Australian insurer acted 'illegally'

HIH is accused of thousands of legal breaches

The £2bn collapse of Australian insurer HIH, the biggest bankruptcy in the country to date, may have involved "hundreds" of illegal acts.

Lawyers for a Royal Commission, the highest level of government inquiry, said false accounts inflating profits and understating liabilities, executive "self indulgence" and bad business decisions caused the A$5.3bn (£2bn; $3bn) collapse.

Inappropriate discharge of regulatory obligation or possible breaches of civil or criminal law are ... well over 1,000 in total

Wayne Martin, lawyer

They have proposed prosecuting the company's executives.

The purchase of former Australian insurer FAI, which allegedly produced false accounts on which HIH failed to conduct due diligence, also contributed to the insurer's failure.

HIH was Australia's second largest general insurer when it collapsed in March 2001, leaving hundreds of thousands of policyholders uncovered.

Legal breaches

In summing up after 201 sittings and 194 witness, which produced 18,000 pages of evidence, Wayne Martin, senior counsel assisting the commission, said there were serious failures.

"Undesirable corporate governance, inappropriate discharge of regulatory obligation or possible breaches of civil or criminal law, are... well over 1,000 in total," he said.

"There are also a significant number of instances, counted in the hundreds, in which we suggest that your Honour should find that there might have been a possible contravention of the law," the head of the commission, Justice Neville Owen, was told.

HIH executives, the regulatory authorities and former auditors Arthur Andersen will be given a chance to reply during the summing up which is expected to conclude in Sydney on Sunday.

The final report is due to be presented to the government at the end of February.