The liquidator of failed insurer HIH has filed a multimillion-dollar lawsuit against the Australian government and the insurance industry watchdog.

Liquidator Tony McGrath, of accountancy firm KPMG, said he filed the $AU 5.6bn (£2bn) lawsuit based on evidence which blames the industry watchdog for the bankruptcy.

In a statement in the Supreme Court, KPMG revealed they are attempting to recover some of the $AU 5.3bn (£1.9bn) lost through the insurer's collapse.

Justifying the decision McGrath said: "Influential in my decision was the evidence that has emerged through the HIH Royal Commission."

The Commission has heard evidence that the Australian Prudential Regulation Authority (APRA), failed to exercise its statutory powers properly.

In addition, the suit claims HIH relied heavily on APRA's approval before proceeding with the takeover of insolvent insurer FAI in 1998.

Federal government investigator John Palmer said APRA lacked sufficient funds and was under-qualified to deal with HIH's financial troubles.

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