Re Hurlstone Constr Ltd

• Jurisdiction: Cayman Islands
• Judge: (Murphy, J.)
• Judgment Date: 29 January 1999
• Date: 29 January 1999
• Court: Grand Court (Cayman Islands)

Grand Court

(Murphy, J.)

IN THE MATTER OF HURLSTONE CONSTRUCTION LIMITED

J.E. Goldring for the applicants;

Ms. S. Dobbyn for the witness, Dunne.

Cases cited:

(1) Atlantic Computers PLC, ReUNK, [1998] BCC 200; sub nom. British & Commonwealth Holdings PLC v. Barclays de Zoete Wedd Ltd., In re Atlantic Computers PLC, UNK[1997] T.L.R. 217, dicta of Robert Walker J. applied.

(2) Bank of Credit & Commerce Intl. (Overseas) Ltd., In re, 1994–95 CILR 73.

(3) Bank of Credit & Commerce Intl. S.A. (No. 12), Re, Morris v. Bank of America National Trust & Savings Assn., [1997] 1 BCLC 526; [1997] BCC 561, dicta of Robert Walker J. applied.

(4) British & Commonwealth Holdings PLC (No. 2), In reELRUNKUNK, [1992] Ch. 342; [1992] 2 All E.R. 801; [1992] BCC 172; on appeal, sub nom.

British & Commonwealth Holdings PLC v. Spicer & Oppenheim, [1993] A.C. 426; [1992] 4 All E.R. 876; [1993] BCLC 168, applied.

(5) Cloverbay Ltd. v. Bank of Credit & Commerce Intl. S.A., ELR[1991] Ch. 90; [1991] 1 All E.R. 894; [1991] BCLC 135, considered.

(6) Omni Secs. Ltd.(No. 2) In re, 1997 CILR 209.

(7) Rolls Razor Ltd., Re, UNK[1968] 3 All E.R. 698, applied.

(8) Rhodes (J.T.) Ltd., Re, [1987] BCLC 77; (1986), 2 BCC 99, 284, dicta of Hoffmann, L.J. applied.

(9) SaSea Fin. Ltd. v. KPMG, [1998] BCC 216.

Legislation construed:

Companies Law (1998 Revision) (Laws of the Cayman Islands, 1963, cap. 22, revised 1998), s.127: The relevant terms of this section are set out at page 12, lines 5–23.

s.128: The relevant terms of this section are set out at page 12, lines 25–29.

Companies-compulsory winding up-examination of witnesses by court-purpose of order under Companies Law (1998 Revision), s.128 to enable liquidators to gather general information on company”s affairs, collect in assets for creditors” benefit and pursue specific claims against individuals

Companies-compulsory winding up-examination of witnesses by court-adequacy of company”s documentary records and witnesses” ability to provide missing information relevant to reasonableness of liquidators” requirements-witness need not be registered company officer provided closely involved in conduct of its business-irrelevant that some issues duplicated in related proceedings against company officers

Companies-compulsory winding up-examination of witnesses by court-oppression of witness proportionate to proximity to alleged wrongdoing-existing misfeasance proceedings against others no bar to Companies Law (1998 Revision), s.128 order-procedural advantage to liquidators in related litigation less important if litigation concerns company affairs rather than claim against third party

The applicants applied for an order for the examination on oath of the third respondent.

The applicants were appointed liquidators of a company and applied

under the Companies Law (1998 Revision), s.127(1) for the production of financial records, but were informed that five years” records had gone missing and had last been seen by the applicants” firm in connection with matrimonial proceedings in which they had acted for a director”s wife. Following investigations into the conduct of the directors, the liquidators commenced misfeasance proceedings against them, alleging the making of unauthorized or improper payments, transfers of assets and sales at undervalue whilst the company was insolvent. At the hearing of the present application, the company supplied the applicants with computer records relating to company accounts for recent years. The applicants applied for an order under s.128 of the Companies Law for the oral examination of the third respondent, who had been an accountant with the company and related entities under the control of other respondents for some years, and was not a defendant in the misfeasance proceedings.

