Re Indies Suites Ltd

JurisdictionCayman Islands
Judge(Smellie, C.J.)
Judgment Date05 August 2005
CourtGrand Court (Cayman Islands)
Date05 August 2005
Grand Court

(Smellie, C.J.)

IN THE MATTER OF INDIES SUITES LIMITED

R.D. Alberga, Q.C. and W.L. DaCosta for the sole shareholder;

A. Turner for the provisional liquidator.

Cases cited:

(1) Banco Economico S.A. v. Allied Leasing & Finance Corp., [1998] CILR 102, applied.

(2) Capital Annuities Ltd., In re, [1979] 1 W.L.R. 170; [1978] 3 All E.R. 704, dictum of Slade J. applied.

(3) Ebrahimi v. Westbourne Galleries Ltd., [1973] A.C. 360; [1972] 2 All E.R. 492, dictum of Lord Wilberforce applied.

(4) Emmadart Ltd., In re, [1979] Ch. 540; [1979] 1 All E.R. 599; applied.

(5) Globe New Patent Iron & Steel Co., In reELR(1875), L.R. 20 Eq. 337, referred to.

(6) Joseph Constantine S.S. Line Ltd. v. Imperial Smelting Corp. Ltd., [1942] A.C. 154; [1941] 2 All E.R. 165, applied.

(7) National Carriers Ltd. v. Panalpina (Northern) Ltd., [1981] A.C. 675; [1981] 1 All E.R. 161, dictum of Lord Simon of Glaisdale applied.

(8) Pen-y-Van Colliery Co., In reELR(1877), 6 Ch. D. 477, distinguished.

(9) Photo Production Ltd. v. Securicor Transport Ltd., [1980] A.C. 827; [1980] 1 All E.R. 556, referred to.

(10) Steel Wing Co. Ltd., In re, [1921] 1 Ch. 349; [1920] All E.R. Rep. 292, referred to.

(11) Suburban Hotel Co., In reELR(1867), L.R. 2 Ch. App. 737, applied.

(12) Union Accident Co. Ltd., In re, [1972] 1 W.L.R. 640; [1972] 1 All E.R. 1105, not followed.

Legislation construed:

Companies Law (2004 Revision) (Laws of the Cayman Islands, 1963, cap. 22, revised 2004), s.94: The relevant terms of this section are set out at para. 4.

s.95: The relevant terms of this section are set out at para. 32.

s.96: The relevant terms of this section are set out at para. 3.

Contracts Law (1996 Revision) (Law 11 of 1979, revised 1996), s.4: The relevant terms of this section are set out at para. 56.

s.5: The relevant terms of this section are set out at para. 56.

Companies Act 1907 (7 Edw. VII, c.50), s.28: The relevant terms of this section are set out at para. 15.

Companies-compulsory winding up-creditors-no locus standi for contingent or prospective creditors to petition under Companies Law (2004 Revision), s.96-claims for quantified or readily quantifiable and ascertainable pecuniary amounts arising from breach of contract not contingent or prospective but represent liquidated damages-petition usually granted even if actual amount owing disputed

Companies-compulsory winding up-petition-locus standi to oppose petition-sole shareholder has standing as contributory to oppose winding up of company-affirmative resolution of shareholders required for board of company to have authority to oppose petition

Companies-compulsory winding up-grounds for winding up-inability to pay debts-s.95(c) provides recourse, in urgent circumstances (e.g. if assets apparently deliberately stripped) if criteria in sub-ss. (a) and (b) cannot be met, if after separate objective assessment of state of affairs court concludes company unable to pay debts as fall due

Companies-compulsory winding up-grounds for winding up-‘just and equitable’-under Companies Law (2004 Revision), s.94(d) winding up ‘just and equitable’ if essential substratum of company gone proving impossibility of its carrying on business even if not insolvent-‘just and equitable’ ground available to creditors and contributories or shareholders alike

The petitioners, whose status as creditors was in question, petitioned for the winding up of a company, which was opposed by the sole shareholder on the grounds of lack of standing and that the requirements of the Companies Law had not been met.

The petitioners sought the winding up of the company, on the ground that it would be just and equitable so to order, as they were owed a debt by the company. The petitioners were two (joined in support by 175) of some 500 persons who purchased timeshare units in the Indies Suites Resort, owned and operated by the company, entitling each unit holder to use of the apartments and other amenities for a specific period-usually for one week each year-for 99 years.

The property was provided to a proprietary club, formed and owned by

the company, to be operated as club premises. The timeshare entitlements were sold as memberships in the club. Members were required to pay a one-off membership fee and annual maintenance dues. Over 10 years, members paid $5–6m. in membership fees. The rules of the club provided that in the event of destruction of the club, the company was obliged to repair or restore the property, the works had to commence within two years and the property was to be fully insured for those purposes.

