Global Fidelity Bank Ltd (in Voluntary Liquidation)

• Jurisdiction: Cayman Islands
• Judge: (Doyle, J.)
• Judgment Date: 20 August 2021
• Court: Grand Court (Cayman Islands)

IN THE MATTER OF GLOBAL FIDELITY BANK LIMITED (in voluntary liquidation)

(Doyle, J.)

Grand Court, Financial Services Division (Cayman Islands)

Companies — liquidators — appointment — petitioners appointed by bank to conduct short financial review subsequently appointed by bank as joint voluntary liquidators — petitioners appointed by court as joint official liquidators despite opposition of one of bank’s significant creditors — petitioners’ limited prior involvement with bank not reasonably capable of impairing appearance of independence

	Held, granting the relief sought:

	(1) The supervision order was not opposed. The directors of the bank had not provided a declaration of solvency pursuant to s.124(1) of the Companies Act. It was sensible and appropriate that the liquidation of the bank be continued subject to the supervision of the court (para. 2).

	(2) The court summarized the relevant law in relation to the appointment of official liquidators. (i) A qualified insolvency practitioner should not be appointed by the court as an official liquidator unless the practitioner was and could be properly regarded as independent of the company in respect of which the practitioner was to be appointed as official liquidator. (ii) The practitioner could not be regarded as independent if within a period of three years immediately preceding the commencement of the liquidation he, or the firm of which he was a partner or employee, had acted in relation to the company as its auditor. (iii) Other than acting as auditor within the previous three years, there could be other circumstances which could be indicative that the practitioner could not be properly regarded as independent. (iv) When there was a challenge to the appointment of JVLs as JOLs, the JVLs should take a neutral stance but they might appear and be represented and assist the court by the provision of evidence, information and neutral submissions to enable the court to come to a fair and just determination of the issue before it. The JVLs would normally be allowed their costs of such involvement. (v) There needed to be confidence in the independence of JOLs. (vi) When determining whether a particular personal, professional or economic relationship might lead to a conclusion that an insolvency practitioner could not be properly regarded as independent, previous case law stressed that the court must (a) identify the relationship; (b) determine whether it was capable of impairing the appearance of independence; and, if so (c) determine whether it was sufficiently material to the liquidation in question that a fair-minded stakeholder would reasonably object to the appointment. It was a three-stage approach and an objective analysis was key. (vii) The views of those with an economic interest in the proceedings should be considered (and where appropriate very significant weight attached to them) but they could not alone dictate to the court how the issue should be determined. The court should take into account what would be in the best interests of those having the real economic interest in the company and also the reputation of the Cayman Islands as a well-respected leading international financial centre. In an insolvency situation the focus would be on the best interests of the creditors rather than the contributories. (viii) The court took into account the subjective views of all stakeholders including, where relevant, creditors and contributories. The court also undertook a full and careful assessment of all the circumstances of the case and all the relevant objective factors. The court might, despite the subjective views of significant creditors, conclude that on an objective analysis no reasonable perception of lack of independence had been established. (ix) The correct approach included an objective element. The subjective views of stakeholders were not determinative. It was the reasonable views of a fair-minded and informed hypothetical stakeholder that were important. (x) When considering whether a particular personal or professional relationship would lead to a perception of lack of independence and impartiality, the court should consider the issue from the perspective of a reasonable, fair-minded and well informed stakeholder. (xi) In some cases, previous involvement with the company might be an advantage (provided thecandidate could properly be regarded as independent). In other cases, previous involvement would be a disadvantage and disqualify a candidate from appointment. (xii) In some cases the appointment of the same JOLs over several connected companies would be desirable but in other cases separate appointments or at least an additional conflict liquidator might be necessary. (xiii) Whether or not any kind of personal, professional or economic relationship and prior involvement with a company would lead to the conclusion that a practitioner could not be properly regarded as independent either in reality or in perception depended on the factual circumstances of each case. (xiv) The court should not lose sight of the well-established proposition that liquidation proceedings whether solvent or insolvent should be conducted in the best interests of those persons who were financially interested in the liquidation process. (xv) The reputation of the Cayman Islands in respect of the appointment of independent official liquidators to deal with the liquidation process appropriately also played an important part in the court’s determination. There needed to be continuing justifiable confidence in those appointed as JOLs to fulfil their onerous duties independently as officers of the court (para. 77).