They submitted that (a) they were entitled to the court”s assistance to the extent that would enable them to discover the facts of the affairs of the company and its dealings for the purposes of the recovery of assets in the liquidation and the pursuance of related claims; (b) it was irrelevant whether or not the witness had been an officer of the company and that some of the information sought would come to light in the course of the misfeasance proceedings; (c) the calling of the financial controller to give evidence was reasonably required in the performance of their duties to the company and its creditors, since the documentation of the company”s affairs was grossly inadequate and the witness was in a unique position to supply the missing information; and (d) since the financial controller was not a defendant in those proceedings, there was no risk of oppression to the witness to be weighed by the court against their reasonable requirements in the exercise of its discretion.

The respondents submitted in reply that (a) since the applicants had already had access to the missing financial information relating to the company in the context of the matrimonial proceedings and the necessary computer records for subsequent years had been supplied to them on computer disk, an order under s.128 was unwarranted; (b) furthermore, the pending malfeasance proceedings would resolve many of the questions raised by the applicants and the examination of the financial controller on oath beforehand might prejudice the interests of the directors and give the applicants an unfair advantage in those proceedings; or alternatively (c) the court should confine its order to the delivery of interrogatories by the applicants or a limited examination on matters not in issue in the misfeasance proceedings.

Held, ordering that the third respondent be examined on oath:

(1) The court had a discretion under s.128 to order the examination on oath of a person summoned to appear and furnish documentary evidence under s.127(1) to enable the liquidators of the company properly to perform their duties to the company and its creditors in the public interest. These included obtaining general information about the

company”s affairs, collecting in assets and, where necessary, pursuing specific claims against individuals. In the exercise of its discretion the court had to weigh the reasonable requirements of the liquidators against any possible oppression to the witness (page 16, lines 34–40; page 18, line 42 – page 19, line 8).

(2) Since the reasonableness of a s.128 application was partly dependent on the adequacy of the documents available to the liquidators, the absence of all records for a significant period in the company”s history was a factor in their favour. The fact that there had been previous unrelated and ongoing connected litigation to which the missing information was relevant did not weigh in the respondents” favour since the documents had been lost through their own carelessness and the issues arising in the liquidation were broader than those in the other proceedings. The third respondent, as an accountant (and probably financial controller of the company) for the relevant period was, by his own evidence, uniquely placed to answer the liquidators” questions. He had clearly been closely involved in the conduct of the company”s business and it was irrelevant whether or not he was a registered officer and thus in a fiduciary capacity whilst employed (page 16, lines 11–34; page 17, lines 1–13; page 17, line 44 – page 18, line 12).

(3) The court would consider the proximity of the witness to the allegations of wrongdoing in deciding whether an order for examination would be oppressive. Since neither the third respondent himself nor the companies by which he had been employed were defendants in the misfeasance proceedings, there could be no oppression of him. Although the directors who were the subject of the misfeasance claims could be prejudiced by an order under s.128, the procedural advantage to the company, acting by its liquidators, was not regarded by the court as being as oppressive as it would be in the context of proceedings against an unconnected third party and did not fetter the court”s discretion. Accordingly, the third respondent would be summoned for oral examination (page 19, lines 8–14; page 19, line 26 – page 20, line 35).

20	MURPHY, J.: This is an application for certain heads of relief sought
in an ordinary application dated November 30th, 1998. The applicants are
the liquidators of Hurlstone Construction Ltd. (‘the company’). The first
and second respondents (‘the directors’) are former directors of the
company. The third respondent (‘Dunne’), who is central to this
25	application, is an accountant currently employed as the Financial
Controller of Construction Equipment Services Ltd., a company owned
by the directors, with additional responsibilities for other Hurlstone-
related entities.
Dunne was formerly an employee of the company, and probably its
30	financial controller prior to its liquidation. The fourth and fifth
respondents are or were related, through common ownership, to the
company. The sixth respondent is a principal of the seventh and eighth
respondents, companies which figure (as, for that matter, do the fourth
and fifth respondents) in certain allegations made by the liquidators
35	against the directors.
The ordinary application sought relief pursuant to ss. 127 and 128 of
the Companies Law (1998 Revision) in the form of production of
documents and records of, or related to, the company, and the
examination of the directors, Dunne and the sixth respondent. On the
40	original return date of the application, December 17th, 1998, I adjourned
the application peremptorily to January 25th, 1999 and gave directions as
to the delivery of affidavit evidence and skeleton arguments.
By the time the matter came on before me for argument, the scope of
the application had been narrowed. The only outstanding issues seemed

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