although Australian law prefers insurance creditors, such preferences do not violate English notions of justice or public policy, particularly given that subsequent UK regulations now adopt a similar priority.
• No English creditors would be prejudiced qua English creditors; differences in outcome arise only from differing statutory priorities.
• Ordering a separate English distribution would undermine the objective of a single worldwide administration and potentially discourage the London market in re-insurance.

The House rejected the view that creditors proving in England inevitably retain immutable “statutory rights” under the Insolvency Act 1986. Section 426 itself is part of that same statutory framework and authorises the court to depart from domestic distribution rules when assisting a designated foreign court.

Holding and Implications

Holding: The appeal was ALLOWED. The provisional liquidators are to remit the English assets to the Australian liquidators for distribution in accordance with Australian insolvency law.

Implications:

• Re-affirms the principle of modified universalism as the “golden thread” in English cross-border insolvency jurisprudence.
• Clarifies that section 426 enables English courts to facilitate foreign distribution schemes even where creditor priorities diverge from domestic law, provided no fundamental injustice or public-policy breach arises.
• Signals to insolvency practitioners that, where assets are ancillary and the principal liquidation is in a designated state, English courts are likely to assist remittal, reducing duplicative proceedings.