Re Omni Secs Ltd

• Jurisdiction: Cayman Islands
• Judge: (Smellie, J.)
• Judgment Date: 23 August 1996
• Court: Grand Court (Cayman Islands)
• Date: 23 August 1996

Grand Court

(Smellie, J.)

IN THE MATTER OF OMNI SECURITIES LIMITED

I.G.A. Hunter, Q.C. and G.A. Locke for the applicants;

G.C. Vos, Q.C. and A. McN. McLaughlin, Jnr. for the respondent.

Cases cited:

(1) -Adam Eyton Ltd., In re, ex p. CharlesworthELR(1887), 36 Ch. D. 299, considered.

(2) -Adams (A.J.) (Builders) Ltd., Re, [1991] BCLC 359; [1991] BCC 62, followed.

(3) -Arrows Ltd., Re, [1992] BCC 121.

(4) -Bridgend Goldsmiths Ltd., Re, [1995] 2 BCLC 208; [1995] BCC 266, considered.

(5) -British Nation Life Assur. Assn., In re(1871), L.R. 14 Eq. 492.

(6) -Commonwealth v. O”Reilly (1984), 8 A.C.L.R. 804; sub nom. Re 67 Budd Street Pty. Ltd., Commonwealth v. O”ReillyUNK(1984), 2 A.C.L.C. 190.

(7) -Contract Corp., In re, Gooch”s case(1871), L.R. 7 Ch. App. 207.

(8) -Corbenstoke Ltd. (No. 2), Re, [1990] BCLC 60; (1989), 5 BCC 767.

(9) -Dyson v. Att. Gen., [1911] 1 K.B. 410; [1912] 1 Ch. 158.

(10) -Edennote Ltd., In re, [1996] T.L.R. 348.

(11) -Hill”s Waterfall Estate & Gold Mining Co., In re, [1896] 1 Ch. 947.

(12) -Intercontinental Properties Pty. Ltd., Re(1977), 2 A.C.L.R. 488.

(13) -International Credit & Inv. Co. (Overseas) Ltd., In re, 1992–93 CILR 83.

(14) -Karamelli & Barnett Ltd., In re, [1917] 1 Ch. 203; (1916), 115 L.T. 753.

(15) -Keypak Homecare Ltd., Re, [1987] BCLC 409; (1987), 3 BCC 558, dicta of Millett J. applied.

(16) -Kilderkin Invs. v. Player, 1984–85 CILR 63.

(17) -Marseilles Extension Ry. & Land Co., In reELR(1867), L.R. 4 Eq. 692; 17 L.T. 61, dicta of Malins, V.-C. applied.

(18) -New de Kaap Ltd., In re, [1908] 1 Ch. 589, not followed.

(19) -Old Wheal Neptune Mining Co. (Ltd.), Re, ex p. PulbrookENR(1864), 2 De G.J. & S. 348; 46 E.R. 410; 10 L.T. 828.

(20) -Oriental Credit Ltd., In re, [1988] 1 Ch. 204, followed.

(21) -Oxford Bldg. & Inv. Co., ReUNK(1883), 49 L.T. 495.

(22) -Parkdawn Ltd., Re, Chancery Division, Case No. 004367/93, unreported.

(23) -Rica Gold Washing Co., In reELR(1879), 11 Ch. D. 36; 40 L.T. 531.

(24) -Rubber & Produce Inv. Trust, In re, [1915] 1 Ch. 382; (1915), 112 L.T. 1129, considered.

(25) -Sankey Furniture Ltd., Re, ex p. Harding, [1995] 2 BCLC 594.

(26) -Shanks Byrne Indus. Pty. Ltd., Re, [1979] 2 N.S.W.L.R. 880; (1979), 4 A.C.L.R. 676.

(27) -Sir John Moore Gold Mining Co., In reELR(1879), 12 Ch. D. 325.

(28) -Société Nationale Indus. Aerospatiale v. Lee Kui Jak, [1987] A.C. 871; [1987] 3 All E.R. 510.

(29) -South Carolina Ins. Co. v. Assurantie Maatschappij ‘De Zeven Provincien’ N.V., [1987] A.C. 24; [1986] 3 All E.R. 487.

(30) -Wenlock v. Maloney, [1965] 1 W.L.R. 1238; [1965] 2 All E.R. 871.

Legislation construed:

Companies Law (1995 Revision) (Laws of the Cayman Islands, 1963, cap. 22, revised 1995), s.106(1): The relevant terms of this sub-section are set out at page 211, line 44 – page 212, line 2.

s.140: ‘Where a company is being wound up voluntarily the liquidators or any contributory of the company may apply to the Court to determine any question arising in the matter of such winding up, or to exercise, in respect of the enforcing of calls or any other matter, all or any of the powers which the Court might exercise if the company were being wound up by the Court; and the Court, if satisfied that the determination of such question or the required exercise of power will be just and beneficial, may accede, wholly or partially, to such application, on such terms and subject to such conditions as the Court thinks fit, or may make such other decree on such application as the Court thinks just.’

s.143: ‘If, from any cause whatever, there is no liquidator acting in the case of a voluntary winding up, the Court may, on the application of a contributory, appoint a liquidator or liquidators; and the Court may, on due cause shown, remove any liquidator and appoint another liquidator to act in the matter of a voluntary winding up.’

s.151: The relevant terms of this section are set out at page 218, lines 19–24.

s.153: The relevant terms of this section are set out at page 211, lines 26–43.

