The SAR office of Australian-based insurer HIH Group collapsed with liabilities of HK$1.05 billion - the largest corporate failure in the insurance sector. The group's 27,000 Hong Kong policyholders, including the Hospital Authority and Law Society, become creditors of the failed firm and might have to wait up to 10 years for compensation. HIH, Hong Kong's sixth-largest general insurer, collapsed in April - a month after its Australian parent went into provisional liquidation. Australia's HIH Insurance had losses estimated at between A$3.6 billion (about HK$14.99 billion) and A$5.3 billion - the country's biggest corporate collapse. The Supreme Court of New South Wales yesterday wound up its main subsidiaries. Judge Kim Santow approved the winding up of 18 HIH companies. Coverage offered by its four Hong Kong subsidiaries - HIH Insurance (Asia), HIH Holdings (Asia), FAI First Pacific Insurance and HIH Casualty and General Insurance (Asia) - included employees' compensation, motor, medical, and professional indemnity. The four had placed HK$250 million with their parent under a re-insurance arrangement but will not get it back until the Australian liquidation process is completed, which could take years. 'The four Hong Kong offices have now become creditors of the parent company,' the provisional liquidator of HIH Hong Kong companies, Peter Whalley, a partner in PricewaterhouseCoopers, said. The four offices are also burdened by a huge amount of provisions made for claims payment, investment losses and other expenses. As a result, they are unable to fully repay 7,500 existing claims totalling HK$1.05 billion. Mr Whalley said the companies' liabilities exceeded assets by HK$660 million. That figure could expand to HK$800 million when more policyholders made claims at a later stage. Mr Whalley was speaking after a court hearing yesterday before Mr Justice Michael Hartmann in the Court of First Instance for directions on whether to wind up the four HIH companies. Barrister Jonathan Harris, for provisional liquidator PricewaterhouseCoopers and creditors, argued before the hearing that it would not be in the creditors' best interests to wind-up the companies. He suggested retaining their provisional liquidation status and adopting a scheme of arrangement to allow creditors to work with PricewaterhouseCoopers on how to calculate liabilities and distribute assets. He said if a winding-up petition was made, all creditors, including HIH policyholders, would need to wait until all claims were submitted before they could start to share the assets. As some policyholders could seek claims five to six years after accidents had taken place, the winding-up process could last more than 10 years, he said. Mr Harris said a scheme of arrangement would allow policyholders to be compensated earlier as it was more flexible. Such a scheme would require the approval of 75 per cent of all creditors. It would also need court approval. Mr Harris pointed out to the court that schemes of arrangement had been used in some cases in Britain to cover cases of collapsed insurers. Mr Justice Hartmann agreed that insurance companies might need to be handled in a different way from other bankrupt firms. He said the Insurance Authority should present a view on the issue at the next hearing - scheduled for December 7 - in a bid to ensure policyholders' interests were well protected. After the hearing, Assistant Commissioner of Insurance Mok Hin-yiu said the insurance watchdog would be in favour of a scheme of arrangement because apart from shortening the time policyholders would have to wait for compensation it would also be less expensive.