Banco Economico v Allied Leasing

• Jurisdiction: Cayman Islands
• Judge: (Smellie, J.)
• Judgment Date: 27 February 1998
• Court: Grand Court (Cayman Islands)
• Date: 27 February 1998

Grand Court

(Smellie, J.)

BANCO ECONOMICO S.A.

and

ALLIED LEASING AND FINANCE CORPORATION

J. Martin, Q.C., T. Lowe, M. Alberga and Ms. L. DaCosta for the applicant;

R.H. Hildyard, Q.C., G.A. Locke and Ms. S.J. Collins for the petitioner;

J.R. McDonough for the provisional liquidators.

Cases cited:

(1) -Arrows Ltd., Re, [1992] BCC 121.

(2) -Danish Mercantile Co. Ltd. v. Beaumont, [1951] Ch. 680; [1951] 1 All E.R. 925, followed.

(3) -Dartmouth Harbour Commrs. v. Mayor of Dartmouth HardnessUNK(1886), 55 L.J.Q.B. 483, applied.

(4) -Emmadart Ltd., In re, [1979] Ch. 540; [1979] 1 All E.R. 599, followed.

(5) -Mid East Trading Ltd., Re, Lehman Bros. v. Phillips, [1997] 3 All E.R. 481; [1997] 2 BCLC 230; on appeal, [1998] 1 All E.R. 577, considered.

(6) -Parkinson (Sir Lindsay) & Co. Ltd. v. Triplan, [1973] Q.B. 609; [1973] 2 All E.R. 273, applied.

(7) -Pure Spirit Co. Ltd. v. FowlerELR(1890), 25 Q.B.D. 235, applied.

(8) -Union Accident Ins. Co. Ltd., In re, [1972] 1 W.L.R. 640; [1972] 1 All E.R. 1105, not followed.

Legislation construed:

Insolvency Act 1986 (c.45), s.124(1):

‘Subject to the provisions of this section, an application to the court for the winding up of a company shall be by petition presented either by the company, or the directors, or by any creditor or creditors (including any contingent or prospective creditor or creditors), contributory or contributories, or by all or any of those parties, together or separately.’

Insolvency Rules 1986 (S.I. 1986/1925), r.4.18(1):

‘If the company intends to oppose the petition, its affidavit in opposition shall be filed in court not less than 7 days before the date fixed for the hearing.’

r.4.25(1): ‘An application to the court for the appointment of a provisional liquidator under section 135 may be made by the petitioner, or by a creditor of the company, or by a contributory, or by the company itself, or by the Secretary of State, or by any person who under any enactment would be entitled to present a petition for the winding up of the company.’

r.4.31(1): ‘The appointment of the provisional liquidator may be terminated by the court on his application, or on that of any person specified in Rule 4.25(1).’

Companies-liquidators-removal-provisional liquidators-under In-solvency Rules, rr. 4.25(1) and 4.31(1) company director has no locus standi to apply for removal of provisional liquidator-may not, without authority of company in general meeting, apply in company name

Companies-compulsory winding up-affidavit evidence-may extend time-limit for affidavit opposing winding-up petition under Insolvency Rules, r.4.18(1) if petition raises complex issues of fact and petitioner already granted ex parte relief

Civil Procedure-costs-security for costs-no order for security against foreign company in liquidation if large bank controlled by foreign government-appointed liquidator and prima facie likely to succeed in action

The petitioner applied for an order for the winding up of the respondent company.

The petitioner, a Brazilian bank itself in liquidation, applied ex parte as a creditor of the respondent, a Cayman company, and obtained an order for the appointment of provisional liquidators pending the hearing of the petition. The applicant applied, as a director of the respondent, for, inter alia, the discharge of the provisional liquidators, a short extension of time for service of the respondent”s affidavit opposing the petition, and security for the company”s costs of challenging the petition against the petitioner as a foreign entity.

