Re Bcci

• Jurisdiction: Cayman Islands
• Judge: (Smellie, C.J.)
• Judgment Date: 19 July 2007
• Court: Grand Court (Cayman Islands)
• Date: 19 July 2007

Grand Court

(Smellie, C.J.)

IN THE MATTER OF BANK OF CREDIT AND COMMERCE INTERNATIONAL (OVERSEAS) LIMITED (in liquidation)

N.R.L. Clifford, Q.C. and Ms. C. Glidden for the joint official liquidators;

R.L. Nelson for the creditors” committee.

Cases cited:

(1) Att. Gen. v. Cleaver & Co., 2006 CILR 222; [2006] 1 W.L.R. 2245; [2006] UKPC 28, followed.

(2) Liberty Capital Ltd., In re, 2002 CILR 606, followed.

Practice Direction cited:

Practice Direction No. 1/2006, Liquidators” Remuneration.

Companies-liquidators-remuneration-increase of fees-maximum fees rates to be based on actual, not projected, rates of inflation-no increase for alleged rise in liquidators” operational costs unsupported by specific evidence-not valid to compare fees with higher rates for audit work, since liquidators have benefit of immunity from suit in relation to liquidation

The joint official liquidators of a company applied for the approval of a new scale of fees for their work in connection with the liquidation of the company.

The liquidation of BCCI had been running for over 16 years and involved allegations of complex world-wide fraud. Although initial estimates had been that only 15–17c. in the dollar would be recovered, the liquidators had achieved a recovery rate of 81%. They had previously been awarded a 25% increase in their rates to cover the two-year period beginning in January 2005, while inflation had fallen in the same period and the downward trend was expected to continue. The liquidators applied to the court to adopt formally the principle that they should be entitled to biennial increases and to approve a further 10% increase in their maximum hourly rates for the two-year period from January 2007. They submitted that (a) the increase reflected rises in both the consumer price index and the costs of doing business, such as increased business licensing and work permit fees, professional indemnity insurance and the particular difficulty in recruiting professional staff in the finance industry; (b) it was justified by the liquidators” exceptional recovery rate of 81%, which far exceeded expectations and had resulted in large sums being returned to the estate; (c) the fees reflected the complexity of a case involving world-wide fraud and requiring the assessment of claims from many different jurisdictions; and (d) the proposed fees compared favourably with the rates charged for audit work, which were typically 15–30% higher.

The creditors” committee submitted in reply that (a) there was no justification for a 10% increase since the latest rise in the consumer price index was only 1.7% and the other alleged cost increases had not been quantified; (b) the present rates were not unreasonable and had enabled the liquidators to earn large sums, whereas the value to the estate of the

moneys recovered had been considerably reduced by inflation; (c) the liquidators” task was now considerably less complex than it had been in the earlier stages; and (d) the rates charged were already at the top end of those generally charged for such work, and the comparison with audit work was not appropriate.

Held, dismissing the application:

The present maximum hourly rates would remain in effect until January 2009, when the liquidators could apply again for a fair and reasonable increase to take account of any actual rise in inflation, and it would be incorrect to adopt a practice of basing increases on prospective or projected inflation rates. The liquidators were already protected against inflation by the current scheme, whereby the court would exercise its discretion to set fee rates after consideration of the information supplied to it by the liquidators and which had to be sufficiently detailed to enable it to determine how their time had been spent. Although the effectiveness and professionalism of the liquidators was not in question and they were not expected to share the estate”s losses due to inflation and the passage of time, the complexity of their task had reduced considerably since the initial stages of the liquidation. Furthermore, the rates had already been increased by 25% for the two-year period ending January 2007 and the consumer price index provided no basis for a further increase of 10%, nor had the liquidators identified any specific operational costs that would justify such a rise. In addition, the liquidators, as officers of the court, were protected against claims arising from their work in connection with the liquidation and it was not therefore useful to compare the rates with those charged for audit work, which necessarily involved greater risk (para. 8; paras. 20–23; paras. 25–27).

1 SMELLIE, C.J.: This is an application by the joint official liquidators (‘JOLs’) for the approval of a new scale of maximum remuneration for themselves and their staff, covering the period January 16th, 2007 to January 15th, 2009. As the basis for the application, the JOLs wish to have recognized and formally adopted by the court the principle that they should be entitled to increases, at least biennially, to reflect the rise in inflation and the ever-increasing costs of doing business.

2 In the affidavit of Mr. Michael Pilling filed in support of the application, reference is made to the consumer price index (‘CPI’) published by the

Cayman Islands Office of Economics and Statistics. It identifies the general inflationary factors which contribute to the perennial increase in costs of living. The affidavit also cites the recent increases in trade and business licensing fees, in work permit fees and a general increase in operating and administrative costs. These include not only those experienced by all sectors of the economy, such as rising...