i-law

Lloyd's Maritime and Commercial Law Quarterly

On pari passu , equality and hotchpot in cross-border insolvency

Look Chan Ho *

The Privy Council decision in Cleaver v. Delta American Reinsurance confirmed the ingrained academic view that the application of the hotchpot rule in crossborder insolvency is underpinned by the principle of pari passu distribution. This paper ventures to uproot that ingrained view and demonstrate that the rationale behind the hotchpot rule has nothing to do with the pari passu rule. In addition, it will be shown that the substantive decision in Cleaver is untenable owing to a serious misunderstanding of s. 1213 of the New York Insurance Law.

1. Introduction

Creditors of an insolvent corporation that conducts business on a transnational basis often have opportunity to pursue their claims against the corporation in their local courts and seize local assets to satisfy their claims even though the corporation is already subject to some formal insolvency proceeding in another jurisdiction, say, the jurisdiction of its incorporation. Creditors have every incentive to pursue their claims in fora not subject to collective insolvency proceedings in order to gain priority over other creditors. One way of preventing foreign creditors from obtaining a priority over local creditors is for the English court to apply the hotchpot rule which requires that before a foreign creditor can lodge a proof and receive a dividend in an English liquidation, he must account for what has been obtained abroad.1
This paper attempts to construct the proper basis of the hotchpot rule, using the Privy Council decision in Cleaver v. Delta American Reinsurance 2 as a case study. Accordingly, Part 2 of this paper sets out the context of the Privy Council decision. Part 3 highlights the comparative oversight committed by the Privy Council. Part 4 examines the role of equality and pari passu distribution in insolvency. Part 5 attempts to locate the foundation and application of the hotchpot rule. Part 6 reveals the shortcomings of the Privy Council’s decision. Part 7 concludes.

2. Cleaver v. Delta American Reinsurance

The rest of this document is only available to i-law.com online subscribers.

If you are already a subscriber, click Log In button.

Copyright © 2024 Maritime Insights & Intelligence Limited. Maritime Insights & Intelligence Limited is registered in England and Wales with company number 13831625 and address 5th Floor, 10 St Bride Street, London, EC4A 4AD, United Kingdom. Lloyd's List Intelligence is a trading name of Maritime Insights & Intelligence Limited.

Lloyd's is the registered trademark of the Society Incorporated by the Lloyd's Act 1871 by the name of Lloyd's.