Re BCCI (Overseas) Ltd

• Jurisdiction: Cayman Islands
• Judge: (Smellie, C.J.)
• Judgment Date: 25 May 2009
• Court: Grand Court (Cayman Islands)
• Date: 25 May 2009

Grand Court

(Smellie, C.J.)

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

N.R. Clifford, Q.C. and R. McMillan for the joint official liquidators;

Ms. S.A. Brooks for the committee of creditors.

Cases cited:

(1) Humber Ironworks & Shipbuilding Co., In re, Warrant Fin. Co.”s CaseELR(1869), L.R. 4 Ch. App. 643; 38 L.J. Ch. 712, considered.

(2) Lines Bros., In re, [1983] Ch. 1; [1982] 2 All E.R. 183, dicta of Brightman, L.J. followed.

(3) Miliangos v. George Frank (Textiles) Ltd., [1976] A.C. 443; [1975] 3 All E.R. 801, referred to.

(4) Wight v. Eckhardt Marine G.m.b.H., 2003 CILR 211, referred to.

Legislation construed:

Companies Winding Up Rules 2008, O.16, r.13: The relevant terms of this rule are set out at para. 34.

Companies-compulsory winding up-winding up of international group-if obligations to local creditors not discharged in local branch liquidations, continue to have provable debt in main liquidation-rate of foreign exchange at date of liquidation used to convert foreign currency payments due into currency of liquidation-ensures equal treatment of all creditors and prevents administrative difficulties

The official liquidators of a banking group in worldwide liquidation applied to the court to determine the rate of exchange at which dividends should be paid to remaining creditors with debts in a foreign currency.

At the outset of the liquidation, the liquidators recognized that the companies had conducted their affairs as a single entity and so a pooling agreement was arranged, which provided for the pooling of the assets of the companies and for the admitted creditors to receive the same rate of dividend out of the fund. However, many branches of the companies became the subject of separate local liquidations in which national authorities protected the interests of local creditors by ‘ring-fencing’ branch assets. Despite this, many of the debts owed to local creditors were not satisfied through the ‘ring-fenced’ assets and these creditors therefore sought ‘top-up’ payments from the head office liquidations.

The joint official liquidators made an application to the Grand Court to determine at what rate of exchange outstanding dividends should be calculated and paid in meeting the claims of those creditors whose debts had not been discharged in their local branch liquidations. At the start of the global liquidation, the Grand Court had ordered that all debts which were proved had to be converted, where necessary, and paid in US dollars at a fixed rate of exchange as at the date of the winding-up order.

The liquidators submitted that the principle of ensuring equality between the claims of the creditors required that the fixed exchange rate, as determined at the date of the liquidation, should be used for the purpose of computing any remaining liability to these creditors.

Held, ordering the adoption of the fixed rate of conversion:

(1) The joint official liquidators should adopt a single fixed rate of exchange-that prevailing at the date that the companies went into

liquidation-in converting all dividends paid from a branch liquidation in local currency into US dollars (the agreed currency of the international liquidation) and in calculating the outstanding ‘top-up’ payments owed to these creditors. This was necessary to ensure consistency with the fundamental principle of the equal treatment of creditors that dictated the pari passu basis for the payment of proved debts of the company. Any other approach, such as using the conversion rate applicable on the day of distribution, would create significant differences in treatment as between creditors, on the basis of arbitrary changes in their national exchange rates as against the US dollar and would create significant operational problems for the administration of the liquidations. This was reinforced by O.16, r.13 of the Companies Winding Up Rules 2008, which provided that a liquidator must use the applicable exchange rate when computing liability to a creditor for a debt other than in the currency of liquidation, and that changes in the exchange rates between the date of the winding-up order and the date on which the dividend was paid should not be taken into account (para. 18; paras. 34–37).

(2) A local branch of the companies would not be recognized as a separate legal entity from the head office, in accordance with the principle of universality, and so where the obligations owed to local creditors had not been entirely discharged from the ‘ring-fenced’ assets those creditors would continue to have a provable debt in the liquidation of the main companies (para. 5).

1 SMELLIE, C.J.: The worldwide liquidation of the BCCI companies is now in its final stages. The bleak prospect of recoveries at the date of liquidation has since been transformed into the reality of actual dividends paid to creditors in the global liquidation of 86.5% to date. A major reason for this level of success has been the close co-operation between the global liquidators of the principal BCCI companies. The question now arising for resolution by this court is this: At what rate of exchange should

dividends be paid in meeting the hotchpot claims of the so-called ‘rump creditors’ of the BCCI Overseas liquidation?

2 A brief overview of the history, as taken from the latest report of the joint official liquidators to this court, will set the relevant context. At the outset of the global liquidation, the global liquidators recognized that, in a number of material respects, the BCCI Group had conducted its affairs as a single entity, without clearly identifying which company or entity within the group was concerned with or responsible for any particular transaction. It became the decided view of the global liquidators and their legal advisers that the intermingling of the affairs of BCCI S.A. and BCCI Overseas was such that it would have been impracticable without considerable delay and enormous expense (and might well have been impossible) to determine, as between those two major companies, their respective assets and liabilities. In addition, many of the different companies in the BCCI Group and the branches of BCCI S.A. and BCCI Overseas became the subject of a multiplicity of separate ‘ring-fencing’ local liquidations or similar proceedings in the jurisdictions in which they were incorporated or located.

3 In order to avoid the expense, difficulty and delay which would otherwise have arisen, a pooling agreement was negotiated...