Re Prospect Properties Ltd

• Jurisdiction: Cayman Islands
• Judge: (Hull, J.)
• Judgment Date: 15 January 1988
• Court: Grand Court (Cayman Islands)
• Date: 15 January 1988

Grand Court

(Hull, J.)

IN THE MATTER OF PROSPECT PROPERTIES LIMITED

R.D. Alberga, Q.C. and T. Bodden for the applicants;

G. Giglioli for the liquidator.

Cases cited:

(1) London & Globe Fin. Corp., In re, [1903] 1 Ch. 728; [1900–3] All E.R. Rep. 891.

Legislation construed:

Companies Law (Laws of the Cayman Islands, 1963, cap. 22), s.166: The relevant terms of this section are set out at page 49, line 37 – page 50, line 12.

s.168: The relevant terms of this section are set out at page 50, lines 14–24.

s.171: The relevant terms of this section are set out at page 52, lines 22–26.

Companies (Winding-up) Rules 1949 (S.I. 1949/330), r.68:

‘(1) [T]he application shall be made by a summons returnable in the first instance in Chambers. The summons shall state the nature of the declaration or order for which application is made, and the grounds of the application, and, unless otherwise ordered, shall be served, in the manner in which an originating summons is required by the Rules of the Supreme Court to be served, on every person against whom an order is sought, not less than eight days before the day named in the summons for hearing the application. Where any such application is made by summons no affidavit or report shall be filed before the return of the summons.

(2) On the return of the summons the Court may give such directions as it shall think fit as to whether points of claim and defence are to be delivered, as to the taking of evidence wholly or in part by affidavit or orally, as to the cross-examination either before the Judge on the hearing in Court or in Chambers of any deponents to affidavits in support of or in opposition to the application, as to any report it may require the Official Receiver or Liquidator to make and generally as to the procedure on the summons and for the hearing thereof.’

Grand Court Law (Law 8 of 1975), s.20(2): The relevant terms of this sub-section are set out at page 52, lines 30–35.

Companies-liquidators-powers and duties-application for investigation of delinquent directors under Companies Law (cap. 22), s.166-liquidator to follow English Companies (Winding-up) Rules 1949, r.68-summons to be ex parte disclosing prima facie case and detailing assets

Companies-liquidators-powers and duties-prosecution of delinquent directors under Companies Law (cap. 22), s.168-court may direct liquidator personally to prosecute under s.168 but may not direct him to refer matter to police for them to consider prosecution

The applicants applied for the discharge of two orders made against them under the Companies Law (cap. 22), ss. 166 and 168.

The applicants were members of a company which was being wound up by an official liquidator who applied ex parte by summons for appropriate orders pursuant to ss. 166 and 168 of the Companies Law (cap. 22) (a) to compel them to repay sums believed to have been misappropriated by them; and (b) to bring about their prosecution. The application was itself framed in the widest possible terms and was unsupported by any affidavit but reliance was placed on a report which the liquidator had previously filed.

The Grand Court (Douglas, Ag. J.) granted the orders sought and directed that (a) the applicants pay certain specified sums to the liquidator, being sums withdrawn from the company for which they were accountable; and (b) the liquidator submit a copy of his report to the Commercial Crime Division of the Police Force ‘with a view to instituting prosecutions under s.168 of the Companies Law.’ The applicants then brought the present proceedings to have the orders discharged.

They submitted that (a) they had neither been served with the summons filed by the liquidator nor the orders issued against them by the court; (b) they had been given no opportunity to be heard; (c) the summons did not specify the nature of the orders sought nor did it specify, in accordance with the English Companies (Winding-up) Rules 1949, the grounds on which the application was made; (d) in relation to the first order the correct procedure applicable to applications for orders under the Companies Law (cap. 22), s.166 had not been followed and the second order exceeded the powers conferred on the court under s.168; (e) the liquidator”s report did not allege that any crime had been committed and so did not establish a prima facie case of guilt; and (f) in any event the report had not been verified by affidavit nor was there a supporting affidavit stating how many creditors had supported the application and the effect on the company”s assets of the costs involved.

The liquidator submitted in reply that the summons had been taken out in the widest possible terms to allow for a discretionary interpretation of the procedure to be followed in the event that the English Companies (Winding-up) Rules 1949 were to be used as a guideline. He informed the court that he had anticipated that the court, on hearing the summons, would have given certain directions to be followed subsequently by a final order. He also conceded that if the proper practice to be adopted was reflected in the English Rules, the first order issued against the applicants should be set aside.

Held, discharging the orders:

(1) Since no local rules had been made for winding up a company the court would continue to apply its own. general practice which was to follow the English Companies (Winding-up) Rules 1949. Consequently, in making the application under the Companies Law (cap. 22), s.166 for an appropriate order to compel directors or other officers to repay misappropriated sums, the liquidator should have followed the procedure set out in r.68(1) of the English Rules. This required him to (i) take out a summons returnable in the first instance in Chambers stating the nature of the declaration sought and the grounds on which he sought it; and (ii) serve on the present applicants copies of the summons in the manner and with the length of notice specified in the rule. Alternatively, he could have sought leave not to serve the summons. In any event, due notice of the nature of the order sought had to be given to the alleged offenders and an opportunity afforded them to answer to it. On the return of the summons, the court would then have proceeded in the manner set out in r.68(2). As none of these procedures had been followed, the order directing the applicants to pay specified sums of money to the liquidator would be set aside (page 52, lines 19–27; page 52, line 36 – page 53, line 26).

(2) Although the liquidator in his own right was entitled to inform the police that he believed that an offence had been committed, this right was not to be confused with s.168 of the Companies Law (cap. 22) which was primarily concerned with the court”s power to direct criminal proceedings to be instituted by the...