Vol 2 (2005) - Issue 6

Article preview

Requests for Cross-Border Assistance: Limitations On Relief Available in Australia

The recent decision in Independent Insurance Company Limited [2005] NSWSC 587 is an illustration of the limitations of the current Australian legislation in relation to cross-border insolvency matters. The decision also reflects the more restrictive approach the Australian courts take to giving judicial assistance to foreign Courts in relation to cross-border insolvency matters, particularly by comparison to the English courts.
This article describes the regime that is available to insolvency practitioners under section 581 of the Australian Corporations Act 2001 (Cth) (‘Act’) and focuses on requests made by foreign external administrators to the Australian courts. The Australian court’s approach to the incoming request for assistance in Independent is considered and that approach is compared briefly to the application by the English courts of section 426 of the Insolvency Act 1986 (England and Wales) (‘English Insolvency Act’). Finally, the outcome of the decision in Independent is reconsidered in light of the regime proposed in the UNCITRAL Model Law which has not yet been enacted in Australia.

Background to the request for assistance in Independent

Independent Insurance Company Limited (‘Independent’) was a substantial insurance company incorporated in England and had branches in a number of countries. On 17 June 2001, Independent’s directors presented a winding-up petition to the English court and on the same day the court appointed provisional liquidators pursuant to section 135 of the English Insolvency Act. A consequence of that appointment was that proceedings against Independent or its property were automatically stayed in England pursuant to section 130(2) of the English Insolvency Act. There is a corresponding provision in Australia in section 471B of the Act.
While carrying on its insurance business in the United Kingdom, Independent wrote policies in favour of Australian residents. Further, Independent owned assets in Australia. The provisional liquidators apprehended that policy holders in Australia may seek to bring claims against Independent and its assets in the Australian courts. In this regard, Independent was a defendant to a claim for indemnity that had been commenced against it and a number of other insurers in the Supreme Court of New South Wales.
The provisional liquidators’ apprehensions were, of course, not dissimilar to the concerns held by many external administrators who are appointed to a multi-national company or to a company having assets located in foreign jurisdictions. Generally, the external administrator will wish to prevent the creditors in the foreign jurisdiction from obtaining judgment against the company and consequently gaining control by way of execution of those assets, thereby subverting the ultimate pari passu distribution of those assets. Foreign asset protection aside, attempts by creditors to access the foreign assets may also divert the attention of the external administrator away from the other substantive tasks in the insolvency administration. He or she may be required to expend significant sums in defending foreign proceedings which could otherwise be dealt with under the proof of claims procedures (for example in liquidation or in schemes of arrangement).
With these issues in mind, the English provisional liquidators of Independent sought and obtained an order from the English High Court for the issue of a letter of request seeking the assistance of the Supreme Court of New South Wales. The nature of the assistance requested is addressed below.