Insolvency Rules 1986 (S.I. 1986/1925), r.4.120(2):

‘The court may, if it thinks that no sufficient cause is shown for the application, dismiss it; but it shall not do so unless the applicant has had an opportunity to attend the court for an ex parte hearing of which he has been given at least 7 days” notice.’

r.4.179(1): The relevant terms of this paragraph are set out at page 221, lines 37–40.

r.4.179(2): The relevant terms of this paragraph are set out at page 221, lines 41–45.

Companies-liquidators-removal-locus standi of applicant-under Companies Law (1995 Revision), s.106(1) proper person may apply to show due cause for removal-no restriction on classes of applicant or need for financial interest in liquidation

Companies-liquidators-removal-due cause-conflict of interest may be due cause for removal under Companies Law (1995 Revision), s.106(1)-applicant need not be directly financially affected

Companies-liquidators-power to restrain-winding up under court”s supervision-court has inherent jurisdiction to restrain liquidators acting under conflict of interest-applicant need not be directly financially affected

The applicants sought the striking out of the respondent”s summons for the restraint or removal of the liquidators of a company.

The respondent alleged that the first and second applicants, who were partners in a firm of accountants which was formerly the auditor of Omni Securities, were acting under a conflict of interest as liquidators of that company. The firm, together with the respondent and other companies then within the same corporate group, now faced legal proceedings by the liquidators for negligence and breach of contract in the preparation of Omni Securities Ltd.”s accounts.

The respondents applied under s.106 (1) of the Companies Law (1995 Revision) to show due cause for the liquidators” removal, and under the court”s inherent jurisdiction for an order to restrain them from acting. The provisions of s.106 were applied by s.153 of the Law to windings up under the court”s supervision, enabling the court to exercise the same powers as if it were itself winding up the company.

The liquidators submitted that (a) only persons having a positive financial interest in the outcome of the liquidation of the company had locus standi to apply under s.106(1) to show due cause for the removal of its liquidators; (b) in determining whether an applicant had such an interest, the court should apply to s.106 the restricted classes prescribed by (i) s.140 of the Law, under which a liquidator or contributor could apply for the court”s decision on any matter arising from a voluntary winding up; or (ii) s.151, under which the court could take into account creditors” or contributories” wishes on matters relating to windings up under its supervision. The respondent, as an ordinary debtor, did not fall

within any of these classes; (c) even if locus standi were established, the existence of a conflict of interest in the liquidators which did not affect creditors or contributories of the company did not constitute due cause for the liquidators” removal; and (d) the court could not restrain the liquidators under its inherent jurisdiction to regulate its officers, since liquidators acting under the court”s supervision were court officers only for the purposes of collecting the assets of the company; they owed separate fiduciary duties to the creditors and contributories which could not be enforced by the court on the application of a person with no such financial interest in the liquidation. Accordingly, the respondent”s summons should be struck out.

The respondents submitted in reply that (a) neither the wording of s.106(1), nor the interpretation placed on the court”s powers in the case law, operated to limit locus standi to apply for the liquidators” removal to persons with a positive financial interest in the outcome of the liquidation; ss. 140 and 151 were to be read separately from s.106(1), under which a liquidator could be removed upon due cause shown by a proper person such as itself; (b) due cause could exist in a wide range of situations including that in which, as in this case, a liquidator acted under a conflict of interest, and should not by narrow statutory interpretation be restricted to circumstances affecting persons with a direct financial interest in the liquidation; and (c) the court had, in any event, inherent jurisdiction to regulate the activities of liquidators acting under its supervision and could therefore restrain them as officers of the court whose impartiality in performing their fiduciary duties was threatened by a conflict of interest, without the necessity of an application by a creditor, contributory or other person with a positive financial interest in the liquidation.

Held, dismissing the application:

(1) The correct test for locus standi to apply for a liquidator”s removal was whether the applicant was a proper person in all the circumstances. Since s.106(1), as applied by s.153 to supervised windings up, did not expressly restrict the court”s power to remove a liquidator to applications brought by particular classes of persons, no such restriction would be implied, by transposing on to s.106 the provisions of other sections of the Companies Law, or otherwise. The respondent, whose position was more complex than that of a mere debtor of the company, was a proper person in the present case (page 209, lines 35–40; page 213, lines 33–41; page 215, lines 16–23; page 217, line 38 – page 218, line 1; page 219, lines 35–42).

(2) Having established its locus standi, the respondent would be permitted to show due cause for the liquidators” removal on the basis of the conflict of interest which might influence the liquidators, whether or not that conflict affected the respondent in a direct financial sense (page 220, line 34 – page 221, line 8).

(3) In any event, the...