O. Pelletier, PDP Corporation and PDP Holdings Inc. v Trustee in Bankruptcy of the Estate of R.P.J. Pelletier
| Jurisdiction | Cayman Islands |
| Judge | Moses,Morrison,Beatson, JJ.A. |
| Judgment Date | 23 February 2021 |
| Court | Court of Appeal (Cayman Islands) |
(Moses, Morrison and Beatson, JJ.A.)
C.A.
Bankruptcy and Insolvency — transaction avoidance — setting aside prior transactions — transfers by debtor may be set aside under Bankruptcy Act (1997 Revision), s.107(1) if debtor unable to pay “all his debts” when transfers made — “all his debts” includes debts presently due at time of transfer or liabilities falling due in reasonably near future — not contingent liabilities
Held, ruling as follows:
(1) There was no dispute that the gifts or transfers made by the debtor were gifts or transfers within the meaning of s.107(1), nor that they were not settlements to be excluded under the provision. The debtor became bankrupt within 10 years of the impugned gifts or transfers. The transferees would have a defence if they could prove that at the time of the gifts or transfers the debtor was able to pay all his debts without the aid of the property gifted or transferred. The judge had misconstrued s.107(1). “All his debts” referred to debts presently due at the time of an impugned transfer or liabilities falling due in the reasonably near future, it did not include contingent liabilities. Section 108 did not support the judge's interpretation of s.107. The reference to debts and liabilities in s.108 was of relevance only to the standing of a creditor who wished to intervene in the existing administration of a deceased bankrupt's estate. “All” a debtor's debts in s.107 merely required the court to consider the totality and did not assist in construing what was meant by “debts.” The judge's conclusion that the solvency test under the proviso to s.107(1) included contingent claims owed much to what he considered to be the purpose of the provision. He considered that if cash-flow insolvency at the time of transfer was the test, then s.107 would not provide effective relief. However, that problem was at least in part alleviated by the fact that if a transferor deliberately ignored a contingent liability a transfer would be liable to be avoided as a fraudulent transaction under the Statute of Elizabeth or s.111(1) of the Bankruptcy Act. If the test of solvency was intended to refer to the ability to pay debts presently due and contingent liabilities, there would have been no difficulty in so providing. Therefore, apart from liabilities which were bound to fall due in the reasonably near future, the contingent liabilities to which the debtor was undoubtedly subject were not to be taken into account in determining his solvency at the time of the impugned transfers (paras. 29–30; para. 45; para. 63; para. 113–114; paras. 120–122; paras. 129–136).
(2) The trustee wished to contend that even applying a cash-flow test, as the burden was on the transferees to establish the debtor's solvency, they must do so and it could not be assumed that they would succeed. It would be wrong to shut the trustee out at this stage. Therefore, the appeal would be allowed but the court would not make an order which barred the trustee from resisting any attempts by the defendants to establish the debtor's solvency applying the cash-flow test (paras. 138–140).
(3) The appeal against the judge's refusal to set aside service out on the first appellant would be dismissed. There was a serious and live issue to be tried against the first appellant in respect of the transfers made to her. The judge was entitled to decide that the claim against the first appellant had a sufficient connection with the Cayman Islands. The judge was entitled to take into account that the transactions with the first appellant were part of a series of transactions and the other transferees were all entities within the jurisdiction controlled by the debtor (until the bankruptcy order was made) and the first appellant. The transfers to the first appellant had to be considered in the context of the wider picture and scheme. The judge had evidence before him entitling him to conclude that there was a link between the transfers to the first appellant and the other transactions. The judge was also entitled to take into account the fact that the debtor's bankruptcy proceedings were in this jurisdiction and had been recognized by the Canadian courts as a foreign main proceeding. The judge's decision was well within the discretion conferred on him and one with which it would be wrong to interfere. Given the overall picture and the transfers to Cayman banks and then to Cayman entities as trustees, it was also difficult to regard the decision to institute bankruptcy proceedings in the Cayman Islands as forum shopping (paras. 141–154).
(1) Al Sabah, In re, 2003 CILR 413; on appeal, 2004–05 CILR 373, considered.
(2) Altimo Holdings & Inv. Ltd. v. Kyrgyz Mobil Tel Ltd., [2011] UKPC 7; [2012] 1 W.L.R. 1804; [2011] 4 All E.R. 1027; [2011] 1 CLC 205, referred to.
(3) BNY Corp. Trustee Servs. Ltd. v. Eurosail-UK 2007–3BL plc, [2013] UKSC 28; [2013] 1 W.L.R. 1408; [2013] 3 All E.R. 271; [2013] BCC 397; [2013] 1 BCLC 613, considered.
(4) Butterworth, Re, ex p. Russell(1882), 19 Ch. D. 588; 51 L.J. Ch. 521, referred to.
(5) Crossley v. Elworthy(1871), L.R. 12 Eq. 158, considered.
