Cayman Islands: Cross-Border Comity At The Court Of Appeal – The Picard V Primeo Decision

On 16 April 2014, the Court of Appeal handed down the much-anticipated decision in Irving H Picard and Bernard L Madoff Investment Securities LLC v Primeo Fund.  In short, the Court of Appeal (reversing the judge at first instance) has found that there is statutory jurisdiction, under the Cayman Islands Companies Law (the "Law"), for the Court to apply Cayman Islands transaction avoidance provisions (i.e. clawback provisions based on fraudulent transfers or preference payments) in aid of foreign proceedings.  The Court of Appeal also found (confirming the decision of the judge at first instance) that this jurisdiction does not enable the Court to apply transaction avoidance provisions under foreign law in the Cayman Islands.1 

Legislative provisions 

Part XVII of the Law deals with international co-operation and is based on the now-repealed section 304 of the US Bankruptcy Code.  Section 241 of the Law provides that the Court may make orders ancillary to a foreign bankruptcy proceeding for the purposes of: 

(a)       Recognising the right of a foreign representative to act in the Islands on behalf of a foreign debtor.

(b)       Granting a stay on the commencement or continuation of legal proceedings and the enforcement of judgments against a debtor.

(c)       Permitting the foreign representative to examine any person in possession of information relating to the debtor and requiring the production of documents to the foreign representative.

(d)       Ordering the turnover to a foreign representative of any property belonging to a debtor. 

Section 242 provides that in deciding whether to make such an order, the Court will be guided by matters which will best assure an economic and expeditious administration of the debtor's estate consistent with, among other things, the prevention of preferential or fraudulent dispositions of property contained in the debtor's estate. 

Proceedings in the Grand Court 

In February 2010, under section 241 of the Law, the Grand Court recognised Mr Picard's appointment as the bankruptcy trustee of Bernard L Madoff Investment Securities LLC ("BLMIS") by the US Bankruptcy Court for the Southern District of New York.2 

Mr Picard/BLMIS then sought to bring clawback claims in respect of payments made by BLMIS to Primeo Fund, a Cayman Islands company.  These claims were based on the transaction avoidance provisions of both the US Bankruptcy Code and the Law.  While there are similarities between the legislative provisions in each jurisdiction, the relevant provisions of the US Bankruptcy Code were more favourable to Mr Picard/BLMIS.  The Grand Court ruled on the preliminary issues as to whether (a) the Grand Court had jurisdiction to hear such claims either under Part XVII of the Law or at common law, and (b) if so, whether the clawback claims should be brought under the US Bankruptcy Code or the Law. 

The Grand Court found as follows:

(a)       The Court had no jurisdiction to apply the transaction avoidance provisions of the US Bankruptcy Code either under Part XVII of the Law or at common law.

(b)       The Court had no jurisdiction to apply the Cayman Islands transaction avoidance provisions in aid of foreign proceedings under Part XVII of the Law.

(c)       However, the Court had jurisdiction to apply the Cayman Islands transaction avoidance provisions in aid of foreign proceedings at common law even in circumstances where the Court would have no jurisdiction to make a winding-up order over the debtor (which was the case here). 

A more detailed summary of the proceedings in the Grand Court can be found here.

Proceedings in the Court of Appeal 

Mr Picard/BLMIS appealed and Primeo Fund cross-appealed.  It was agreed that there were three issues for the Court of Appeal to determine:

(a)       Whether the Court has jurisdiction under sections 241 and 242 of the Law to apply foreign transaction avoidance provisions (and particularly the US provisions) in aid of foreign insolvency proceedings; 

(b)       Whether the Court has jurisdiction under sections 241 and 242 of the Law to apply Cayman Islands transaction avoidance provisions in aid of foreign insolvency proceedings; and

(c)       Whether the Court has jurisdiction at common law to apply Cayman Islands transaction avoidance provisions in aid of foreign proceedings generally or only in circumstances where it would have jurisdiction to make a winding up order over the foreign debtor. 

During the course of the appeal it emerged that the Privy Council would shortly hear an appeal that would impact on the third issue and accordingly the Court of Appeal provided an interim judgment addressing the first two issues only.3

The Court of Appeal first addressed the question as to whether sections 241 and 242 gave the Court jurisdiction to apply any transaction avoidance provisions (whether from the Cayman Islands legislation or otherwise) in aid of foreign insolvency proceedings and concluded as follows:

(a)       Section 241 of the Law does not confer a general power on the Court to make such orders as it sees fit in aid of foreign proceedings.  The power conferred by section 241 can only be exercised for one or more of the purposes described at paragraphs (a) to (d) above.

(b)       The language used in section 242 was included as a guide for the Court in exercising the power to make ancillary orders for all of the purposes set out in section 241.  The express reference in section 242 to taking account of matters "consistent with the prevention of preferential or fraudulent dispositions of property" is a clear indication that, in making ancillary orders to assist a foreign representative, the Court could have regard to the need to avoid fraudulent or preferential dispositions.

(c)       The making of a transaction avoidance order in aid of foreign insolvency proceedings can be considered as making an order "ancillary to the turnover to a foreign representative of any property belonging to the debtor".  This is because the avoidance of preferential or fraudulent dispositions of property has the effect of restoring property to the debtor, to enable it to be turned over to the foreign representative. 

(d)       It is not appropriate to construe the meaning of section 241 and section 242 by reference to US cases on section 304 of the Bankruptcy Code, notwithstanding that these sections are closely modelled on the US provision.  The Court was required to construe the legislation in accordance with Cayman Islands principles. 

In respect of the second question, the Court of Appeal concluded that:

(a)       Because the Court was required to construe the legislative provisions in accordance with Cayman Islands principles rather than by reference to US cases on section 304 of the Bankruptcy Code, it was not relevant that the US courts could have applied foreign legislative provisions in aid of foreign insolvency proceedings pursuant to section 304 of the US Bankruptcy Code.

(b)       It would be a radical departure from the common law position for the Court to be able to apply foreign legislative provisions in aid of a foreign proceeding.  If the legislature had intended this departure, it would have said so in clear terms, which was not the case.

(c)       Accordingly, notwithstanding the apparent illogicality of applying domestic law to transaction avoidance issues when the distribution regime is governed by a foreign law, there was no jurisdiction under Part XVII to apply foreign avoidance provisions.


This decision provides very helpful clarity on the scope of relief available to foreign representatives who seek assistance from the Cayman Islands courts.  The Court of Appeal has given a broad interpretation to the meaning of making ancillary orders for the purpose of ordering the turnover of property to a foreign representative.  It appears that the Court is prepared to afford the foreign representative all powers and reliefs that would be available to a Cayman Islands liquidator that would result in assets being returned to the debtor's estate.


1 Note that the Cayman Islands has not adopted the UNCITRAL Model Law.

2 Re Bernard L Madoff Investment Securities LLC [2010] 1 CILR 231.

3 We understand that the Privy Council has now heard the appeal, and that it has reserved its decision.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Caroline Moran
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