The applicant submitted that (a) since he was the sole remaining director of the respondent, he retained the residual power of its board to oppose the winding up of the company, notwithstanding that provisional liquidators had been appointed, and even without the authority of a resolution of the company in general meeting; (b) furthermore, since he acted on behalf of the company, he had locus standi to apply for the discharge of the provisional liquidators under the English Insolvency Rules, rr. 4.25(1) and 4.31(1); (c) even if he lacked locus standi, the company should be permitted to apply in its own name for the orders sought, having ratified the action taken on its behalf by a members” resolution; (d) since the company”s delay in filing affidavit evidence opposing the petition was not excessive and was largely due to the fact that the petitioner had applied ex parte, the court should afford the

respondent latitude in its compliance with r.4.18(1) of the Insolvency Rules; and (e) since the petitioner was a foreign company itself in liquidation and unable to pay its debts, the respondent should be awarded security for its costs at this stage to avoid the difficulty of recovering them later on.

The petitioner submitted in reply that (a) the applicant did not represent the respondent company since he was not the sole director and was not authorized by a resolution of the board to act with regard to the company; (b) furthermore, even if he were the sole director, he would have no locus standi, without the authority of the members in general meeting, to present a petition on the company”s behalf, and therefore had no power to apply for either the appointment or the discharge of provisional liquidators under rr. 4.25(1) and 4.31(1); (c) nor should the respondent company be given leave to apply for orders in its own name by ratifying the applicant”s acts, since he had not acted on its behalf, and those who purported to authorize the application might not in fact be entitled to do so; (d) no extension of time should be granted for the filing of the respondent”s affidavit evidence since the petition had been served on it over a month previously; and (e) since the petitioner was a large bank under the control of a Brazilian Government-appointed liquidator and was likely to succeed on the petition, an order for security for the respondent”s costs was unwarranted.

Held, dismissing the application:

(1) The applicant had no locus standi to apply for the discharge of the provisional liquidators since, under the English Insolvency Rules, rr. 4.25(1) and 4.31(1), only persons with locus standi to present a petition for the winding up of the company could apply for the appointment or removal of provisional liquidators, and these did not include a company director. Moreover, under Cayman law, which was the same as the pre-1985 English law, the applicant could not apply on behalf of the company to oppose the winding-up petition or remove the liquidators without the authority of the company in general meeting, whether he were a sole director or not. Accordingly, his application would be dismissed (page 106, lines 26–31; page 106, line 42 – page 107, line 2; page 107, lines 33–44; page 108, lines 24–28; lines 41–45).

(2) However, since the applicant had intended to act on the company”s behalf in the mistaken belief that he had retained power to do so and despite the appointment of provisional liquidators, his actions could be ratified by the company and his application could be amended to substitute the company as applicant once the necessary resolution had been passed. Since the sole registered shareholder had now tendered that resolution, the court would not seek to deny the company locus standi to challenge the petition by looking behind its legal ownership, in the absence of an application for rectification of the register (page 109, lines 19–33; page 111, lines 32–36; page 112, lines 4–12).

(3) The respondent would be granted an extension of time to file its evidence, in recognition of the fact that the appointment which it sought to oppose had been made by a rapid ex parte order and that the respondent had to respond to complex allegations of fraud occurring in more than one jurisdiction. In the circumstances, injustice would result if the modest extension sought were not granted (page 110, lines 1–19; lines 37–45).

(4) The petitioner would not be ordered to give security for the respondent”s costs, since it was a large bank under the control of a Brazilian Government-appointed liquidator and there was no reason for the court to believe that its obligations for costs would not be met in the event of the respondent”s succeeding. The fact that it was a foreign party and was prima facie unable to pay its debts were merely factors to be considered by the court and, when balanced against the court”s preliminary view that the petition was likely to succeed, were not conclusive (page 112, lines 15–29; page 112, line 37 – page 113, line 12).

SMELLIE, J.:
Locus standi
On the basis of a petition to wind up the company presented pursuant
20	to s.95 of the Companies Law (1995 Revision) (‘the Law’) this court, in
the exercise of its powers under s.105 of the Law, has appointed
provisional liquidators in connection with the preservation of the assets
and undertakings of Allied Leasing & Finance Corporation (‘the com-
pany’), pending the hearing of the petition.
25	The petitioner is a major Brazilian bank, now itself in liquidation,
which petitions as a creditor of the company on the basis that the
company is unable to meet liabilities owed to it. These liabilities are said
to have arisen from the company being used, by persons mutually
connected as former officers of the petitioner and of the company, as a
30	cipher through which to perpetrate fraud on a massive and complex scale
against the petitioner by the misappropriation of its funds. To put it
simply, it is alleged on behalf of the petitioner that the company was

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