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
In Cleaver
the liquidators of a Cayman Islands insurance company (Transnational) argued that the hotchpot rule should apply in the following circumstances. Transnational had a
* Attorney-at-Law and Solicitor, London. Many thanks are due to Dr Riz Mokal and Professor Francis Rose for their generous encouragement and advice, and to Iain Pester, Sandy Shandro and two anonymous referees for their helpful comments on drafts of this paper. In this paper, I express only my own views and take every responsibility for any shortcomings.
1. Banco de Portugal
v. Waddell
(1880) 5 App.Cas. 161 (H.L.).
2. [2001] U.K.P.C. 6; [2001] 2 A.C. 328 (P.C.).
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