Re GFN Corporation

• Jurisdiction: Cayman Islands
• Judge: (Smellie, C.J.)
• Judgment Date: 15 January 2009
• Court: Grand Court (Cayman Islands)
• Date: 15 January 2009

Grand Court

(Smellie, C.J.)

IN THE MATTER OF GFN CORPORATION LIMITED

M. Crystal, Q.C. and M.J. Crawford for the joint official liquidators of the petitioner;

T. Lowe, Q.C. and Ms. C.J. Bridges 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, referred to.

(2) Allied Leasing & Fin. Corp. v. Banco Economico S.A., 2000 CILR 118, applied.

(3) Bell Group Fin. (Pty) Ltd. v. Bell Group (U.K.) Holdings Ltd., [1996] BCC 505; [1996] 1 BCLC 304, applied.

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

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

(6) Company (No. 006685 of 1996), In re a, [1997] BCC 830, referred to.

(7) Fortuna Dev. Corp., In re, 2004–05 CILR 197, referred to.

(8) Hollington v. F. Hewthorn & Co. Ltd., [1943] K.B. 587; [1943] 2 All E.R. 35, applied.

(9) Krasnapolsky Restaurant & Winter Garden Co., In re, [1892] 3 Ch. 174, applied.

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

(11) Pantmaenog Timber Co. Ltd., In re, [2004] 1 A.C. 158; [2003] 4 All E.R. 18; [2003] UKHL 49, referred to.

(12) Parmalat Capital Fin. Ltd., In re, 2006 CILR 171; on appeal, 2006 CILR 480; on further appeal, 2008 CILR 202, applied.

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

(14) Strategic Turnaround Partnership Ltd., In re, Grand Ct., November 28th, 2008, unreported; on appeal, 2008 CILR 447, referred to.

(15) Trade & Indus. Secy. v. Bairstow, [2004] Ch. 1; [2003] 3 W.L.R. 841; [2004] 4 All E.R. 325; [2003] BCC 682; [2003] 1 BCLC 696; [2003] EWCA Civ 321, referred to.

Legislation construed:

Companies Law (2007 Revision), s.100: The relevant terms of this section are set out in para. 38.

Companies-compulsory winding up-creditors-dispute over existence of debt may not deny creditor locus standi to petition-rule of practice that court will not ordinarily allow petition to proceed may in court”s discretion be relaxed-standing may be granted if in exceptional circumstances necessary to avoid injustice or hardship to petitioner with good arguable case

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

The respondent was a holding company for a group of companies including the petitioner. It was allegedly indebted to the petitioner in respect of an overdraft on an account it had with the petitioner. The respondent denied the indebtedness, claiming that the debts were owed by a related but separate entity within the group. The beneficial owner of the respondent had been convicted of fraud in relation to the affairs of the group and the liquidators of the petitioner had also discovered evidence of suspicious transactions and fraudulent manipulation of the account. They consequently sought a thorough investigation of the company and its management by liquidators appointed by the court.

The petitioner submitted that it was entitled to a winding-up order on the two alternative grounds that (a) the respondent was unable to pay its debts because it was insolvent; and (b) that it would be just and equitable to wind up the respondent because the circumstances demanded an inquiry be carried out by liquidators. It was agreed that, in order to shorten the proceedings, the petition would only be heard on the latter ground.

The respondent submitted in reply that (a) the petition should be dismissed as it should not have been heard until the dispute over the debt was resolved because until then the petitioner was not established as a creditor so as to afford it locus standi to seek a winding up; and (b) if there was jurisdiction to hear the petition then it would not be opposed.

Held, confirming jurisdiction and granting the winding-up order:

(1) The petitioner had locus standi to petition for the winding up of the respondent, since the existence of a bona fide and substantial dispute over the indebtedness did not remove the jurisdiction of the court to hear the petition. There existed a rule of practice, developed because of the risk of

abuse of the winding-up procedure, which provided that if there was a dispute over indebtedness then the court would not ordinarily allow the petition to proceed. However, in exceptional circumstances, to avoid injustice or hardship to the petitioner, it would be open to the court in exercising its discretion to order otherwise and allow the petition to continue. Such circumstances existed in this case, with the debt recorded on the books of the petitioner being belatedly said to be ascribable to some other entity and, further, it would be wrong merely to accept the respondent”s objections at face value as a ground for the court”s refusing jurisdiction. Therefore, since the petitioner had demonstrated a good arguable case through its prima facie evidence of the debt and because it would be more appropriate that the dispute be resolved in the hearing of the petition rather than in a separate action, the rule of practice would be relaxed and locus standi granted (paras. 12–13; paras. 23–28).

