Re Parmalat Capital Fin Ltd

• Jurisdiction: Cayman Islands
• Judge: (Henderson, J.)
• Judgment Date: 01 March 2004
• Court: Grand Court (Cayman Islands)
• Date: 01 March 2004

Grand Court

(Henderson, J.)

IN THE MATTER OF PARMALAT CAPITAL FINANCE LIMITED

(in provisional liquidation)

M. Crystal, Q.C. and G.A. Locke for the joint provisional liquidators;

Ms. S.M. Corbett for Food Holdings Ltd. and Dairy Holdings Ltd.;

G. Moss, Q.C., A. Dunsby, D. Nicol and A. Turner for the respondents.

Cases cited:

(1) Allied Inv. Fund Ltd. v. Johnson, 1999 CILR 237, dicta of Murphy J. applied.

(2) Arrows Ltd., Re, [1992] BCC 121, dicta of Hoffmann J. considered.

(3) Corbenstoke Ltd. (No. 2), Re, [1990] BCLC 60; (1989), 5 BCC 767, dicta of Harman J. distinguished.

(4) English, Scottish & Australian Chartered Bank, In re, [1893] 3 Ch. 385, dicta of Lindley, L.J. considered.

(5) Falcon R.J. Devs. Ltd., ReUNK(1987), 3 BCC 146, referred to.

(6) International Credit & Inv. Co. (Overseas) Ltd., In re, 1992–93 CILR 83, dicta of Harre J. considered.

(7) Lummus Agricultural Services Ltd., Re, [2001] 1 BCLC 137; [1999] BCC 953, referred to.

(8) Southard & Co. Ltd., In re, [1979] 1 W.L.R. 546; [1979] 1 All E.R. 582; (1978), 123 Sol. Jo. 372, dicta of Brightman J. applied.

(9) Swain (J.D.) Ltd., In re, [1965] 1 W.L.R. 909; [1965] 2 All E.R. 761; (1965), 109 Sol. Jo. 329, referred to.

Legislation construed:

Bankruptcy Law (1997 Revision) (Laws of the Cayman Islands, 1963, cap. 7, revised 1997), s.112:

‘Every conveyance, assignment, transfer, sale or disposition made by any trader unable to pay his debts of his stock-in-trade, debts or things in action relating to his business or any part thereof, otherwise than in the ordinary way of business, to any other person shall, if a provisional order or an absolute order takes effect against the person making the same within six months after the date of making the same be deemed fraudulent and void as against the Trustee . . .’

Companies Law (2003 Revision) (Laws of the Cayman Islands, 1963, cap. 22, revised 2003), s.168(1):

‘Any such conveyance, mortgage, delivery of goods, payment, execution or other act relating to property as would, if made or done by or against any individual trader, be deemed in the event of his bankruptcy to have been made or done by way of undue or fraudulent preference of the creditors of such trader, shall, if made or done by or against any company, be deemed in the event of such company being wound up under this Law to have been made or done by way of undue or fraudulent preference of the creditors of such company, and shall be invalid accordingly.’

Fraudulent Dispositions Law (1996 Revision) (Law 15 of 1989, revised 1996), s.4:

‘(1) Subject to this Law, every disposition of property made with an intent to defraud and at an undervalue shall be voidable at the instance of a creditor thereby prejudiced.

. . .

(3) No action or proceedings shall be commenced under this Law unless commenced within six years of the date of the relevant disposition.’

Companies-liquidators-appointment-nominee with pre-existing obligations and duties to foreign court in liquidation of whole group unsuitable for appointment as provisional liquidator if unable to assume fiduciary obligations to creditors and personal obligation to court-not to be appointed if court cannot supervise and control, especially if nominee non-resident

Companies-liquidators-appointment-conflict of interest-no conflict of interest if nominee also director of company being liquidated if appointed after commencement of liquidation-no conflict of interest if provisional liquidator has expectation of becoming auditor of company

Companies-liquidators-liquidation of international group-comity-if company part of large international group preferable use same liquidators for whole group-views of company”s independent creditors and suitability of main foreign liquidator for appointment may be persuasive

The petitioners sought confirmation of their appointment as joint provisional liquidators.

