Re GFN Corporation

• Jurisdiction: Cayman Islands
• Judge: (Chadwick, P., Mottley and Vos, JJ.A.)
• Judgment Date: 26 November 2009
• Court: Court of Appeal (Cayman Islands)
• Date: 26 November 2009

Court of Appeal

(Chadwick, P., Mottley and Vos, JJ.A.)

IN THE MATTER OF GFN CORPORATION LIMITED

T. Lowe, Q.C. and Ms. C.J. Bridges for the appellant;

M. Crystal, Q.C. and M.J. Crawford for the respondent.

Cases cited:

(1) Alipour v. AryWLR, [1997] 1 W.L.R. 534; sub nom.Re U.O.C. Corp., Alipour v. Ary, [1997] BCC 377, considered.

(2) Bateman TV Ltd. v. Coleridge Fin. Co. Ltd., [1971] NZLR 929, referred to.

(3) Bayoil S.A., In re, [1999] 1 W.L.R. 147; [1999] 1 All E.R. 374; [1998] BCC 988; [1998] T.L.R. 606; [1999] 1 BCLC 62, considered.

(4) Brinds Ltd. v. Offshore Oil N.L.UNK(1986), 2 BCC 98, 916, considered.

(5) Capital Landfill (Restoration) Ltd. v. William Stockler & Co., English C.A., September 5th, 1991, unreported, considered.

(6) Claybridge Shipping Co. S.A., Re, [1997] 1 BCLC 572; [1981] Com. L.R. 107n, considered.

(7) Company (No. 006685 of 1996), In re a, [1997] BCC 830; [1997] 1 BCLC 639, considered.

(8) Deloitte & Touche A.G. v. Johnson, 1999 CILR 297; [1999] 1 W.L.R. 1605; [1999] BCC 992; [2000] 1 BCLC 485, dicta of Lord Millett applied.

(9) Hammonds v. Pro-Fit USA Ltd., [2008] 2 BCLC 159; [2007] EWHC 1998 (Ch), dicta of Warren J. not followed.

(10) Mann v. Goldstein, [1968] 1 W.L.R. 1091; [1968] 2 All E.R. 769, considered.

(11) New Travellers” Chambers Ltd. v. CheeseUNK(1894), 70 L.T. 271, considered.

(12) Niger Merchants Co. v. CapperELR(1887), 18 Ch. D. 557n; 25 W.R. 365, considered.

(13) Parmalat Capital Fin. Ltd. v. Food Holdings Ltd., 2008 CILR 202; [2008] BCC 371; [2009] 1 BCLC 274; [2008] BPIR 641; [2008] UKPC 23, considered.

(14) Q.B.S. Pty. Ltd., Re, [1967] Qd. R. 218, considered.

(15) Rhydydefed Colliery Co., Glamorganshire Ltd., Ex p.ENR(1858), 3 De G. & J. 80; 44 E.R. 1199, considered.

(16) Russian Bank for Foreign Trade, In re, [1933] Ch. 745; (1933), 102 L.J. Ch. 309; [1933] B. & C.R. 157, considered.

(17) Russian & English Bank, In re, [1932] 1 Ch. 663; (1932), 101 L.J. Ch. 226, considered.

(18) Steel Wing Co. Ltd., In re, [1921] 1 Ch. 349; [1920] All E.R. Rep. 292; (1920), 90 L.J. Ch. 116; 124 L.T. 664, considered.

(19) Stonegate Secs. Ltd. v. Gregory, [1980] Ch. 576; [1980] 1 All E.R. 241, considered.

(20) Tovarishestvo Manufactur Liudvig-Rabenek, In re, [1944] Ch. 404; [1944] 2 All E.R. 556; (1944), 113 L.J. Ch. 250; 171 L.T. 66, considered.

Legislation construed:

Companies Law (2007 Revision), s.96: The relevant terms of this section are set out at para. 5.

Companies-compulsory winding up-creditors-dispute over existence of debt-court may hear petition based on disputed debt in appropriate circumstances (e.g. to avoid injustice to petitioner) but at hearing must determine on balance of probabilities whether petitioner in fact creditor before making any order-to avoid damage to company, court not to order winding up unless satisfied petitioner has legitimate interest by satisfying statutory requirement as creditor

The respondent petitioner, an insolvent Cayman bank, sought the winding up of the appellant company in the Grand Court, on the grounds that it was unable to pay its debts and that it would be just and equitable to do so.

The appellant was allegedly indebted to the petitioner in respect of an overdraft on an account it held with the petitioner. The petitioner had issued statutory demands for the money which had not been met and also sought a thorough investigation of the affairs of the company by court-appointed liquidators. The appellant disputed the indebtedness, claiming that the debts were owed by another company within its group, and also as to whether the petitioner had locus standi to seek a winding-up order.

