HIH case goes to Australia

MARIA SLADE
Last updated 05:00 13/11/2011

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The Australian courts are to decide whether the New Zealand subsidiary of failed insurer HIH Australia owes $277 million to investors on that side of the Tasman.

HIH collapsed in 2001, the biggest failure in Australian corporate history.

In July this year the liquidators of its New Zealand company, HIH Holdings (NZ), disallowed a $277m claim from the trustee for Australian holders of convertible notes.

HIH Holdings issued the notes 13 years ago to raise $A213m, and the Australian parent, HIH Insurance, guaranteed them.

They were due to be converted into shares in HIH Insurance between June 2001, and June 2003, but by July 2001, the New Zealand company had followed its parent into liquidation.

In 2007 the trustee for the note issue, Perpetual Trustee Company, gained an Australian Federal Court ruling that HIH Holdings had not kept its end of the deal.

It subsequently terminated the notes contracts.

The noteholders are a mix of institutional and private investors.

Perpetual says it has a right to claim a debt based on the face value of the original notes.

But the HIH New Zealand liquidators say, at best, the noteholders have a claim for damages, which would be nil.

Perpetual is now challenging the New Zealand liquidators' rejection of  its claim on both sides of the Tasman.

The High Court here has given it leave to apply to reverse the decision, and it has taken similar action in the Supreme Court of New South Wales.

However, in the spirit of trans-Tasman co-operation, the High Court has also ordered a stay on the New Zealand proceedings while the New South Wales case is heard.

Liquidator Kerryn Downey, of McGrath Nicol, said it was unusual for a matter affecting a New Zealand liquidation to be heard by a court in another jurisdiction.

He believed the prospectus for the convertible notes ''made it very, very, loud and clear''.

''They would not actually get their money back. What they would ultimately get on conversion date was shares. They took their chances on what those shares were worth.''

The Australian company was insolvent and therefore the shares were worthless, he said.

The noteholders first made their claim in 2009 and the Kiwi liquidators took until July, 2011, to make a decision. ''We carefully examined the claim and obtained legal opinions from New Zealand and Australian law firms.''

If the Perpetual claim was allowed by the Australian courts the dividend to creditors would be  23 cents in the dollar. If not allowed, the dividend would be 94 cents and would go to HIH's Australian liquidators.

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