29 October 2004
Key Points:
An insurer goes into liquidation in Australia. Do Australian insureds get priority in the distribution of the assets, or must they take their chances along with overseas creditors? Traditionally the answer would have been "yes, they get priority", but following a decision last year, and confirmed on appeal last week, the answer now seems to be "no".
When a general insurer goes into winding-up, section 116 of the Insurance Act says that its assets in Australia "shall not be applied in the discharge of its liabilities other than its liabilities in Australia unless it has no liabilities in Australia".
Because the NSW Court of Appeal in AssetInsure Pty Limited v New Cap Reinsurance Corporation Limited (In Liq) [2004] NSWCA 225 has given "liabilities in Australia" a broad definition, it’s clear that insureds in Australia do not get priority in the distribution of the assets. It’s not clear however what, if anything, this section actually does.
The decision also has implications for the distribution of funds where there is retrocession insurance.