In breach of the rules, the property was not kept insured and was severely damaged in the hurricane of September 2004. It was not restored but sold, arguably at an under-value, without the petitioners” or other members” knowledge or consent. The proceeds of sale and of the insurance coverage were then divested to a separate but related company.

The petitioners alleged that their contract with the company, in the form of the club rules, had been breached and that they were immediately entitled to the return of their membership fees, if not in full then pro rata with regard to the number of years left in entitlement.

The petitioning creditors submitted that (a) they had standing, within the Companies Law (2004 Revision), s.96, to petition as they were actual and not contingent or prospective creditors because the company owed them a contractual debt for a liquidated sum of money or a sum which could be readily quantified and ascertained, which they ought to be allowed to prove in the liquidation; (b) they had a pecuniary claim for debt within s.94(c) of the Law which the company was unable to pay and they were therefore creditors for the purposes of s.96; (c) the company should be deemed unable to pay its debts and wound up under s.95(c); (d) the sole shareholder had no standing to challenge the winding up, since only the company itself as respondent had standing to appear in opposition; and (e) even if they were only contingent creditors, they might still be entitled to petition on the just and equitable ground given the conduct of the directors and shareholders of the company.

The sole shareholder submitted in reply that (a) the petitioners had no locus standi to bring the petition because they did not come within the classes of persons granted standing under s.96 of the Law as they did not qualify as creditors, being merely prospective or contingent creditors; and (b) it had a bona fide defence to the petitioners” claims that it was unable to pay its debts, i.e. the frustration of the timeshare agreements, which could only be resolved by court action, and until the issue was resolved the petitioners were owed only prospective or contingent debts, meaning that the requirements of s.95(c) were not satisfied; and (c) it would not be just and equitable to wind up the company where the petitioners were unable, by having failed to present a statutory demand or otherwise, to show that the company was unable to pay its debts.

Held, granting the winding-up petition and confirming the appointment of the official liquidator:

(1) The petitioners were creditors within the meaning of the Companies Law (2004 Revision), s.96, which gave them standing to

bring the petition. Whilst the absence of the words ‘contingent’ and ‘prospective’ from s.96 in relation to creditors operated to exclude contingent or prospective creditors from bringing a winding-up petition, the creditors” claims, which arose from the company”s breaches of contract, were not prospective or contingent. The company had elected to treat the contract as at an end and sold the subject-matter, and there was then substituted an obligation on its part to pay monetary compensation to the petitioners for the future non-performance of the contract. The petitioners were claiming pecuniary amounts (return of at least membership fees, pro rata) which, if not already quantified, were readily quantifiable and ascertainable and so represented liquidated damages. Even if the actual amount owing were disputed, the petition would normally still be granted (paras. 17–23; para. 26).

(2) The sole shareholder, and not just the company itself, had standing to oppose the winding up of the company. As a contributory could petition to wind up, it followed logically that it could oppose such a petition. The board of a company could only have authority to oppose by an affirmative resolution of the shareholders, who were contributories. Whilst it was unclear whether the contributory or only the creditors had a real financial interest in the liquidation (i.e. whether the company was solvent or insolvent), the contributory had a prima facie interest and therefore standing to be heard (paras. 28–29).

(3) The company did not have a bona fide defence of frustration to the debts it owed to the petitioners, as it was subject to express contractual provisions in respect of the frustrating event that had occurred, namely, to have properly insured the property and to have it restored. Whilst the requirements for the applicability of the doctrine of frustration were not present in this case, if the analogy with leases were apposite, in exceptional and rare cases it might be possible for a timeshare agreement to be frustrated. Even if, however, the defence of frustration had been properly raised, ss. 4 and 5 of the Contracts Law (1996 Revision) would probably have operated to create a statutory debt in favour of the petitioners for which they could claim in winding up (para. 25; para. 49; paras. 51–52; paras. 55–57).

(4) The grounds for winding up in s.95 of the Law were alternative. Section 95(c) provided appropriate recourse in urgent circumstances which did not require the service of a statutory demand for repayment or a separate action for judgment on which to ground a claim. The petition for winding up would be...

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1 cases
  • Brac Construction Ltd v Broome
    • Cayman Islands
    • Court of Appeal (Cayman Islands)
    • 27 April 2006
    ...money which could be readily quantified, and confirmed that the company should be wound up. The proceedings before him are reported at 2004–05 CILR 498. On appeal against the orders of Smellie, C.J., the appellant submitted that (a) the debts being claimed by the respondents were damages fo......

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