Re Peregrine Derivatives

• Jurisdiction: Cayman Islands
• Judge: (Foster, J.)
• Judgment Date: 09 August 2013
• Court: Grand Court (Cayman Islands)
• Date: 09 August 2013

Grand Court, Financial Services Division

(Foster, J.)

IN THE MATTER OF PEREGRINE DERIVATIVES LIMITED

Ms. C. Moran for the applicant.

Case cited:

(1) Gresham Intl. Ltd. v. Moonie, [2010] Ch. 285; [2010] 2 W.L.R. 362; [2010] Bus. L.R. 67; [2009] 2 BCLC 256; [2010] B.P.I.R. 122; [2009] EWHC 1093 (Ch), applied.

Companies-liquidators-control by court-may grant retrospective sanction for liquidators” act or bringing of proceedings-inadvertent failure to obtain advance sanction not bar-sanction likely if liquidators acted in best interests of company, obtained legal advice and approval of creditors” committee, and would probably have been granted advance sanction if had applied

Conflict of Laws-companies-liquidators-parallel liquidations-court may sanction foreign liquidators” actions in domestic liquidation if appointed in parallel liquidations in two jurisdictions-may grant sanction retrospectively for actions under foreign law even if liquidators knew property should be dealt with in course of domestic liquidation

The applicants applied for retrospective sanction of certain actions undertaken during the liquidation of the company.

The company, which was incorporated in the Cayman Islands, operated mainly in Hong Kong, where it was registered as an overseas company. When it went into liquidation, winding-up orders were obtained in both Cayman and Hong Kong. The Grand Court appointed the applicants (being three liquidators from Hong Kong and one from Cayman) as liquidators (‘the Cayman liquidators’), whilst the High Court of Hong Kong appointed the same three liquidators from Hong Kong, but not the liquidator from Cayman (‘the Hong Kong liquidators’). Shortly after they had been appointed, the Cayman liquidators applied for leave to sell a particular asset of the company, which was granted by the Grand Court.

The Grand Court and the High Court of Hong Kong made similar orders regulating the parallel liquidation (‘the quasi-protocol’). These stated that any assets located in Hong Kong were to be dealt with by the Hong Kong liquidators under Hong Kong law and any assets outside Hong Kong were to be dealt with by the Cayman liquidators under Cayman law. Both courts also appointed the same creditors to the creditors” committees in each jurisdiction. After the quasi-protocol orders had been made, the liquidators applied to the Grand Court for, and were granted, a variation of the order, so that remuneration and expenses were subject to the approval of the creditors” committee.

The liquidation continued for 15 years and, in spite of the terms of the quasi-protocol, the Hong Kong liquidators dealt with all the company”s assets under Hong Kong law and practice. This included successfully pursuing litigation, unsuccessfully defending litigation, settling two potential claims against third parties and the sale of certain property, all in relation to non-Hong Kong assets. As Hong Kong law did not require these actions to be sanctioned by a court, the applicants had not made any applications to the Grand Court for sanction before acting, although they had obtained legal advice in relation to each action and (pursuant to Hong Kong practice) had consulted the creditors” committee. As the applicants could not recover the costs and expenses for these actions without sanction from the Grand Court, they made the present application for retrospective sanction.

The applicants submitted that the failure to obtain prospective sanction was due to inadvertence and that they should not be penalized for having acted in the best interests of the company. Further, the acts had been sanctioned by the creditors” committee, which was responsible for approving the liquidators” remuneration and costs. As the committee had approved the actions they had taken, it cannot have been dissatisfied with any of the actions taken in respect of the non-Hong Kong assets. Although the defence in the litigation had failed, the applicants had defended the claim based on legal advice and so should not be penalized for this.

Held, granting retrospective sanction:

There was no justification to penalize the liquidators for failing to seek prospective sanction and, accordingly, the court would grant retrospective sanction. As there were no statutory pre-conditions for granting sanction, the court had a general discretion to grant retrospective sanction depending on the circumstances of the case and there was no reason to refuse sanction when the failure to apply for prospective sanction was due to mere inadvertence. The Cayman liquidators were members of a well-respected firm, including one senior member of the Cayman branch of that firm, and had made other applications relating to the winding up. They should, therefore, have been aware that they were required to apply for directions before undertaking litigation-particularly as the quasi-protocol had emphasized that the non-Hong Kong assets would be governed by Cayman law-and their failure to do so was highly concerning. The Hong Kong liquidators, however, had acted in the best interests of the company throughout the liquidation, had had their actions confirmed by the creditors” committee, had obtained legal advice before acting, and would probably have been granted prospective sanction for each of the acts involved. As the failure to apply for prospective sanction had made little or no practical difference, there was no reason not to grant retrospective sanction and the court would do so. Further, the refusal of sanction would only mean that the liquidators would not be able to claim their costs and expenses from the company and not that the liquidator”s actions in relation to the non-Hong Kong assets would be undone, or that the judgments and

settlements would be invalid. Refusing to grant retrospective sanction would therefore mean that the assets available to the creditors would be increased and would grant an unfair advantage to the creditors-particularly as the creditors” committee had approved each of the actions before they were taken (paras. 17–25).

1 FOSTER, J.:

Introduction

This is an application by the joint official liquidators of Peregrine Derivatives Ltd. (in official liquidation) (‘the company’) seeking retrospective sanction of various actions carried out in the liquidation of the company, including litigating in Taiwan on behalf of the company in two actions, one as plaintiff and one as defendant; compromising and settling claims; and selling assets of the company.

Background

2 The...