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.

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