The High Court of Australia’s Sons of Gwalia Ltd v Margaretic (Sons of Gwalia) decision recognised an aggrieved shareholder’s claim for damages (in relation to the acquisition of shares) on equal footing with those of an insolvent company’s other unsecured creditors. Dispute Resolution Associate, Justin Le Blond, examines the Government’s response to the decision.
In a closely-watched case stemming from the demise of the Australian HIH insurance group, the UK House of Lords has ruled in McGrath & Anor & Others v Riddell and Others [2008] UKHL 21 that the English assets of four companies in that group, which are in liquidation in Australia and in ancillary insolvency proceedings in England, must be remitted to Australia for distribution under Australian insolvency law.
If an international airline that is a member of the International Air Transport Association (“IATA”) goes into insolvent external administration under the Australian Corporations Act 2001 (Cth) (the “Act”), will the IATA Clearing House Regulations (effective January 1, 2006) (the “CH Regulations”) continue to govern the relationship between IATA, the insolvent airline, and the other members of IATA? A recent judgment of Australia’s High Court clarifies these issues.
The House of Lords has ruled that English assets of the HIH group of companies are to be remitted to the Australian liquidators for distribution under Australian law. This briefing discusses the background to McGrath and another and others v Riddell and others [2008] UKHL 21 and the implications of the ruling.
Background
The House of Lords recently had to consider whether the English court should remit assets when faced with a request to do so by a foreign court.
MCGRATH AND ANOTHER v RIDDELL, House of Lords, 9 April 2008
The liquidators of the HIH group of Australian insurance companies appealed against the decisions of the High Court and the Court of Appeal that certain assets of the HIH group, mostly reinsurance claims on policies taken out in the London market, should not be remitted to Australia. The courts instead ordered that the assets should remain in England and be distributed to creditors in accordance with English insolvency laws.
In a July 12, 2007 post, we reported on issues relating to HIH Casualty and General Insurance Limited (“HIH”). The question before the court was whether it had jurisdiction to entertain a request under the Insolvency Act for directions to the liquidators in England to transfer assets collected by them to the liquidators in an Australian liquidation. The Court of Appeal held that it would not direct a transfer of the English assets by the English provisional liquidators to the Australian liquidators because to do so would prejudice the interests of many of the creditors.
Effectively, the High Court held that aggrieved shareholders (shareholders whose debt arises as a result of misrepresentation or improper disclosure by the company causing the shareholder to acquire shares) would be ranked equally with the debts of other unsecured creditors.
The High Court has further clarified the law regarding the effect of section 260-5 notices served by the Commissioner on third parties who are required to make payments to a company in liquidation.
The effect of the decision is that the Commissioner cannot issue such a notice after a company has gone into liquidation in order to give himself a priority over other creditors for payment of a tax debt. Such a notice is void.
A financial crisis and situations where insolvency is imminent are not only challenging for a company and its management, but also entail significant liability risks for management in the case of subsequent insolvency proceedings. Payments made after a company has become materially insolvent (i.e. illiquid or overindebted under Austrian insolvency law), but before the 60-day deadline for filing for insolvency has expired, are risky. Which payments are allowed according to the Austrian Supreme Court?
Scope of liability