(2) The respondent would be wound up on the basis that it was just and equitable to do so. The court affirmed that the need for an investigation into the affairs of a company could be a basis for the making of a winding-up order on the just and equitable ground. The need for a thorough investigation of the relationship between the petitioner and the respondent had been established through the evidence of the fraudulent manipulations of the account, which suggested that the petitioner had been used as a channel for the criminal extraction of depositors” funds. Whilst the criminal conviction of the director of the petitioner and beneficial owner of the respondent were not conclusive, it was another background consideration indicating the need for an inquiry. The creditors had a bona fide interest in an investigation being carried out by court-appointed liquidators, and further, it would also be in the Cayman public interest, being the place of incorporation and also where the petitioner conducted business under Cayman law (paras. 35–36; para. 42; paras. 45–47).

1 SMELLIE, C.J.:

Ruling on locus standi to petition

Bancredit Cayman Ltd. (‘the petitioner’) is an insolvent bank now in official liquidation before this court. Until September 4th, 2003, it carried on business as a bank from within the Cayman Islands, having held an unrestricted Class B bank and trust licence since July 1988. By its official liquidators, the petitioner seeks the winding up of GFN Corp. Ltd. (‘GFN’), an exempted limited liability Cayman company, on the ground that GFN is indebted to it in the sum of $96,153,651 arising out of an overdraft accrued on Account No. 71472, opened by GFN with the petitioner in 1996.

2 GFN was the holding company for a group largely trading in the Dominican Republic, called the Grupo Financiero Nacional (‘GFN Group’),which conducted business operations in numerous fields. The GFN Group, which included the petitioner and other banks incorporated in the Dominican Republic (Banco Nacional de Credito S.A., ‘Bancredito’) and in Panama (Bancredito (Panama) S.A.), was owned and controlled by the Pellerano family of the Dominican Republic, and in particular Mr. Manuel Arturo Pellerano. The MAP Trust, a trust for the benefit of Mr. Pellerano and his family, owns the share capital of GFN.

3 Until his conviction in the Dominican Republic on August 17th, 2006 for fraud in relation to the affairs of the GFN Group, Mr. Pellerano was the chairman of the GFN Group and was a director of the petitioner, as

well as of many other companies within the GFN Group. Notwithstanding that the indebtedness is reflected in the books and records of the petitioner in the manner described above, GFN now seeks to challenge this petition on the basis that the debts are not owed. GFN asserts, by way of affidavits filed by certain of its former senior employees, that the indebtedness shown in Account No. 71472 is not that of GFN itself, but that of GFN Capital S.A., a related but separate entity within the GFN Group of companies of which the petitioner was itself an affiliate, and that the indebtedness has been discharged.

4 It must be noted here, however, that those speaking in this context on behalf of GFN have not been consistent in their evidence on the matter. First, it was asserted by Maria Isabel Concepcion (described as the chief financial officer of the banking and insurance companies within the GFN Group), in her affidavit of March 13th, 2007, that Account No. 71472 was never in the name of GFN itself, but in the name of GFN Capital. However, in her second affidavit of August 27th, 2007, Ms. Concepcion accepted that ‘Account No. 71472 appears to have been operated by certain employees of GFN as the account of GFN Corp.’ and that (in para. 7) ‘I believe I wrongly assumed that Account No. 71472 had always been in the name of GFN Capital. I now know that not to have been the case.’ Despite this acknowledgement as to the identity of the account, the assertion arises in the affidavit (dated August 31st, 2007) of Mauricia Santos-described as the vice-president of finance-that Account No. 71472 was not treated as an account of GFN within the GFN Group, but instead as an account of GFN Capital.

5 The challenge to the indebtedness having been raised in the evidence, Mr. Lowe, Q.C. now challenges the petition on jurisdictional grounds. He argues that the court, presented as it is now with what he describes as a bona fide and substantial dispute as to the indebtedness upon which the petition is based, has no jurisdiction to hear the petition unless and until that dispute is resolved. Put...