Re Parmalat Capital Fin Ltd

• Jurisdiction: Cayman Islands
• Court: Court of Appeal (Cayman Islands)
• Judge: (Smellie, C.J.)
• Judgment Date: 21 July 2006
• Date: 21 July 2006

IN THE MATTER OF PARMALAT CAPITAL FINANCE LIMITED

(Smellie, C.J.)

Court of Appeal

Companies-compulsory winding up-stay of winding up-in practice stay never granted as hinders liquidator”s investigation of company”s affairs and recovery of debts-stay particularly unlikely if legal proceedings already initiated by company and likely to be prejudiced by delay

Held, dismissing the application:

(1) Although the court had the jurisdiction to order a stay under s.103 of the Companies Law (2004 Revision), it would in practice never do so as such a delay would make it difficult for a liquidator to investigate the affairs of the company in a timely manner, and thereby recover its assets. In this case the potential prejudice to the complex US proceedings, the proceeds of which represented the only significant asset of the company, or to the funding agreement necessary to pursue the US litigation, made that objection to a stay particularly valid. The negative impact of the stay on the US proceedings could not be reduced by appointing the JOLs as JPLs (paras. 2–4; paras. 10–12).

(2) Furthermore, it was noted that the applicants had failed previously in their attempts to take over the liquidation, which reflected poorly on the merits of the appeal. Additionally, there was no basis on which to conclude that a successful appeal might be rendered nugatory were the stay to be denied, and therefore no grounds upon which one should be granted (para. 9).

Case cited:

(1) In re A. & B.C. Chewing Gum Ltd., [1975] 1 W.L.R. 579; [1975] 1 All E.R. 1017, followed.

Legislation construed:

Companies Law (2004 Revision), s.103: The relevant terms of this section are set out at para. 2.

The respondent creditors brought a petition in the Grand Court for the winding up of Parmalat Capital Finance Ltd. (‘PCFL’).

In December 2003, the current joint official liquidators (‘JOLs’) were appointed ex parte as joint provisional liquidators (‘JPLs’). PCFL was hopelessly insolvent, and its only significant asset was the anticipated recoveries from litigation it was pursuing in New York against the Bank of America. In order to fund this litigation, the joint provisional liquidators entered into a funding agreement with a third party.

Various creditors from the Parmalat Group and one other unrelated creditor (‘the opposing parties’), owed a collective debt of around US$1bn., opposed the appointment of the JPLs as joint official liquidators and proposed that their own choice of liquidators be appointed, the foreign receiver-manager of the Parmalat Group promising that if those liquidators were appointed instead, he would provide funding for PCFL”s US litigation. In May 2006, the court affirmed the appointment of the joint provisional liquidators as joint official liquidators...