Re Sifco #5

• Jurisdiction: Cayman Islands
• Judge: (Smellie, C.J.)
• Judgment Date: 02 August 2010
• Court: Grand Court (Cayman Islands)
• Date: 02 August 2010

Grand Court, Financial Services Division

(Smellie, C.J.)

IN THE MATTER OF SAAD INVESTMENT AND FINANCE COMPANY LIMITED #5

D. Herbert for the respondent;

O. Payne for Barclays;

T.S. Haynes for SICL;

P. Hayden for AHAB.

Cases cited:

(1) Ayerst (Inspector of Taxes) v. C. & K. (Constr.) Ltd., [1976] A.C. 167; [1975] 3 W.L.R. 16; [1975] 2 All E.R. 537, referred to.

(2) Bank of Credit & Commerce Intl. S.A. (No. 3), Re, [1993] BCLC 106; [1992] BCC 83; on appeal, [1993] BCLC 1490; [1992] BCC 715, followed.

(3) Bulmer, ex p. Greaves, In re, [1937] Ch. 499; [1937] 1 All E.R. 323, referred to.

(4) Donaldson v. O”Sullivan, [2009] 1 W.L.R. 924; [2009] 1 All E.R. 1087; [2009] BCC 99; [2008] EWCA Civ 879, followed.

(5) F.T. Hawkins & Co. Ltd., In re, [1952] Ch. 881; [1952] 2 All E.R. 467, referred to.

(6) W. & A. Glaser Ltd., Re, [1994] BCC 199, referred to.

Legislation construed:

Companies Winding Up Rules 2010, O.9, r.1(1): The relevant terms of this sub-rule are set out at para. 5.

O.9, r.1(6): The relevant terms of this sub-rule are set out at para. 6.

O.9, r.1(7): The relevant terms of this sub-rule are set out at para. 5.

Companies-liquidation committee-establishment-under Companies Winding Up Rules, O.9, r.1(7) court may restrict powers of liquidation committee, e.g. to avoid conflicts of interest if committee member claiming in fraud against company-preferable for committee to be appointed in respect of company in official liquidation in O.9, r.1(1) to serve stakeholders” interests

The respondent company was in official liquidation in the Grand Court.

SICL, the holding company of the group to which the respondent belonged and also in liquidation, had loaned money to the respondent, and claimed against it as both a shareholder and a creditor in the liquidation. AHAB, a Saudi Arabian partnership, had instituted proceedings in fraud against the group, including the respondent, and sought to take all of their assets. It also sought to claim as a creditor in the liquidation of the respondent, and had been admitted by the respondent”s liquidators in the nominal amount of $1 for the purposes of voting. The liquidators sought to appoint a liquidation committee. Three candidates-AHAB, SICL and Barclays-presented themselves as possible appointees.

The liquidators applied to the Grand Court for directions. It proposed that the court direct it either to appoint only SICL and Barclays or to do away with the requirement for a liquidation committee altogether under the jurisdiction in the Companies Winding Up Rules, O.9, r.1(7), submitting that (a) AHAB was not a valid candidate for appointment, since its claim in fraud seeking to take all of the respondent”s assets put it in the position of an outside third-party plaintiff with a competing but unproven claim, rather than a creditor in the liquidation; (b) AHAB”s claim was not yet one coming within the liquidation estate, as demonstrated by the fact that its claim had only been admitted in a nominal amount; and (c) it would be ‘practically impossible’ for a liquidation committee including AHAB to discharge its fiduciary responsibilities in an objective manner, given the conflict of interest between AHAB”s claim in fraud and as a creditor on the one hand and the need to advise the liquidators in respect of AHAB”s claims on the other.

The court considered (a) whether to direct that AHAB be appointed to

the liquidation committee; and (b) whether to impose any restrictions on the powers of the liquidation committee.

Held, directing the establishment of the liquidation committee:

The court would direct that the liquidation committee be constituted of AHAB, Barclays and SICL, but without any remit to advise the liquidators on anything to do with AHAB”s claims. AHAB would not be excluded from the liquidation committee simply on the basis that it was not a creditor, since it was, albeit one whose claim had only been admitted on a limited basis. Nonetheless, there was a conflict of interest between its claims as a creditor and in fraud and its role as adviser to the liquidators. This meant that it was ‘practically impossible’ for AHAB to be part of a liquidation committee whose members could be regarded for all purposes as being able to act objectively as fiduciaries, and therefore the jurisdiction under the Companies Winding Up Rules, O.9, r.1(7) could be invoked. That jurisdiction would be...