Re Parmalat Capital Fin Ltd

JurisdictionCayman Islands
Judge(Zacca, P., Forte and Mottley, JJ.A.)
Judgment Date05 December 2006
CourtCourt of Appeal (Cayman Islands)
Date05 December 2006
Court of Appeal

(Zacca, P., Forte and Mottley, JJ.A.)


G. Moss, Q.C., D. McCahill and Ms. A. Dunsby for the appellants;

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

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

Cases cited:

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

(2) Arrows Ltd., Re, [1992] BCC 121, followed.

(3) Bateman Television Ltd. v. Coleridge Fin. Co. Ltd., [1971] NZLR 929, followed.

(4) Bayoil S.A., Re, [1999] 1 All E.R. 374; [1998] BCC 988; [1999] 1 BCLC 62, not followed.

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

(6) Brinds Ltd. v. Offshore Oil N.L.UNK(1986), 2 BCC 98, 916, followed.

(7) Buchler v. Talbot, [2004] 2 A.C. 298; [2004] 1 All E.R. 1289; [2004] UKHL 9, followed.

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

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

(10) Great Britain Mutual Life Assur. Socy., ReELR(1880), 16 Ch. D. 246; 51 L.J. Ch. 10, considered.

(11) Lowestoft Traffic Servs. Co. Ltd., ReUNK(1986), 2 BCC 98, 196, applied.

(12) Lympne Invs. Ltd., In re, [1972] 1 W.L.R. 523; [1972] 2 All E.R. 385, not followed.

(13) Mann v. Goldstein, [1968] 1 W.L.R. 1091; [1968] 2 All E.R. 769, considered.

(14) Maxwell Communs. Corp., Re, [1992] BCC 372; [1992] BCLC 465, followed.

(15) Pantmaenog Timber Co. Ltd., In re, [2004] 1 A.C. 158; [2003] 4 All E.R. 18; [2003] UKHL 49, considered.

(16) Performing Right Socy. Ltd. v. London Theatre of Varieties Ltd., [1924] A.C. 1; (1923), 93 L.J. K.B. 33, distinguished.

(17) Russian & English Bank, In re, [1932] 1 Ch. 663, referred to.

(18) Southard & Co. Ltd., In re, [1979] 1 W.L.R. 546; [1979] 1 All E.R. 582, applied.

(19) Stonegate Secs. Ltd. v. Gregory, [1980] Ch. 576; [1980] 1 All E.R. 241, not followed.

(20) Three Rivers District Council v. Bank of England, [1996] Q.B. 292; [1995] 4 All E.R. 312, distinguished.

(21) Walter & Sullivan Ltd. v. J. Murphy & Sons Ltd., [1955] 2 Q.B. 584; [1955] 1 All E.R. 843, distinguished.

Legislation construed:

Companies Law (2004 Revision), s.96: The relevant terms of this section are set out at para. 72.

Companies-compulsory winding up-creditors-‘creditor’ need not show substantial interest in relief sought (e.g. right to receive funds from liquidation) if charge placed on debt in favour of third party, so long as retains legal title and right to receive surplus-when beneficial interest assigned to third party, both are ‘creditors’ and either can petition for winding up without joining other

Companies-compulsory winding up-creditors-creditor”s petition based on disputed debt normally dismissed-court has discretion to allow creditor with disputed claim to succeed, if otherwise deprived of remedy, and company needs winding up and investigation

Food Holdings Ltd. (‘Food’) and Dairy Holdings Ltd. (‘Dairy’) brought a petition in the Grand Court 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$1bn., opposed the appointment of the JPLs as joint official liquidators and proposed that their own choice of liquidators be appointed instead. They additionally argued that Food and Dairy had no standing to petition for the winding up of PCFL as the debt, and consequent right to be treated as creditors, had been transferred to the security trustees and, furthermore, claimed no debt existed at all as consideration had not been given for the put agreements. The Grand Court (Henderson, J.) granted Food and Dairy”s application, declaring that PCFL was hopelessly insolvent and its affairs required investigation, and appointed the provisional liquidators as official liquidators. The proceedings are reported at 2006 CILR 171.

The opposing parties appealed to the Court of Appeal, submitting that (a) a ‘creditor’ required both ‘technical standing’ and ‘substantial standing,’ in order to petition for winding up; (b) Food and Dairy lacked substantial standing because they would not receive any money from the winding up, and therefore lacked a proper interest in the relief sought and were not ‘creditors’; (c) alternatively, even if only one type of standing were required to be a ‘creditor,’ the respondents also lacked technical standing, as they had no right to receive the proceeds of the petition debt, and even if they were to receive payment, it would have to be held on trust for the security trustees; (d) as Food and Dairy were likely to have no beneficial interest in the debt, it was the security trustees, and not Food and Dairy, that should be treated as creditors; (e) the respondents had given no consideration for the put agreements, which had in fact been obtained through fraud, and therefore the debts did not exist; as this was a bona fide dispute of the debt on substantial grounds, the respondents had failed to prove they were creditors, and therefore did not have standing to petition for winding up; (f) as they were owed approximately 78% of PCFL”s debts, the Grand Court should have appointed their own choice of liquidators, and in not doing so, it had failed to give appropriate weight to their views as the majority creditors; and (g) the JPLs were also the joint official liquidators of Food and Dairy, which could cause a conflict of interest; therefore, given the existence of alternative liquidators, Messrs. Cleaver and MacRae should not have been appointed.

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 therefore satisfied the requirements of s.96; as the categories of persons who could petition for winding up were set out in the statute, they did not need to go beyond this and show they were also ‘proper persons to invoke the jurisdiction’; (b) alternatively, they had retained some beneficial interest in the right to surplus money after payments had been made, and could therefore also be said to have an interest in the relief sought; (c) there could be more than one creditor for a debt, and in this case, both the security trustees as beneficial holders and Food and Dairy as legal holders of the debt should be treated as creditors; (d) in the US proceedings, it was not alleged that the debts to Food and Dairy were void and should

be set aside or rescinded; in fact the US proceedings were against the Bank of America, which they alleged was aware of the breach of fiduciary duty occurring within PCFL, and their claim relied on the existence and validity of the obligation to pay the sums due under the put agreements; (e) even in the existence of a claim that the debt owed to them had been bona fide disputed, the court had the jurisdiction to decide whether to allow the creditors to bring their petition; (f) 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 the Grand Court had been right to give their views less weight than those of unrelated creditors; and (g) there was no rule of law that the same liquidators could not be appointed for related entities because of the potential for a conflict of interest, and Messrs. Cleaver and MacRae had demonstrated to the Grand Court that they had devised a system for dealing with any conflicts that might arise.

Held, dismissing the appeal and affirming the orders of the Grand Court:

(1) The Grand Court had been right to conclude that Food and Dairy had standing to petition for the winding up, as they were ‘creditors’ of PCFL within the requirements of s.96 of the Companies Law (2004 Revision). As the category of persons who could petition for winding up was stated by the statute to be ‘creditors,’ it was sufficient that the petitioners had retained legal title to the debt, and were entitled to receive any surplus once the security trustees had realized their security, even if there was unlikely to be any surplus and they therefore lacked a substantial interest in the winding up. Although they had assigned the beneficial interest in the debt to the security trustees, if only creditors who could expect to receive payment out of the assets of the liquidation were able bring a winding-up petition...

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