Picard v Primeo Fund

JurisdictionCayman Islands
CourtGrand Court
Judge(Jones, J.)
Judgment Date14 January 2013
Date14 January 2013
Grand Court, Financial Services Division

(Jones, J.)

PICARD and BERNARD L. MADOFF INVESTMENT SECURITIES LLC (in liquidation)
and
PRIMEO FUND (in liquidation)

R. Dicker, Q.C., S. Robins and J. Harris for the plaintiff;

M. Crystal, Q.C., P. Hayden and N. Fox for the defendant.

Cases cited:

(1) African Farms Ltd., In re, [1906] T.S. 373, applied.

(2) Al Sabah v. Grupo Torras S.A., [2005] 2 A.C. 333; [2005] 2 W.L.R. 904; [2005] 1 All E.R. 871; [2005] BPIR 544, considered.

(3) Anglo Co-op. Socy., In re, ex p. PellyELR(1882), 21 Ch. D. 492, referred to.

(4) Cambridge Gas Transp. Corp. v. Navigator Holdings PLC (Creditors” Cttee.), 2005–06 MLR 297; [2007] 1 A.C. 508; [2006] 3 W.L.R. 689; [2006] 3 All E.R. 829; [2007] 2 BCLC 141; [2006] BCC 962; [2006] UKPC 26, followed.

(5) Cherry v. BoultbeeENR(1839), 4 My. & Cr. 442; 2 Keen 319; 41 E.R. 171; 9 L.J. Ch. 118, distinguished.

(6) Dyoll Ins. Co. Ltd., In re, 2004–05 CILR 412, referred to.

(7) Founding Partners Global Fund Ltd., Re, [2011] Bda LR 22, applied.

(8) HIH Casualty & Gen. Ins. Ltd., In re, McGrath v. Riddell, [2008] 1 W.L.R. 852; [2008] 3 All E.R. 869; [2012] 2 BCLC 655; [2008] BCC 349; [2008] UKHL 21, followed.

(9) HSH Cayman, In re, 2010 (1) CILR 375, considered.

(10) Hilton v. GuyotUNK(1895), 16 S. Ct. 139; 159 U.S. 113, considered.

(11) Kaupthing Singer & Friedlander Ltd., In re (No. 2), [2012] 1 A.C. 804; [2011] 3 W.L.R. 939; [2012] 1 All E.R. 883; [2011] Bus. L.R. 1644; [2012] 1 BCLC 227; [2012] BCC 1; [2011] BPIR 1706; [2011] UKSC 48, followed.

(12) Lister v. Hooson, [1908] 1 K.B. 174, applied.

(13) Metzeler, Re(1987), 78 B.R. 674, distinguished.

(14) Oasis Merchandising Ltd., In re, [1998] Ch. 170; [1997] 2 W.L.R. 764; [1997] 1 All E.R. 1009; [1997] 1 BCLC 689; [1997] BCC 282, referred to.

(15) Overend, Gurney & Co., In re, Grissell”s caseELR(1866), L.R. 1 Ch. App. 528, referred to.

(16) Pepper (Inspector of Taxes) v. Hart, [1993] A.C. 593; [1992] 3 W.L.R. 1032; [1993] 1 All E.R. 42; [1992] STC 898, referred to.

(17) Phoenix Kapitaldienst GmbH, In re, Schmitt v. Deichmann, [2013] Ch. 61; [2012] 3 W.L.R. 681; [2012] 2 All E.R. 1217; [2012] BCC 561; [2012] BPIR 392, followed.

(18) Reserve Intl. Liquidity Fund Ltd. (In Liquidation), In re, Grand Court, April 1st, 2010, unreported, applied.

(19) Rubin v. Eurofinance SA, [2013] 1 A.C. 236; [2012] 3 W.L.R. 1019; [2013] 1 All E.R. 521; [2012] 2 BCLC 682; [2013] BCC 1; [2012] UKSC 46, distinguished.

