Asia Private Credit Fund Ltd (in Voluntary Liquidation)

• Jurisdiction: Cayman Islands
• Judge: (Field, Morrison and Beatson, JJ.A.)
• Judgment Date: 08 November 2019
• Court: Court of Appeal (Cayman Islands)
• Date: 08 November 2019

IN THE MATTER OF ASIA PRIVATE CREDIT FUND LIMITED (in voluntary liquidation)

ADAMAS GLOBAL ALTERNATIVE INVESTMENT MANAGEMENT INCORPORATED

and

PUBLIC INSTITUTION FOR SOCIAL SECURITY FOR THE STATE OF KUWAIT, SMITH and YEO

IN THE MATTER OF ADAMAS ASIA STRATEGIC OPPORTUNITY FUND LIMITED

ADAMAS CAPITAL PARTNERS LIMITED

and

PUBLIC INSTITUTION FOR SOCIAL SECURITY FOR THE STATE OF KUWAIT, MacINNIS and BENNETT

(Field, Morrison and Beatson, JJ.A.)

Court of Appeal (Cayman Islands)

Companies — winding up under court’s supervision — supervision order — when considering whether to make order under Companies Law (2018 Revision), s.131(b), court to determine whether supervision would facilitate more effective, economic or expeditious liquidation of company in interests of contributories/creditors — court may consider views of stakeholders in liquidation

Held, dismissing the appeals and allowing the cross-appeal:

(1) Section 131(b) of the Companies Law (2018 Revision) provided for jurisdictional thresholds, one of which had to be met before a supervision order could be made, namely that the supervision of the court would facilitate a more effective, economic or expeditious liquidation of the company in the interests of the contributories and creditors. The burden was on the applicant to satisfy the court that the threshold requirement had been met on the material before the court at the time the petition was heard. The jurisdictional thresholds captured by the words “effective,” “economic” and “expeditious” were open textured and of broad meaning.If a supervised liquidation was more suitable than a voluntary liquidation on the facts because it had the immediate potential for achieving a more thorough investigation, it would be more effective from the outset than a voluntary liquidation which lacked such potential. It might be that the appointment of official liquidators who could not be dismissed by resolution in a general meeting in place of voluntary liquidators who could be so dismissed would immediately result in a more effective liquidation, particularly where the manager of a fund had appointed its own choice of voluntary liquidators in defiance of the choice of the stakeholder(s) in the liquidation. In deciding whether the threshold had been met, the court would make a judgment resulting from an evaluative process in which the words of para. (b) were considered in the light of the evidence before it. The process was akin to but not the same as the exercise of a discretion properly so called. After the judge had decided whether he was satisfied that one or all of the s.131(b) requirements had been met, he would not have a residual discretion. An appellate court ought to be slow to overturn a judge’s decision unless the judge misconstrued s.131 or the decision fell outside the generous ambit within which reasonable disagreement was possible (paras. 89–91).

(2) The court could take into account the view of the stakeholders in the liquidation that they wanted a supervised liquidation and that a threshold requirement for a supervision order had been met, but not at the expense of failing to undertake a full and careful assessment of all the objective factors in the application. Where these factors were finely balanced, the wish of the stakeholders might tip the decision in favour of a supervision order. Where the factors were contrary to the view of the stakeholders, the court should not accept the stakeholders’ views as a reason for making a supervision order (para. 100).

(3) Following the establishment of a jurisdictional threshold, the choice of the liquidators who would conduct the supervised liquidation was an exercise of discretion properly so called. Where the petitioner was the sole stakeholder in the liquidation, the petitioner’s choice of liquidator(s) ought generally to be respected. Given the discretionary nature of the decision as to who should be appointed liquidator, the decision ought only to be interfered with on appeal if the judge took into account an irrelevant matter or failed to take into account a relevant matter or the decision was outside the margin of appreciation appropriate in the circumstances (para. 96).