The petitioners were appointed joint provisional liquidators of two Cayman companies, Food Holdings Ltd. and Dairy Holdings Ltd., which were special-purpose vehicles and members of the Parmalat international group of companies, on the application of certain of their note-holders. The note-holders brought their petition despite an agreement with the remaining note-holders and a security trustee not to present a petition for winding up if ‘under applicable insolvency laws’ any note-holder could be compelled under an avoidance provision to refund moneys received.

The petitioners were subsequently, on the application of Food and Dairy, appointed joint provisional liquidators of another Cayman company, CapFin, which was also a member of the Parmalat group. The note-holders were owed US$424m. by Food and Dairy, which were owed at least that amount by CapFin. It was claimed that 93% of CapFin”s debts were in fact owed to related company creditors of the Parmalat group, but the validity of that accounting was in doubt as the group was under investigation in Italy and elsewhere for fraud.

The Italian Government appointed the respondent as the extraordinary administrator of the group with a broad mandate to attempt a reconstruction. The respondent retained PWC to assist with this task, or, if necessary, with the liquidation of the group. After the provisional liquidation of CapFin had been commenced, the respondent was also appointed as its sole director. The respondent acted under the supervision of the Italian Government and had constant contacts with it and with the court in Parma, which had an important role in the reconstruction.

The respondent sought his own appointment as provisional liquidator of CapFin, together with a local member of PWC, in place of the petitioners. As director of CapFin, he caused it to support his application and he claimed also that his application was supported by the related company creditors, to which 93% of CapFin”s debts were owed. The respondent”s application was opposed by Food and Dairy and also by certain of their note-holders.

The respondent submitted that he should be appointed as provisional liquidator because (a) the demands of comity required that in large insolvencies the same liquidator wind up all of the related companies; (b) his appointment as provisional liquidator was supported by CapFin itself and by the majority of the creditors; (c) given the note-holders” agreement with the other note-holders and a security trustee not to bring such a petition, they did not have standing and their views were inadmissible; (d) costs would be wasted if the current provisional liquidators were confirmed, as their duties would overlap with his work concerning the rest of the group; and (e) if appointed, he would have the co-operation of the rest of the group and had already secured funding for the liquidation from the related company creditors.

The provisional liquidators submitted in reply that (a) the respondent”s current mandate as appointee of the Italian Government and his

obligations to report to it and to the court in Parma were incompatible with the role of provisional liquidator and thus also of an officer of the court; (b) the views of the related company creditors, expressed in favour of the appointment of the respondent, should be accorded little weight as it was possible that those companies had contributed to CapFin”s insolvency by the alleged fraudulent activity and were also themselves insolvent; (c) rather, the court should prefer the views of the independent third party creditors, who favoured the current appointees; (d) the note-holders of Food and Dairy did have standing to bring the original petition despite their agreement not to do so, as there was no ‘applicable insolvency law’; (e) even if the Fraudulent Dispositions Law were considered to be an applicable insolvency law, the note-holders nevertheless still had standing, as the agreement did not disentitle them as creditors to bring such a petition, but merely created contractual obligations; and (f) furthermore, the respondent”s role as director of CapFin and PWC”s expectation to become auditor of the group, created potential conflicts of interest were they also to become provisional liquidators.

Held, confirming the appointment of the provisional liquidators:

(1) The respondent was unsuitable for appointment as a provisional liquidator because of his obligations as extraordinary administrator of the Parmalat group. Given his duty to report to the Italian Government and to the court in Parma, and his broad focus on the group as a whole, he would be unable to fulfil a provisional liquidator”s fiduciary obligations to CapFin”s creditors, in whose ultimate interest he would act and, although there was no conflict with his personal commercial interests, those other duties might preclude his being, or appearing to be, independent. In addition, as provisional liquidators were also officers of the court, the court needed to be satisfied that he would be able and willing to accept directions without fear of a conflict. As the court doubted its ability to supervise and control the respondent, particularly as he was a non-resident, he would therefore not be appointed (paras. 49–52).

(2) That a substantial majority of CapFin”s creditors supported the respondent”s appointment as provisional liquidator was not persuasive. The claim had to be viewed with suspicion as the Parmalat group was being investigated for fraud and the reliability of its accounting records was questionable. In any case, those creditors supporting the respondent were the related company creditors, most of whom were under his direct control and merely expressed his personal view. As related company creditors their views were not entitled to much weight, especially as it was likely that they had contributed to CapFin”s demise and that they were also insolvent. Accordingly, the views of the independent third party creditors were to be preferred over those of the majority and, insofar...