Re Caledonian Bank Ltd

• Jurisdiction: Cayman Islands
• Judge: (Smellie, C.J.)
• Judgment Date: 12 February 2015
• Court: Grand Court (Cayman Islands)
• Date: 12 February 2015

Grand Court, Financial Services Division

(Smellie, C.J.)

IN THE MATTER OF CALEDONIAN BANK LIMITED (IN VOLUNTARY LIQUIDATION)

C.D. McKie, Q.C., L. Stockdale and M. Crawford for the joint voluntary liquidators;

A.A. Mon Désir, Deputy General Counsel, for the Cayman Islands Monetary Authority;

Mrs. C. Wilkins and R. Bell for the controllers;

S. Dawson for the bank”s depositors.

Cases cited:

(1) Finsbury Bank & Trust Co. v. Att. Gen., 1996 CILR 349, followed.

(2) Governor v. Federated Intl. Bank Ltd., Grand Ct., Cause No. 697 of 1998, November 5th, 1998, unreported, referred to.

Legislation construed:

Bankruptcy Law (1997 Revision), s.18:

‘At any time after a petition has been filed the Court may order that the Trustee become a receiver or manager of the property or business of the debtor, or any part thereof, and the Trustee shall thereon enter upon and act in the performance of his office in relation to such property or business at such time, and in such manner and to such extent, as the Court may, from time to time direct, and if directed by

the Court, and so far as the nature of the case will admit, do anything which may be done by a Trustee after an absolute order for bankruptcy under this Law, and shall, in relation to and for the purpose of acquiring or retaining possession of the property of the debtor, and in addition to any powers given to him by this Law, be in the same position in all respects as if he were a receiver appointed by the Grand Court, and the Court may, on his application, enforce such acquisition and retention accordingly.’

Banks and Trust Companies Law (2013 Revision), s.18: The relevant terms of this section are set out at para. 8.

Banking-control of banks-appointment of controller by CIMA-appointment of controllers by CIMA under Banks and Trust Companies Law (2013 Revision), s.18 vests immediate control of bank”s affairs in them, but have only limited powers (e.g. cannot recover assets unless vested with greater powers by court under Bankruptcy Law (1997 Revision), s.18)-court may grant powers without formal application if requested in argument by counsel for controllers and CIMA

The joint voluntary liquidators of a bank sought an order confirming their appointment by the bank”s sole shareholder, in place of controllers appointed by the Cayman Islands Monetary Authority.

Following allegations of fraudulent trading made by the US Securities Exchange Commission, an order was made by a US court requiring the bank to hold US$76m. of its assets within the United States. Given that the bank had net equity of only US$25m., enforcement of the order would render it insolvent. When depositors became aware of the allegations and the order, they sought to withdraw their money from the bank, with withdrawal requests amounting to US$68m. In those circumstances, the bank was voluntarily liquidated, and controllers were appointed by the Cayman Islands Monetary Authority (‘CIMA’) to manage its affairs. Subsequently, and with notice of the appointment of the controllers, the bank”s sole shareholder purported to appoint joint voluntary liquidators.

In the present proceedings, the joint voluntary liquidators sought an order from the Grand Court confirming the validity of their appointment and the continuation of the liquidation under the supervision of the court, submitting that the appointment of the controllers under the Banks and

Trust Companies Law (2013 Revision), s.18 did not confer on them powers to manage the bank”s affairs until such powers were confirmed by the court under the Bankruptcy Law (1997 Revision), s.18. The controllers submitted in reply that a literal and purposive interpretation of the Banks and Trust Companies Law indicated that their powers were effective immediately upon appointment. In the event that this was not so, CIMA sought the appointment of the controllers as official liquidators in place of the joint voluntary liquidators.

Held, dismissing the application:

(1) The appointment of the controllers by CIMA vested in them immediate control of the bank”s affairs, and the joint voluntary liquidators were therefore excluded from effective control, retaining only the residual powers not transferred to the controllers by the Banks and Trust Companies Law (2013 Revision), s.18. The controllers did not, however, have unrestricted...