(4) The court rejected the submissions that the manager’s exclusive entitlement under the articles to put the fund into voluntary liquidation materially reduced the significance of the fact that the participating shareholders had the sole economic and financial interest in the liquidation; that the nomination of a voluntary liquidator was exclusively the preserve of the manager; and that the wording of s.131(b) precluded the court from having regard to the wishes of a party which had the sole interest in the liquidation when deciding whether a jurisdictional thresholdhad been met. The relationship between those holding the management shares in a fund and those holding the participating shares radically changed when the fund was contemplating the cessation of business and a voluntary winding up. The exclusive power conferred on the manager to resolve to wind up the company was conferred not for their benefit but for the benefit of the participating shareholders who, under the articles, had the predominant financial interest in the proposed winding up. The starting assumption should be that where the majority of the participating shareholders nominated a suitable voluntary liquidator, their wishes should be acceded to by the holder of the management or founder shares. As a general rule in a solvent liquidation, the participation by a manager in an application under s.131(b) by participating shareholders should be measured and neutral, designed to assist the court both as to whether a jurisdictional threshold had been met and as to who should be the liquidator. If a supervised liquidation might significantly delay or otherwise prejudice settlement of the manager’s claims as a creditor, the manager would of course be entitled to argue against a supervised liquidation for that reason. If the manager’s interest was to refute allegations made in the petition that impugned the manager’s bona fides or business judgment, the manager would be entitled to file evidence answering the petitioner’s allegations, but its stance on whether a jurisdictional threshold was made out should be measured, neutral and designed to assist the court (paras. 98–99).

(5) The first appeal would be dismissed. The judge had failed to identify which jurisdictional bases in s.131(b) were being upheld and the reasons for so finding. His judgment would therefore be set aside. The court would make its own finding on the evidence before the judge at the hearing of the application. There was a real need for an investigation (pursuant to a supervised liquidation) into the affairs of APCF, including in particular the reasons for the very significant losses sustained on the petitioner’s investment in the company and the actions of the former director general. A supervised liquidation would be more effective in the interest of the sole contributory (the sole stakeholder in the liquidation) than the voluntary winding up begun by AGAIM. Official liquidators would have the statutory power to apply to the court for an order to examine any relevant person for the purpose of investigating the company’s affairs and to require directors and officers of the company and its professional service providers to submit a statement, verified by affidavit, dealing with prescribed matters and, if necessary, the liquidators would be able to seek recognition and assistance overseas. In addition, unlike voluntary liquidators, official liquidators would not be dismissible by AGAIM. Knowledge in the outside world of this independence would assist the liquidators to make their enquires, thereby rendering the liquidation more effective. The court would therefore hold that a supervised liquidation of APCF should be ordered (paras. 101–108).

(6) The cross-appeal would be allowed. As the judge’s judgment had been set aside, his order appointing the FTI liquidators in addition to the BDO liquidators also fell away. It was for the court to decide who should be the liquidators in charge of the supervised liquidation. The court should appoint the FTI liquidators in place of the BDO liquidators to conduct the supervised liquidation for the following reasons. First, the court should accede to the wishes of the petitioner who was the sole stakeholder in the liquidation. Secondly, the appointment of the BDO liquidators would undermine the effectiveness of the supervised liquidation caused by an appearance of partiality attached to the BDO liquidators resulting from their original appointment by the manager whose role in and conduct of the affairs of APCF would be one of the matters investigated. If the court were wrong to conclude that the order appointing all four liquidators to conduct the liquidation fell away with the setting aside of the judge’s judgment, it considered that the judge erred in law in his exercise of discretion. The judge failed to have regard to the authority supporting the proposition that liquidation proceedings should be conducted in the interests of the persons who were financially interested in the process, in the present case the petitioner. The judge failed to take into account the negative impact on the effectiveness of the supervised liquidation caused by an appearance of partiality attaching to the BDO liquidators resulting from their original appointment by the manager. The judge also failed to take into account the increased cost of having four liquidators rather than two. These failings meant that the judge’s decision to appoint all four liquidators was manifestly outside the margin of appreciation available to him. The court would set aside the judge’s decision and substitute an order appointing only the FTI liquidators (paras. 109–114).

(7) The second appeal would be dismissed. The court rejected the submission that the judge...