Cayman Islands: Anti-Suit Injunction Safeguards The Universality Of Insolvency Proceedings

The Grand Court of the Cayman Islands has granted an anti-suit injunction restraining a creditor (the "Creditor") of a Cayman fund in Official Liquidation under the Companies Law (2013 Revision) (the "Fund") from instigating duplicative winding up proceedings in a foreign jurisdiction (the "Application"). 

In preventing the Creditor from instigating a parallel liquidation in another jurisdiction the Cayman Court upheld the central tenet of modified universalism that the assets of an insolvent company should be administered by a single proceeding to avoid the inevitable free for all that would ensue if creditors were able to commence competing proceedings in other jurisdictions in order to serve their own interests. 

Background

The Fund was established as an open-ended investment Fund.  In early 2016 the directors of the Fund became concerned that the Fund's investments and assets were impaired. This ultimately led to the appointment of Michael Pearson and Andrew Childe of Fund Solution Services as the Joint Official Liquidators ("JOLs") to the Fund on 26 April 2016. 

Following their appointment, the JOLs took steps to bring the assets of the Fund under their control, to notify creditors of the Fund of their appointment and called for proofs of debt to be filed.  On 19 May 2016 the Creditor, the largest creditor of the Fund, filed a proof of debt in the Cayman insolvency Prior to filing its proof of debt, the Creditor issued a winding up petition to commence a winding up of the Fund in Barbados (the "Barbados Proceedings").  The Creditor had not given any prior indication that it had any concerns regarding the Cayman liquidation or the appointment of the JOLs, nor had the Creditor served on or given notice of the Barbados Proceedings to the JOLs. There were no assets in Barbados, there were no debtors located within that jurisdiction and it was not clear on what basis the duplicative costs of commencing the Barbados Proceedings could be justified. 

The JOLs brought the Application to restrain the Creditor from continuing the Barbados Proceedings, and prevent any analogous proceedings being instigated.

The Law

The two issues before Chief Justice Smellie QC were:

a) whether the Cayman court should grant an anti-suit injunction preventing a creditor from taking action another jurisdiction; and

b) did the Cayman Court have personal jurisdiction over the Creditor.

In answering the first question in the affirmative, Smellie CJ upheld the principles of modified universalism that a debtor should be subject to a single winding up procedure for the benefit of all creditors to ensure the orderly distribution of the insolvent estate.  Smellie CJ turned to the dicta of the Privy Council which had recently considered the same issues in Stichting Shell Pensioenfonds v Krys & Anor [2014] UKPC 41 (on appeal from the BVI Court).  In that case a fund was in liquidation in the BVI and the challenging creditor had filed a proof of debt in those proceedings.  The same creditor then issued proceedings in the Dutch courts in an attempt to secure priority over assets held by a Dutch custodian that were the beneficial property of the fund.  It was held by the Privy Council that on the making a winding up order a statutory trust and statutory distribution regime applied to all the debtor's assets for the benefit of all its unsecured creditors, wherever situated, the Board stated that this:

"....reflects the ordinary principle of international law that only the jurisdiction of a person's domicile can effect a universal succession of its assets....This necessarily excludes a purely territorial approach in which each country is regarded as determining according to its own law the distribution of assets of an insolvent company located within its territorial jurisdiction...." (cited at Ardent, paragraph 32).

On considering the principles applicable to granting anti-suit injunctions, Lords Sumption and Toulson made it clear that "The Court does not purport to interfere with any foreign court, but may act personally upon a defendant by restraining him from commencing or continuing proceedings in a foreign court where the ends of justice require.  The "ends of justice" is a deliberately imprecise expression.  It encompasses a number of distinct legal policies whose application will vary with this subject-matter and the circumstances" (cited at Ardent, paragraph 34).  Those broad circumstances have included where the action is vexatious and oppressive, where the secondary forum is inappropriate and where the proceedings are restrained because they are contrary to equity and good conscience.  Notably, the Court is concerned to act in the interests of the general body of creditors which brings into account a broader public interest in the ability of the insolvency court to conduct an orderly winding up, in these circumstances the Court

"....intervenes because the proper distribution of the company's assets depends upon its ability to get in those assets so that comparable claims to them may be dealt with fairly in accordance with a common set of rules applying equally to all of them.  There is no jurisdiction other than that of the insolvent's domicile in which that result can be achieved.  The alternative is a free-for-all in which the distribution of asserts depends on the adventitious location of assets and the race to grab them is to the swiftest, and the best informed, best resourced or best lawyered".( cited at Ardent, paragraph 35).

On the facts before the Cayman Court Smellie CJ granted the Application so as to restrain any such "free-for-all".  It was clear to his Lordship that the Barbados Proceedings would directly interfere with the conduct of the liquidation before the Cayman Court, to the detriment of the creditors of the Fund.  Further, his Lordship stated that allowing the duplicative proceedings would be "anathema" to the principles pertaining to the universal succession of assets canvassed in Stichting (paragraph 47). 

A related question was whether the Cayman Court had personal jurisdiction over the Creditor.  There were two bases for holding that it did: (i) the Creditor was a shareholder of the Fund, and Order 11 rule 1(1)(ff) of the Grand Court Rules, provides that the Cayman Court has jurisdiction over "a person who is... a member of a company registered within the jurisdiction... and the subject matter of the claim relates in any way to such company..." and (ii) the Creditor had filed a proof of debt in the liquidation of the Fund.  Consistent with Stichting, Smellie CJ held that the filing of a proof of debt alone constituted submission to the jurisdiction of the Cayman Courts.  In this regard, Smellie CJ remarked that should the Creditor disobey the anti-suit injunction its disobedience "would certainly redound in the context of the distribution of dividends" (paragraph 42).

Commentary

The notable limitation to this jurisdiction is that where a foreign creditor takes action in his home jurisdiction to wind up a debtor but has not also filed a proof of debt in the principal winding up proceedings of that same entity, an anti-suit injunction may not be available to assist the officeholders and wider body of creditors.  Save in those circumstances, the general body of creditors of a Cayman debtor are subject to the principles and procedures mandated by the Companies Law (2013 Revision) irrespective of where they are situated. 

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions