Re Omni Secs Ltd (No 2)

• Jurisdiction: Cayman Islands
• Judge: (Harre, C.J.)
• Judgment Date: 06 May 1997
• Court: Grand Court (Cayman Islands)
• Date: 06 May 1997

Grand Court

(Harre, C.J.)

IN THE MATTER OF OMNI SECURITIES LIMITED (No. 2)

A. Turner for the applicant;

N.R.L. Clifford for the respondent.

Cases cited:

(1) British & Commonwealth Holdings PLC (No. 2), In reELRUNKUNK, [1992] Ch. 342; [1992] BCC 172; [1992] 2 All E.R. 801; on appeal, sub nom. British & Commonwealth Holdings PLC v. Spicer, [1993] A.C. 426; [1993] BCLC 168; [1992] 4 All E.R. 876, applied.

(2) Maxwell Communications Corp. PLC, Re, Homan v. VogelUNK, [1994] BCC 741; sub nom. Re Maxwell Communications Corp. PLC (No. 3), [1995] 1 BCLC 521, dicta of Vinelott J. applied.

Legislation construed:

Companies Law (1995 Revision) (Laws of the Cayman Islands, 1963, cap. 22, revised 1995), s.126(1):

‘The Court may, after it has made an order for winding up the company, summon before it any officer of the company or person known or suspected to have in his possession any of the estate or effects of the company, or supposed to be indebted to the company, or any person whom the Court may think capable of giving information concerning the trade, dealings, estate or effects of the company; and the Court may require any such officer or person to produce any books, papers, deeds, writings or other documents in his custody or power relating to the company.’

Companies-compulsory winding up-examination of witnesses by court-court exercising discretion under Companies Law (1995 Revision), s.126 to weigh reasonable requirements of liquidators” investigation against possible oppression of witness-exposure to liability through compliance and value of information sought relevant

Companies-compulsory winding up-examination of witnesses by court-application by liquidators under Companies Law (1995 Revision), s.126 seeking examination of auditors employed by associated firm may be reasonable requirement of investigating company”s affairs-no necessary conflict of interest in liquidators

Companies-liquidators-powers and duties-ex parte application under Companies Law (1995 Revision), s.126 for examination of witnesses on oath justified if liquidators applied in good faith and with reasonable cause, even though no particular urgency or need for confidentiality

The respondent liquidator applied for an order to require the partners and officers of the applicant firm to be examined on oath.

The applicant, D&T (Cayman), was the successor of a firm of accountants which had been responsible for auditing the accounts of Omni Securities Ltd., a company now in liquidation. The respondent was a partner in C&L (Cayman), a part of the international accountancy firm whose clients included other companies in the Omni Group, following a merger in the United Kingdom between an associated firm of the applicant”s predecessor and C&L (U.K.).

The respondent obtained an ex parte order for the applicant”s staff to produce and give evidence about the accounting records and working papers relating to the auditing of Omni Securities Ltd. over a three-year period. The applicant applied for the order to be set aside or varied to relieve it of any obligation to produce the documentation requested.

In related proceedings (reported at 1996 CILR 202 and on appeal at 1997 CILR 120) the applicant failed to secure the removal of the respondent as liquidators, since it was held that it had no locus standi to apply.

The applicant submitted that (a) the respondent had wrongly applied ex parte to the court for the order for production, since D&T (Cayman) had been aware for some time that the documents were required and therefore there was no need for confidentiality and no urgency, nor was there any question of the documents being removed from the jurisdiction or destroyed; (b) since its own role in the auditing of Omni Securities Ltd.”s accounts had been a purely formal one based on the work carried out by its associated firm, D&T A.G. in Zurich, it had not acquired any detailed knowledge of the company”s transactions during the relevant time period, and the court”s order was therefore unreasonable; (c) the conflict of interest which the respondent and his colleague faced as liquidators, particularly in view of the personal involvement of one of the partners in C&L (U.K.) in auditing Omni Securities Ltd.”s accounts, would prevent them from acting impartially upon any information obtained from the disclosure ordered, and would in itself justify setting aside the order; and (d) furthermore, the respondent”s failure to inform the court that the owner of the Omni Group faced prosecution or that D&T A.G. was the subject of a civil action in Switzerland indicated that he was in fact engaged in a ‘fishing’ expedition to obtain documents for use in those proceedings and in the Cayman Islands, the effect of which was oppressive to the applicant.

The respondent submitted in reply that (a) the use of an ex parte application to obtain an order under s.126 was not uncommon in the conduct of a liquidation which raised questions requiring immediate investigation, and it was not necessary that there be some danger that the information sought might disappear; (b) since the applicant”s predecessor was required to make certain checks and inquiries before publishing the final audited financial statements for Omni Securities Ltd., its partners and staff would undoubtedly have acquired knowledge about the company”s financial position and transactions, justifying the making of an order; (c) since the liquidators themselves had had no personal involvement in the auditing of companies in the Omni Group and since none of the companies whose accounts were audited by C&L (U.K.) had dealings with Omni Securities, there was no real conflict of interest to constrain the respondents from seeking information to clarify the company”s finances; if and when such a conflict arose, they would apply to the court for directions; and (d) in investigating the reasons for the collapse of the company, they were unconcerned with ‘fishing’ for material to assist in the prosecution of the head of the Omni Group or any civil proceedings against the applicant”s associated firm in Switzerland.

Held, refusing to set aside or vary the order:

(1) In the exercise of its discretion under the Companies Law (1995 Revision), s.126, the court had to balance the liquidators” reasonable

requirements in their investigation of the company”s affairs against possible oppression to the applicant in compelling its staff to give evidence. Since it was clear in this case that the applicant”s predecessor had undertaken inquiries in the course of preparing the company”s final audited accounts which required some knowledge of its transactions during each accounting year, it was reasonable for the court to order the examination of the staff on oath. Inconvenience to the applicant did not justify forbearance to order disclosure, and here the risk of exposing the applicant through compliance had been properly weighed against the value of the material sought (page 214, lines 3–7; page 215, line 27 – page 216, line 9).

(2) The court accepted that the respondents were not merely ‘fishing’ for evidence for use in foreign proceedings, that they were not prevented from seeking relevant information by any genuine conflict of interest and that if any such conflict should arise, he would apply to the court for directions (page 218, lines 33–45).

(3) The court was also satisfied that in this case, as in many comparable cases, the respondents had acted in good faith and with reasonable cause in applying ex parte for an order under s.126, even though there was no urgency or special need for confidentiality (page 216, line 31 – page 217, line 3).

HARRE, C.J.: On May 11th, 1995 this court ordered that the resident
partner or partners or other officers of Deloitte & Touche of George
Town, Grand Cayman, the former auditors of Omni Securities Ltd. (‘the
company’) for the years 1988, 1989 and 1990 attend before the court to
5	be examined upon oath concerning the affairs, dealings, estate or effects
of that company and produce all books, audit working

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