Australia in £2bn bankruptcy suit

Industry regulator APRA 'failed' to do its job, it is claimed

The liquidator of a failed insurance company has filed a multibillion-dollar lawsuit against the Australian government, blaming its industry watchdog for the country's largest bankruptcy.

Liquidator Tony McGrath, of accountancy firm KPMG, said he filed the 5.6bn Australian dollars (£2bn; $3.1bn) claim based on evidence given at a government inquiry into the failure of HIH, Australia's second-largest insurer.

"Influential in my decision were, among other things, the evidence that has emerged through the HIH Royal Commission," Mr McGrath said.

It is alleged the Insurance and Superannuation Commission and its successor, the Australian Prudential Regulation Authority (APRA), failed to exercise their statutory powers properly.

HIH, whose troubles started when it took over technically insolvent fellow insurer FAI in late 1998, became Australia's largest bankruptcy when it collapsed in March 2001 with debts of A$5.3bn.

The claim was filed on Monday.

Regulatory trouble

The suit claims HIH relied heavily on APRA's approval before proceeding with the takeover.

The inquiry into HIH heard allegations of careless and reckless conduct by FAI, lavish spending sprees by HIH chief executive Ray Williams and that millions of dollars were handed out on the eve of the collapse.

Mr Williams and former FAI boss Rodney Adler have been issued with large fines and banned from holding executive corporate posts.

The evidence included a report by John Palmer, the former head of Canada's insurance industry regulator, who had been hired by the Australian regulator to conduct an internal inquiry.

Mr Palmer said APRA lacked sufficient funds, was under-qualified and had not reacted to warnings about HIH's financial troubles.