(20) US v. Whiting Pools Inc.UNK(1983), 103 S. Ct. 2309; 462 U.S. 198, referred to.

Legislation construed:

Companies Law (2012 Revision), s.91:

‘The Court has jurisdiction to make winding up orders in respect of . . .

(d) a foreign company which-

(i) has property located in the Islands;

(ii) is carrying on business in the Islands;

(iii) is the general partner of a limited partnership; or

(iv) is registered under Part IX’

s.140: The relevant terms of this section are set out at para. 43.

s.145: ‘(1) Every conveyance or transfer of property, or charge thereon, and every payment obligation and judicial proceeding, made, incurred, taken or suffered by any company in favour of any creditor at a time when the company is unable to pay its debts within the meaning of section 93 with a view to giving such creditor a preference over the other creditors shall be invalid if made, incurred, taken or suffered within six months immediately preceding the commencement of a liquidation.’

s.240: The relevant terms of this section are set out at para. 12.

s.241: The relevant terms of this section are set out at para. 12.

s.242: The relevant terms of this section are set out at para. 12.

Bankruptcy and Insolvency-assistance to foreign court-domestic insolvency proceedings-court not to entertain transaction avoidance claim under Companies Law (2012 Revision), s.241(1)(e)-s.241(1) exhaustive list of ancillary powers and purposes for use-power to order turnover of property of estate following transaction avoidance not included in s.241(1)(e)

Bankruptcy and Insolvency-assistance to foreign court-domestic insolvency proceedings-may provide ancillary assistance under Companies Law (2012 Revision), s.241 if (a) foreign proceedings capable of recognition under common law principles, and (b) substantive law consistent with Cayman policy-objectives include just treatment of creditors, prevention of preferential or fraudulent dispositions and recognition of security interests

Companies-foreign companies-jurisdiction-court has jurisdiction under principle of modified universalism to provide active assistance in recognized foreign bankruptcy even though not itself entitled to order liquidation or company or able to enforce foreign in personam avoidance claim-assistance includes allowing foreign trustee to bring domestic insolvency proceedings, e.g. preference claim under Companies Law (2012 Revision), s.145-local insolvency proceedings are ‘traditional assistance’ not requiring sufficient proximity between foreign and domestic law

The plaintiffs brought an action to avoid certain transactions performed before the plaintiff company had entered into liquidation.

The defendant derived the majority of its investment income from the second plaintiff (B), a US company, and went into voluntary liquidation after it emerged that B was operating as a large Ponzi scheme. B went into liquidation in New York, and the first plaintiff (‘the plaintiff’) was appointed as its trustee in bankruptcy. The plaintiff, who had been recognized in the Cayman Islands as the trustee in the foreign bankruptcy (in proceedings reported at 2010 (1) CILR 231), brought the present

proceedings to set aside transactions by which money from B was paid to the defendant, on the basis that, as the payments were made to prevent the discovery of Ponzi scheme, they could be set aside as made by B to defraud creditors.

The plaintiff asserted that the Companies Law (2012 Revision), s.241 entitled him to bring avoidance claims governed by both US federal law (which allowed the avoidance of any transfer made up to two years before filing for insolvency) and New York state law (which allowed the avoidance of any transfer made up to six years before filing for insolvency). Further, he maintained that he was entitled to bring claims governed by Cayman law, under the Companies Law (2012 Revision), s.145, to set aside all transactions made within the six months prior to the liquidation, notwithstanding that B was a US company. The defendant applied for the claims to be struck out on the ground that they disclosed no reasonable cause of action.

The scope of assistance available by statute

The plaintiff submitted that the Companies Law (2012 Revision), s.241 set out a list of purposes for which the court could use the general power to grant an ancillary order to assist a foreign representative. One purpose (s.241(1)(e)) was stated to be that of turning over property belonging to the debtor and the plaintiff submitted that setting aside the antecedent transactions would be in line with this purpose.