(6) Debtor, In re a, Ex p. the Debtor v. Allen, [1967] 1 Ch. 590, considered.
(7) Densham, Re, [1975] 1 W.L.R. 1519; [1975] 3 All E.R. 726, considered.
(8) European Life Assur. Socy., In re(1869–70), L.R. 9 Eq. 122; 39 L.J. Ch. 324, considered.
(9) Flint v. Barnard(1888), 22 Q.B.D. 90, considered.
(10) Hardy v. Fothergill, [1886–90] All E.R. Rep. 597; (1888), 13 App. Cas. 351; 58 L.J.Q.B. 44; 59 L.T. 273; 4 T.L.R. 603, considered.
(11) Hollington v. F. Hewthorn & Co. Ltd., [1943] K.B. 587; [1943] 2 All E.R. 35, referred to.
(12) McLeod (John), In re(1884), 3 NZLR (SC) 223, considered.
(13) Nortel Companies, Re, [2013] UKSC 52; [2014] 1 A.C. 209; [2013] 3 W.L.R. 504; [2013] 4 All E.R. 887; [2013] 2 BCLC 135; [2013] BCC 624, considered.
(14) Official Receiver v. Saebar, [1972] ALR 612 (Qld); (1971), 18 FLR 317, considered.
(15) Paramount Airways Ltd., In re, [1993] Ch. 223; [1992] 3 All E.R. 1, considered.
(16) Ridler v. Ridler(1882), 22 Ch. D. 74; 52 L.J. Ch. 343, considered.
(17) Strategic Turnaround Master Partnership Ltd., In re, 2008 CILR 447, considered.
(18) Sutherland, In re, [1963] A.C. 235, considered.
(19) T & N Ltd., Re, [2005] EWHC 2870 (Ch); [2006] 1 W.L.R. 1728; [2006] 3 All E.R. 697; [2006] 2 BCLC 374; [2006] B.P.I.R. 532, referred to.
(20) Weavering Macro Fixed Income Fund Ltd., In re, 2016 (2) CILR 514, considered.
(21) Wise, In re, ex p. Mercer, (1886), 17 Q.B.D. 290; 55 L.J.Q.B. 558; 54 L.T. 720; 2 T.L.R. 550; [1886–90] All E.R. Rep. Ext. 1723, considered.
The trustee in bankruptcy sought declarations that transfers of property from the debtor to the appellants were void under s.107 of the Bankruptcy Act (1997 Revision).
Richard Pelletier (the debtor) had founded the Pacer Group of companies. In 2014, the shareholders of the Pacer Group, including Richard Pelletier Holdings Inc. (RPHI) (of which the debtor was the 100% owner) agreed to sell to MasTec Inc. all of the issued share capital in the Pacer Group pursuant to a share purchase agreement. MasTec paid Can$59m. to RPHI out of the total contract price of Can$135m. The SPA contained a provision for a price adjustment after the sale. Any price adjustment liability had to be met by the sellers of the Pacer Group, including the debtor himself. There were also joint and several warranties and representations.
Within two years of the execution of the SPA and receipt of Can$59m., the debtor disposed of substantially all of his assets by way of transfers to the first appellant (his wife) and the second and third appellants.
In 2019, the parties to the SPA being unable to agree the purchase price adjustment, an arbitral tribunal in Canada made a principal award of Can$60m. The sellers were severally liable and contributed according to a percentage equivalent to their shareholding. The total liability of the debtor and RPHI was Can$45m. MasTec pursued bankruptcy proceedings against the debtor in the Cayman Islands. In May 2019, the Grand Court recognized the Canadian arbitration award. MasTec caused Pacer to petition for the debtor's bankruptcy and an absolute bankruptcy order was made in March 2020 (an appeal against that order was pending).
The trustee in bankruptcy sought declarations that the transfers by the debtor to the appellants in 2014 and 2015 were void under s.107(1) of the Bankruptcy Act (1997 Revision), which provided: “107. (1) Any settlement of property not being a settlement made before and in consideration of marriage, or made in favour of a purchaser or incumbrancer in good faith and for valuable consideration, or a settlement made on or for the wife or children of the settlor of property which has accrued to the settlor after marriage, in right of his wife, shall, if a provisional order in bankruptcy, or an absolute order in bankruptcy in cases where no provisional order is made, takes effect against the settlor within two years after the date of the settlement, be void against the Trustee and shall, if the settlor becomes bankrupt at any subsequent time within ten years after the date of the settlement be void against the Trustee unless the parties claiming under the settlement can prove that the settlor was, at the time of making the settlement, able to pay all his debts without the aid of the property comprised in the settlement, and that the interest of the settlor in such property has passed to the trustee of such settlement on the execution thereof.”
The Grand Court (Kawaley, J.) granted summary judgment in favour of the trustee, with the effect that the transfers by the debtor to the fifth defendant were declared void. The judge also dismissed the first appellant's application to set aside service of the writ on her out of the jurisdiction and the...
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