Re Parmalat Capital Fin Ltd

JurisdictionCayman Islands
Judge(Henderson, J.)
Judgment Date12 May 2006
CourtGrand Court (Cayman Islands)
Date12 May 2006
Grand Court

(Henderson, J.)

IN THE MATTER OF PARMALAT CAPITAL FINANCE LIMITED

M. Crystal, Q.C. and Ms. S. Corbett for the petitioners;

C. Quin, Q.C. for the Bank of America (a creditor);

G. Moss, Q.C., D. McCahill and Ms. A. Dunsby for the opposing creditors.

Cases cited:

(1) Alipour v. Ary, [1997] 1 W.L.R. 534; [1997] BCC 377, considered.

(2) Bell Group Fin. (Pty) Ltd. v. Bell Group (U.K.) Holdings Ltd., [1996] BCC 505; [1996] 1 BCLC 304, followed.

(3) Brinds Ltd. v. Offshore Oil N.L., [1986] 2 BCC 98, considered.

(4) Claybridge Shipping Co., Re, [1997] 1 BCLC 572; [1981] Com. L.R. 107, applied.

(5) Deloitte & Touche A.G. v. Johnson, 1999 CILR 297; [1999] 1 W.L.R. 1605, distinguished.

(6) Gordon & Breach Science Publishers, Re, [1995] 2 BCLC 189; [1995] BCC 261, considered.

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

(8) Pantmaenog Timber Co. Ltd., In re, [2004] 1 A.C. 158; [2003] UKHL 49, considered.

(9) Pen-y-van Colliery Co., In reELR(1877), 6 Ch. D. 477, applied.

Legislation construed:

Companies Law (2004 Revision), s.96: The relevant terms of this section are set out at para. 7.

Companies-compulsory winding up-creditors-holder of legal title to debt with no beneficial interest still ‘creditor’ for purposes of winding up if retains right to demand payment and interests not opposed to those of general body of creditors-can be more than one creditor for any given debt

Companies-liquidators-appointment-provisional liquidators should be confirmed as official liquidators unless clear reason to contrary, to save duplication of work, time and expense-potential savings through not confirming provisional liquidators to be offset against likelihood of delay-savings less significant if negligible in comparison to overall cost of liquidation

Food Holdings Ltd. (‘Food’) and Dairy Holdings Ltd. (‘Dairy’) brought a petition for the winding up of Parmalat Capital Finance Ltd. (‘PCFL’) (a subsidiary of the Parmalat Group), and confirmation of the joint provisional liquidators (‘JPLs’) as joint official liquidators of the company.

Food and Dairy were incorporated in the Cayman Islands as special purpose vehicles to raise money for Parmalat”s Brazilian operations by issuing loan notes, which were governed by the laws of New York. Food and Dairy acquired 18.18% of the shares in the Brazilian subsidiary, which were later made the subject of a put agreement with PCFL under which PCFL would purchase the shares from Food and Dairy if a put event occurred. Put events occurred in November 2003, and subsequently PCFL became liable to pay a base option price of around US$270m. to Food and US$245m. to Dairy.

Whilst Food and Dairy retained legal title to these debts, as part of a security agreement the right to receive payment from PCFL was transferred to certain security trustees who would pay out the money in accordance with priorities set out in the agreement. Any remaining surplus would be paid to Food and Dairy, although at the time of the proceedings it appeared unlikely that any such surplus would exist. The right to demand payment of the debts was reserved to Food and Dairy.

It was clear that PCFL was hopelessly insolvent, and in December 2003 the current JPLs were appointed ex parte, and those appointments

were affirmed in a contested inter partes hearing in March 2004. Various creditors from the Parmalat Group and one other unrelated creditor (‘the opposing parties’), owed a collective debt of around US$1 bn., opposed the appointment of the JPLs as joint official liquidators and proposed that their own choice of liquidators be appointed instead.

The opposing parties submitted that (a) beneficial interest in the Food and Dairy debts was held by the security trustees, and therefore, for the purposes of s.96 of the Companies Law (2004 Revision), they were the creditors in respect of the debt rather than Food and Dairy; (b) Food and Dairy had given no consideration for the put agreements and therefore the debts did not exist, or if they did exist, they were for unliquidated amounts and consequently Food and Dairy could not be considered creditors; (c) they were creditors of PCFL because there were debts owing to them; (d) as they were owed approximately 78% of PCFL”s debts, their own choice of liquidators should be appointed; (e) the proposed new liquidators would employ the same law firm as the other Parmalat entities in the US litigation rather than the JPLs” law firm, which would save a significant amount of money; and (f) the JPLs were also the joint official liquidators of Food and Dairy, which could cause a conflict of interest; evidence of this conflict had already been seen when the JPLs had arranged a controversial note purchase agreement between PCFL and Food at a time when both companies were under their control.

Food and Dairy submitted in reply that (a) although they had transferred most of the beneficial interest in the debt to the security trustees, they had retained the legal title and were therefore creditors in the eyes of the law; additionally, they retained some beneficial interest in the right to surplus moneys after payments had been made; (b) consideration had been given for the put agreement, and the dispute over the debt on substantive grounds should be treated with suspicion as it had been raised for the first time over two years after a winding-up order for PCFL was initially sought; the base option prices for their shares were determined and therefore that portion of their claim was for a liquidated amount; (c) the Parmalat entities were not creditors because the questionable accuracy of the records kept by the Parmalat Group before its collapse meant that there was no reliable evidence of the debts they claimed were owing to them; (d) although the Parmalat entities claimed to be entitled to the majority of PCFL”s debt, they had formerly been linked with PCFL as shareholders or managers and therefore their opinions should not be given the same weight as those of unrelated creditors; (e) any expense saved by the change of law firms proposed by the new liquidators must be offset against the cost of changing liquidators, meaning that the overall savings would be negligible in comparison to the debts owed by PCFL; the delay to the winding up caused by both a change in liquidators and a change in law firms must also be taken into account; and (f) the JPLs had taken independent legal advice before entering into the note purchase agreement which had been questioned, and believed it was in the best interests of the general body of

creditors; in this way they would also manage any other potential conflicts of interest as they arose.

Held, ordering that PCFL be wound up and appointing the JPLs as joint official liquidators:

(1) Food and Dairy were able to petition for the winding up as they were ‘creditors’ of Parmalat within the meaning of s.96 of the Companies Law (2004 Revision). Although they could not show that there was beneficially a sufficient debt owing to them, because there was unlikely to be a surplus after the security trustees had divided the money, they had retained legal title to the debt. It was possible for there to be more than one creditor for any given debt and as the interests of Food and Dairy as legal holders of the debt were not opposed to those of the general body of creditors, they could legitimately be considered creditors (paras. 10–14).

(2) Furthermore, the court was willing to exercise its discretion in favour of Food and Dairy not to investigate thoroughly the substantial reasons disputing the debt, as they had first been raised more than two years after the court was asked to wind up the company, and PCFL was hopelessly insolvent and the circumstances regarding its downfall required investigation. The claim was for a liquidated amount because the base option prices were clearly liquidated, and even if all other amounts claimed to be owing were not susceptible to calculation, Food and Dairy would still be a creditor in respect of the liquidated amount (paras. 15–19).

(3) The various Parmalat entities would also be treated as creditors of PCFL because, although the accuracy of the records kept by the Parmalat Group before its collapse could be seriously questioned and it was difficult to ascertain the nature and...

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