The defendant submitted in reply that s.241 gave an exclusive list of powers enjoyed by the court when granting an ancillary order, and the purposes for which they could be used. As this did not include the power to avoid antecedent transactions, the plaintiff could not assert a claim under the statute.

Whether an order under s.241 would be governed by foreign or domestic law

The plaintiff submitted that, as s.241 was modelled on the US Bankruptcy Code, the court should follow the US interpretation of s.304 of the Code which required that a ‘turnover action’ for transaction avoidance be governed by foreign law (i.e. in this case US law, as Cayman law was the domestic law). Further, foreign law should be applied because (i) the Cayman order was ‘ancillary’ to the foreign proceedings and so the focus should be on foreign law; (ii) it made no sense to apply domestic insolvency law to a foreign distribution regime; (iii) as the preferential or fraudulent dispositions occurred prior to any domestic proceedings, they should be governed entirely by foreign law; (iv) as there was no local liquidation, references to the ‘debtor”s estate,’ which must be under foreign jurisdiction, implied a focus on foreign law; (v) comity demanded the application of foreign law; and (vi) s.241(2)(b) referred to the domestic law”s definition of a ‘relevant person’ (who had a duty to co-operate with the official liquidator) and so, as there was no such reference elsewhere in s.241, the rest of the section should be construed as concerning foreign law.

The defendant submitted that, as s.241 did not state that an order made was to be under foreign law, the court could only apply domestic law.

The scope of assistance available at common law

The plaintiff submitted that, under the common law principle of universalism, the court should grant assistance to the foreign bankruptcy proceedings in the form of an order for transaction avoidance under the Companies Law, s.145. Universalism required the court to recognize and assist the foreign insolvency proceedings, even though it might not have jurisdiction to initiate them. Additionally, it would be inconsistent with the case law, and wrong in principle, to require a sufficient connection between the foreign company and the jurisdiction before assistance under local insolvency law could be granted.

The defendant submitted in reply that common law distinguished between ‘traditional assistance’ (where a foreign representative was allowed a cause of action under general legal powers, e.g. the staying of local proceedings), which relied on the principle of recognition alone, and ‘non-traditional assistance’ (where a foreign representative was allowed a cause of action under local insolvency law, e.g. the avoidance of antecedent transaction), which required both recognition and a...

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4 cases
  • China Agrotech Holdings Ltd
    • Cayman Islands
    • Grand Court
    • 19 September 2017
    ...117 Sol. Jo. 567, referred to. (17) Opti-Medix Ltd., Re, [2016] 4 SLR 312; [2016] SGHC 108, considered. (18) Picard v. Primeo Fund, 2013 (1) CILR 164, considered. (19) Queensland Mercantile & Agency Co. Ltd. v. Australasian Inv. Co. Ltd. (1888), 15 R. 935, considered. (20) Rome v. Punjab Na......
  • Picard v Primeo Fund
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    ...Law (2012 Revision), ss. 241–242 entitled him to bring avoidance claims governed by US law. The Grand Court (in proceedings reported at 2013 (1) CILR 164) held, inter alia, that the Companies Law (2012 Revision), s.241(1)(a)–(e) contained an exhaustive list of the powers available to the co......
  • Re a Request for International Judicial Assistance in Respect of Winding up Proceedings Pending in the High Court of the Hong Kong Special Administrative Region
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    ...This was the view of Jones J in Picard and Bernard L Madoff Investment Securities LLC (in liquidation) v Primeo Fund (in liquidation) [2013] (1) CILR 164 per Jones J at paragraph 13 where the learned judge said as follows: “Part XVII [of the Companies Law] supplements and partially codifies......
  • Re Caledonian Bank Ltd
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    ...in The Bahamas. (See also Picard and Bernard L. Madoff Investment Securities LLC (In Liquidation) v. Primeo Fund (in liquidation) [2013] 1 C.I.L.R. 164, a Cayman case based upon a similar legislative framework.) 12 On the evidence therefore, I found that the Court clearly had the jurisdicti......
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    • Mondaq Cayman Islands
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