Will the Bankruptcy of an Insurance Company Affect Your Ongoing Compensation Claim?

The collapse of an insurer does not automatically extinguish your right to compensation in Hong Kong. The legal framework provides several layers of protection, but the path to recovery depends on the type of claim, the stage of proceedings, and the specific financial status of the insurer. In 2025, the Hong Kong Federation of Insurers reported that the industry’s net premium income exceeded HKD 500 billion, yet global reinsurance market volatility has increased the risk of smaller, undercapitalised carriers failing. A single high-profile insolvency in the local motor insurance sector in early 2026 prompted the Insurance Authority (IA) to issue a sector-wide circular on 15 March 2026, reminding all authorised insurers to maintain adequate solvency margins under Cap. 41. This article explains, step by step, what happens to your ongoing claim when an insurer becomes bankrupt, and what you must do to protect your legal position.

The Statutory Safety Net: The Insurers (Winding Up) Rules and the Motor Insurers’ Bureau

The primary protection for claimants in Hong Kong is the statutory scheme under Cap. 41, the Insurance Ordinance, and the Insurers (Winding Up) Rules (Cap. 41 sub. leg.). These provisions establish a priority of payment when an insurer is wound up.

Step 1: Identify the type of claim. The legislation draws a sharp distinction between compulsory third-party insurance claims (primarily motor vehicle accidents) and all other voluntary insurance claims (such as employer’s liability, public liability, or personal accident policies). Compulsory claims receive preferential treatment in a winding-up.

Step 2: File your claim with the liquidator. Once the court makes a winding-up order under Cap. 32, the Companies (Winding Up and Miscellaneous Provisions) Ordinance, the liquidator must publish a notice requiring creditors—including claimants with pending litigation—to prove their debts. You must submit a formal proof of debt form within the prescribed time, usually 21 days from the notice. Failure to do so may bar your claim.

Step 3: The Motor Insurers’ Bureau (MIB) steps in for motor claims. The MIB of Hong Kong, established under a scheme approved by the IA, acts as a guarantor of last resort. If the insurer is wound up and the claim arises from a motor vehicle accident, the MIB will pay the judgment or settlement amount, subject to a statutory excess of HKD 100,000 per claim as of 2025. The MIB’s funding comes from a levy on all motor insurance policies. In 2025, the MIB paid out HKD 87.3 million in respect of 142 claims from insolvent insurers, according to its annual report.

Step 4: For non-compulsory claims, you become an unsecured creditor. If your claim is for employer’s liability, public liability, or personal accident, you rank as an unsecured creditor in the winding-up. This means you are paid after secured creditors and preferential creditors (including employees of the insurer). The dividend you receive may be a fraction of your claim—often between 5% and 20% of the assessed amount, depending on the assets available.

The Impact on Ongoing Litigation: Stay of Proceedings and Substitution of Parties

When a winding-up order is made, all legal proceedings against the insurer are automatically stayed under section 186 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance. This stay is immediate and applies to both the Court of First Instance and the District Court.

The stay is not absolute. You must apply to the court for leave to continue your action. The court will grant leave only if you can show that the claim is likely to succeed and that the insurer’s liquidator has no bona fide defence. The application is made by summons to the master of the relevant court. You must serve the summons on the liquidator and the IA.

Substitution of the MIB. For motor claims, once the court grants leave, the MIB may apply to be substituted as the defendant. The court will order substitution if the MIB confirms it will indemnify the plaintiff. The substituted proceedings then continue in the ordinary course, with the MIB assuming the insurer’s defence obligations.

Practical consequence for trial dates. A stay can delay your trial by 6 to 18 months. The court will vacate existing trial dates. You should immediately notify your solicitor—or if you are a litigant-in-person, the court registry—of the winding-up order so that the stay is not breached inadvertently. Breaching a stay renders any step taken void.

The Role of the Insurance Authority and the Insolvency Fund

The IA has statutory powers under Cap. 41 to intervene before an insurer becomes formally bankrupt. These powers include the ability to impose restrictions on the insurer’s business, to require the transfer of the insurance portfolio to another authorised insurer, or to petition the court for a winding-up.

The Insurers (Winding Up) Rules provide for a separate insolvency fund. Rule 5 establishes a fund into which the liquidator must pay all assets of the insurer. The fund is distributed in the following order: (1) costs of winding-up; (2) preferential debts (including employees’ wages up to HKD 8,000 per employee); (3) compulsory insurance claims; (4) all other unsecured claims. This statutory priority means that your compensation claim, if compulsory, is paid before ordinary trade creditors.

The IA’s circular of 15 March 2026 introduced new reporting obligations. All authorised insurers must now submit quarterly solvency reports to the IA. If an insurer’s solvency margin falls below 150% of the statutory minimum, the IA may require the insurer to deposit additional assets with the court. This regulatory tightening aims to reduce the likelihood of future insolvencies.

What this means for your claim. If the IA has already taken regulatory action against the insurer before the winding-up, the liquidator may have a more orderly process. You should monitor the IA’s public register of authorised insurers. If your insurer is listed as “under regulatory supervision,” contact the IA’s policyholders’ protection division for guidance.

Practical Steps for the Claimant: Immediate Actions and Long-Term Strategy

You must act immediately upon learning of the insurer’s bankruptcy. Delay can prejudice your position.

Step 1: Obtain a copy of the winding-up order from the Companies Registry. The order is a public document. You need it to file your proof of debt.

Step 2: File your proof of debt with the liquidator within the prescribed time. The liquidator’s contact details are published in the Gazette. Use the prescribed Form 2 under the Insurers (Winding Up) Rules. Attach copies of your claim details, medical reports, and any court documents.

Step 3: For motor claims, notify the MIB in writing. The MIB’s claims department requires a completed claim form, a copy of the winding-up order, and evidence that the accident occurred in Hong Kong. The MIB will acknowledge receipt within 14 days.

Step 4: For non-motor claims, consider whether to continue litigation. If the liquidator disputes your claim, you may need to apply to the court for a determination of the amount. The court will assess the claim as if the insurer were solvent, but the amount you actually receive will be limited to the dividend from the insolvency fund.

Step 5: Monitor the liquidation process. The liquidator will issue a first report to creditors within 12 weeks of appointment. You have the right to attend creditors’ meetings and vote on the liquidator’s proposals. If you disagree with the liquidator’s rejection of your claim, you have 21 days to appeal to the court.

Key Takeaways

1. Compulsory motor insurance claims are protected by the Motor Insurers’ Bureau, which will pay your judgment or settlement subject to a HKD 100,000 excess.
2. Non-compulsory claims rank as unsecured debts in the winding-up, meaning you will receive only a dividend—typically 5% to 20% of the claim amount.
3. All proceedings against the insurer are automatically stayed upon the winding-up order; you must apply to the court for leave to continue.
4. File your proof of debt within 21 days of the liquidator’s notice, or risk being barred from the distribution.
5. Monitor the IA’s public register and the Gazette for updates on the liquidation; attend creditors’ meetings to protect your interests.

This does not constitute legal advice. Consult a solicitor for your specific case.