The Grand Court (Smellie, C.J.) ruled (in proceedings reported at 2009 CILR 135) that even though there was a rule of practice-which provided that if a petition was founded on a disputed debt then the court would not ordinarily allow the petition to proceed-it could be departed from in appropriate circumstances. The court accepted that these exceptional circumstances existed here-with the debt being belatedly ascribed to another company-and it therefore had jurisdiction to hear the petition, notwithstanding the dispute, which would be resolved in the hearing of the petition itself, rather than in the context of a different action. However, the court proceeded without resolving the dispute over the existence of the debt, having been persuaded by counsel it was not necessary if it heard the petition on the just and equitable ground only. The court was satisfied that the circumstances necessitated an investigation into the company”s affairs, and proceeding on the basis that it was enough that the petitioner had established a prima facie case that it was a creditor, wound up the company on the just and equitable ground.

On appeal, the appellant submitted that the Grand Court had been

wrong to hold that the petitioner could establish locus standi to obtain a winding-up order by simply demonstrating a prima facie case that the disputed debts were due, and instead, the petitioner would only be entitled to succeed if it showed that it was a creditor on the balance of probabilities.

The petitioner submitted in reply that this was unnecessary on the basis of the authorities and since on a true construction of the Companies Law (2007 Revision), s.96, a creditor would only need to show a good arguable case that the debts were owed at the presentation of the petition.

Held, dismissing the appeal and affirming the winding-up order:

When hearing a petition based on a disputed debt, it should be determined on the balance of probabilities that the petitioner was in fact a creditor before the court would make a winding-up order-a prima facie case as to the indebtedness would be insufficient. A petitioner with a prima facie disputed debt would be entitled to present a petition for the winding up of a company under s.96 of the Companies Law (2007 Revision) but the court would normally dismiss or stay the proceedings. However, in appropriate circumstances-such as if the court doubted that the debt was bona fide disputed or the petitioner would otherwise be without a remedy-the court would allow the petition to proceed but would not mean that the company would be wound up until the petitioner had proved its debt, and so established that it had sufficient interest to invoke the court”s jurisdiction. To avoid possible damage to companies, the court would not exercise its jurisdiction at the behest of a petitioner without an established legitimate interest in its affairs and who had not satisfied the statutory requirement as a creditor (or a contributory). The Grand Court had been correct to determine that it had the jurisdiction to hear the petition, regardless of the disputed debt, by deeming it appropriate in the circumstances not to apply the rule of practice and to direct that the dispute be resolved in the context of the hearing. However, it erred in subsequently failing to determine that the petitioner was on the balance of probabilities a creditor before making the winding-up order. Notwithstanding this, the court was satisfied on the basis of the evidence before it that the petitioner was a creditor of the appellant in respect of at least a substantial part of the petition debt and therefore since it was a creditor in respect of an undisputed debt it had sufficient standing to petition for the winding-up order. The appeal would be dismissed and the company wound up (paras. 29–31; para. 34; para. 94; paras. 101–105).

1 CHADWICK, P.: This is an appeal from an order for the winding up of the appellant company, GFN Corp. Ltd. (‘the company’), made on January 16th, 2009 by the Chief Justice on the petition of Bancredit Cayman Ltd. (‘the petitioner’).

2 Until September 2003, the petitioner (formerly known as Bancredit & Trust (Cayman) Ltd.) had carried on business as a bank from within the Cayman Islands, under an unrestricted Class B bank and trust licence. The company and the petitioner were members of the same group of companies (‘the GFN group’) and they had common directors. The company was named, in the books of the petitioner, as the account holder in respect of Account No. 71472. The petitioner claims to be a creditor of the company in respect of the balance on that account (after giving credit for the balance on another account in the company”s name).

3 The petition was presented on January 5th, 2007, following service of a statutory demand on August 17th, 2006 for payment of the sum of US$96,153,651.12. It is common ground that that demand was not met. In those circumstances-in reliance on s.95(a) of the Companies Law (2007 Revision)-the petitioner sought an order for winding up, pursuant to s.94(c) of that Law, on the ground that the company was unable to pay its debts.

4 In the alternative, the petitioner sought a winding-up order, pursuant to s.94(d) of the Law, on the just and equitable ground. The petitioner is itself in an insolvent liquidation. It is said that the net indebtedness to the petitioner of companies in the GFN group exceeds US$137m., against which total realizations of the petitioner”s assets as at the date of the petition have been no more than US$22m. In those circumstances, it is said that there is a need for investigation of the company”s affairs-and those of the GFN group-by officers of the court. The joint official liquidators of the petitioner have gained extensive knowledge of the group”s affairs in that capacity and, it is argued they would be appropriate persons to carry out that investigation.

5 Section 96 of the Companies Law (2007 Revision) provides that an application to the court for a winding up of a company shall be by petition ‘which may be presented by the company, or by any one or more than one creditor or contributory of the company, or by all or any of the above parties, together or separately . . .’ The first issue for the Chief...