Overturning commutations on insolvency

English insolvency law has long recognised the principle that a payment made to an unsecured creditor at a time when the debtor is insolvent is an unfair preference which is to be set aside as a fraud on other creditors. The insolvency laws of most jurisdictions, including those of Australia, are the same. The question in New Cap Reinsurance Corporation Ltd v Grant [2011] EWCA Civ 971 was whether a judgment of a New South Wales court, ordering a Lloyd’s Syndicate to repay reinsurance proceeds paid by an insolvent reinsurer, should enforced in England in circumstances in which the Syndicate had refused to submit to the jurisdiction of the Australian court.

New Cap: the facts

The Australian reinsurance company New Cap Re went into administration in 1999 and shortly afterwards became the subject of liquidation proceedings. It was the first Australian reinsurer to fail. New Cap had reinsured a Lloyd’s Syndicate, represented by the defendants, for two successive years of account. Shortly before its failure it had entered into a commutation agreement with the Syndicate under which sums were paid in settlement of reinsurance claims.