	(3) The petitioners would be appointed as joint official liquidators. The petitioners’ prior involvement with the bank did not disqualify them from appointment. It was not a significant prior relationship that could reasonably cast doubt on their independence. Such limited connection was not reasonably capable of impairing the appearance of impartiality and, even if it was, it was not sufficiently material to this liquidation that a fair-minded stakeholder would reasonably object to the petitioners’ appointment as JOLs. Ascentra’s opposition to the petitioners’ appointment was not based on solid or reasonable grounds. No other creditors had expressly opposed the petitioners’ appointment. Sterling, which was also a significant creditor, expressly stated its non-opposition to the appointment and it was right for the court to take its position into account. The appointment of the petitioners as JOLs would be in the best interests of those persons (including Ascentra and Sterling) who were financially interested in the liquidation process. In the circumstances, the petitioners’ prior involvement with the bank would produce some cost savings and efficiencies, but that did not weigh heavily in the balance. It was right to acknowledge that no questions had been raised as to the petitioners’ competence, integrity, skill and experience to act as JOLs (paras. 78–93).

Cases cited:

(1)	AJW Master Fund II Ltd., In re, 2011 (1) CILR 363, considered.

(2)	Adamas Asia Strategic Opportunity Fund Ltd., In re, Cause No. FSC 72 of 2019, Grand Ct., July 23rd, 2019, considered.

(3)	Adamas Heracles Multi Strategy Fund, In re, Cause No. FSD 140 of 2021, Grand Ct., August 10th, 2021, considered.

(4)	Alpha Re Ltd., In re, Grand Ct., February 23rd, 2018, considered.

(5)	Asia Pacific Ltd. v. ARC Capital LLC, 2020 (1) CILR 134, considered.

(6)	Bay Capital Asia Fund LP, In re, Cause No. FSD 116 of 2015, October 1st, 2015, considered.

(7)	CW Group Holdings Ltd., In re, Cause No. FSD 113 and 122 of 2018, Grand Ct., August 3rd, 2018, considered.

(8)	DD Growth Premium Master Fund, In re, 2009 CILR N [11], considered.

(9)	Hadar Fund, In re, Cause No. FSD 94 of 2013, Grand Ct., August 13th, 2013; 2013 (2) CILR N [4], considered.

(10)	Isle of Man Fin. Servs. Auth. v. Eco Resources Fund PCC plc, High Ct. of the Isle of Man, July 14th, 2017, unreported, considered.

(11)	Lowestoft Traffic Servs. Ltd., Re, [1986] 2 BCC 98; [1986] BCLC 81, considered.

(12)	Malone v. Mitchell (as liquidator of Prophecy Pension Trustees Ltd.), 2014 MLR 10, considered.

(13)	Maxwell Communications Corp. plc, Re, [1992] BCLC 465; [1992] BCC 372, considered.

(14)	Medisco Equipment Ltd., Re, [1983] BCLC 305, considered.

(15)	OVS Capital Mgmt. (Cayman) Ltd., In re, 2017 (1) CILR 232, considered.

(16)	Parmalat Capital Fin Ltd. v. Food Holdings Ltd., [2008] UKPC 33; 2008 CILR 202, considered.

(17)	Philadelphia Alternative Asset Fund Ltd., In re, Cause No. 440 of 2005, Grand Ct., February 22nd, 2006; 2006 CILR N [7], considered.

(18)	Polly Peck Intl. plc, Re, [1991] BCC 503, referred to.

(19)	Roselmar Properties Ltd. (No. 2), Re (1986), 2 BCC 99157, considered.

(20)	Tangerine Inv. Mgmt. Ltd., In re, 2013 (1) CILR 375, considered.

(21)	Wade v. Poppleton & Appleby, [2003] EWHC 3159 (Ch); [2004] 1 BCLC 674, considered.

(22)	West Mercia Safetywear Ltd. v. Dodds, [1998] BCLC 250; [1988] BCC 30, referred to.

(23)	York Gas Ltd., Re, [2010] EWHC 2275 (Ch); [2011] BCC 447, referred to.

(24)	Zinc Hotels (Holdings) Ltd. v. Beveridge, [2018] EWHC 1936 (Ch), considered.

Legislation construed:

Companies Act (2021 Revision), s.124(1):

“Where a company is being wound up voluntarily its liquidator shall apply to the Court for an order that the liquidation continue under the supervision of the Court unless, within twenty-eight days of the commencement of the liquidation, the directors have signed a declaration of solvency in the prescribed form in accordance with subsection (2).”

Insolvency Practitioners’ Regulations 2018, reg. 6(1): The relevant terms of this provision are set out at para. 26.

	The petitioners sought an order that a winding up be continued subject to the supervision of the court and that the petitioners be...