A recent decision of the Grand Court will provide welcome
certainty to Cayman Islands liquidators appointed over trust
companies or companies that hold trust assets because it has
confirmed, in the face of ardent opposition, the principle that
liquidators are entitled to be paid by recourse to trust assets
where there are no, or a shortfall of, estate assets.
In this case, the liquidators found themselves appointed over a
company whose sole function had been the provision of custodial
services in relation to assets it held on trust for its numerous
customers. The liquidators were required to carry out a significant
amount of work in order to ensure the proper return of those assets
to the customers and, in the absence of sufficient estate assets to
fund their endeavours, sought remuneration equal to less than 1% of
the value of those assets for doing so. The liquidators faced
opposition from parties who together rejected (a) as a matter of
principle, that the liquidators should be paid at all, further
contending that they should be required to pay expenses of the
liquidation such as overheads and legal fees personally; and (b)
the proposed apportionment of fees and expenses incurred by the
liquidators as between the company's customers.
In a detailed judgment the Honourable Chief Justice Smellie QC
conducted a thorough and helpful analysis of Berkeley
Applegate principles in which he confirmed that the
jurisdiction was available to assist liquidators in the Cayman
Islands; dismissed the arguments presented in opposition; and noted
that the liquidators were not to be expected to undertake the work
that they had, at their own expense. The Honourable Chief Justice
commented that the liquidators were officers of the Grand Court and
were "not mere officious inter-meddlers" observing that
the work undertaken by them was "necessarily required",
had "doubtlessly added value to the [customers'
assets]" and "indeed had redounded to the benefit of all
[of the company's customers]". The Honourable Chief
Justice further observed that the work carried out by the
liquidators would have had to have been carried out by some sort of
appointee (likely a receiver), if not the liquidators in any event
and at likely a higher cost than that proposed by the
Since there were a broad range of customers, each with their own
unique portfolio of assets (by value and by nature of assets), the
liquidators proposed that a simple split of costs as between the
customers was neither appropriate nor equitable. As such, they
presented a range of mechanisms through which they suggested their
fees and expenses could be apportioned and set out their
recommendation as to the most equitable method, noting that a
perfect allocation of all costs against each customer (as proffered
by the respondents) could only be achieved at disproportionate
expense. The most equitable approach, they argued, was a
mathematical cost-allocation model which produced a proportionate
division of total costs as between the customers, subject to
certain adjustments which reflected portfolio composition and asset
value. The Honourable Chief Justice agreed with the
liquidators' proposal noting that, "those who seek the
assistance of the Court of equity, must do equity by contributing
what is a fair if imprecise share of the overall costs". His
Lordship rejected the opposers' argument that an exact account
should be provided to each individual customer for scrutiny,
because the liquidators were not themselves trustees of the
customers' assets and were not therefore subject to the strict
accounting approach that the opposers argued they were.
The judgment makes instructive reading for insolvency
practitioners and advisors: In the matter of Caledonian
Securities Limited (in Official Liquidation), unreported, Grand
Court of the Cayman Islands, Smellie CJ, 5 May 2016.
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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