Section 92 of the Companies Law (2018 Revision) and Altair Asia Investments Ltd
| Jurisdiction | Cayman Islands |
| Judge | Raj Parker |
| Judgment Date | 16 March 2020 |
| Date | 16 March 2020 |
| Docket Number | CAUSE: FSD 200 OF 2019 (RPJ) |
| Court | Grand Court (Cayman Islands) |
and
THE HON. Raj Parker
CAUSE: FSD 200 OF 2019 (RPJ)
IN THE GRAND COURT OF THE CAYMAN ISLANDS
FINANCIAL SERVICES DIVISION
Application by petitioner to wind up company on the basis of insolvency and inability to pay debts-sections 92 of the Companies Law-bonafide and substantial dispute-related Hong Kong insolvency proceedings-application to adjourn pending judgment in Hong Kong proceedings-section 95 of the Companies Law-risk of conflicting judgments-discretion.
Mr Jeremy Goldring QC of South Square Chambers on behalf of the Petitioner
Mr Marc Kish and Ms Marie Skelly of Ogier on behalf of the Petitioner.
Mr Tom Smith QC of South Square Chambers on behalf of the Company.
Mr Rupert Bell and Mr Peter Kendall of Walkers on behalf of the Company
The Petitioner, Safe Castle Limited, incorporated in the British Virgin Islands on 13 June 2014 as a BVI company, applies under section 92 of the Companies Law (2018 Revision) (the Companies Law) as a creditor to wind up the respondent company, Altair Asia Investments Limited (the company).
The company is an exempted limited company incorporated in the Cayman Islands on 27 August 2012. Its directors are Frank Dominick and Patrick Maloney. Its administrator and cash custodian until recently was a fund administrator called Intertrust Fund Services (Asia) Limited (Intertrust). The company is an investment vehicle organised for the purpose of investing funds as a special limited partner of a Delaware limited partnership.
The grounds for the Petition dated 11 October 2019 are that the petitioner is a redemption creditor and the company is insolvent and unable to pay its debts.
It is common ground that the petitioner invested HK $200 million in the company in October 2017 (or roughly US $25 million at current exchange rates) and in exchange was allotted HK $200 million of participating shares in the company, with a guaranteed return of 15% per annum payable quarterly on the terms set out in a Subscription Agreement dated 1 October 2017 and a Side Letter dated 10 October 2017, both of which are governed by Cayman Islands law.
The investment was secured among other things by guarantees also dated 10 October 2017 of the company's liabilities given by Mr Dominick personally and an entity called China Silver Asset Management (Hong Kong) Ltd (China Silver), which is controlled and managed by Mr Dominick and Mr Maloney.
Clause 1 of the Side Letter defined various circumstances in which the petitioner was entitled to redeem its shares in the Company in whole or in part. This included a number of ‘Extraordinary Redemption Events’ (or ERE) as defined therein. One such event, at clause 1.1.11, would occur if the average of the closing price of shares in a company called RM Group Holding Ltd (listed on the Hong Kong Stock Exchange) fell below a defined floor for any five consecutive trading days ( the closing price triggering event). This in fact occurred between 27 December 2017 and 3 January 2018.
An ERE also would also occur under clause 1.1.12 on the expiry of one year after the date of allotment and issue of shares (the anniversary triggering event). The shares were allotted on 18 October 2017 and so the anniversary date was 18 October 2018.
Clause 1.2 of the Side Letter provides that, except for redemption requests made pursuant to the closing price triggering event (clause 1.1.11), the petitioner must give the company at least 90 days prior written notice. For a request to redeem shares in relation to the closing price triggering event (clause 1.1.11) a lesser period of 21 days written notice has to be given. In this event the redemption proceeds are calculated on the basis of the return of the original amount of the investment plus the guaranteed return.
A redemption under the anniversary triggering event (clause 1.1.12) is treated differently in that it requires 90 days written notice (along with all the other defined redemption events) and the calculation to be made is not the original investment plus the guaranteed return, rather it is based upon the company's net asset value (NAV) at the date of redemption. This was to be determined by Intertrust and would be equivalent to the assets less the liabilities of the company at the relevant valuation date.
The petitioner has sought to redeem its shares having submitted two letters seeking to do so on 5 January 2018 and 2 October 2018.
The letter of 5 January makes clear that it is a redemption pursuant to the closing price triggering event (clause 1.1.11) and required payment of HK $209,041,089 (being the aggregate consideration of its original investment plus the guaranteed return calculated up to 5 February 2018) within 21 days or by 5 February 2018.
Those letters were, according to the petitioner, accepted by the company and the petitioner thereby became a creditor. The petitioner also alleges that the company has failed to pay this debt or any part of it since October 2018. It is further alleged that it is unable to pay its debts which is clear from its inability to pay over a period of many months.
The petitioner says that at the relevant times the company did not assert that the redemption requests were invalid or that no sum was due to the petitioner and it is alleged that the company has thereby accepted the redemption requests and in fact has consistently admitted its obligations, but despite many promises and excuses has failed to pay. The petitioner's case is factually explained in the affirmations of Liu Yao a director of the petitioner dated 11 October 2019 and 30 January 2020.
The petitioner entered into settlement negotiations with the company and China Silver (as the corporate guarantor of the company) and on 23 January 2018 entered into a Waiver Letter which is also governed by Cayman Islands law.
The company relies on this Waiver Letter as a complete answer to the redemption requests made. The petitioner says that the way the letter was expressed is strictly conditional upon the satisfaction or waiver of conditions precedent and those conditions precedent were never satisfied or waived so that the waiver contained in the letter never became effective and the rights arising as a result of the redemption requests subsist.
On the strength of that seemingly straightforward set of facts, on the petitioner's case, it requests that the Court should immediately exercise its power to wind the company up and appoint joint official liquidators to take control of its affairs as Court officers in the interests of all creditors, of which the petitioner is by far the largest. The petitioner also points to the opacity of the administrator's current position and the obscurity of the company's financial information in support of its case.
The petitioner has sought to enforce various rights available to it seeking distinct relief against different parties through insolvency proceedings in Hong Kong (the High Court of the Hong Kong Special Administrative Region).
It presented a winding up petition against China Silver on 17 March 2019 relying on the guarantee China Silver gave on 10 October 2017 and a bankruptcy petition against Mr Dominick, who is domiciled in Hong Kong, relying on the personal guarantee he gave on the same date. This was heard by the Hong Kong Court on 27 September 2019 and judgment was reserved by Mr Justice Harris.
It then presented the Petition in this Court against the company some two weeks later on 11 October 2019. The company is not a party to the Hong Kong proceedings. The company says that the risk of conflicting decisions should lead the Court to exercise its discretion to adjourn the Petition.
Mr Goldring QC for the petitioner submitted that the Court should determine the Petition immediately and make a winding up order. The company was incorporated in the Cayman Islands and the Court plainly had jurisdiction to make such an order. The grounds were clear-cut. The petitioner is a creditor and the company is insolvent. The petitioner is the entity with the overwhelming financial interest in the company having held 84% of the shares prior to redemption. It is entitled to an immediate order to wind the company up.
Mr Goldring put the case in three alternative ways, each of which was said to be freestanding. He submitted as follows.
The petitioner is owed a redemption sum because it validly requested redemption of its shares pursuant to the closing price triggering event by the first and/or the second request. In the alternative, the petitioner is owed a redemption sum because it validly requested redemption of its shares pursuant to the anniversary triggering event by the second request. In the further alternative, the petitioner is owed a redemption sum because the company has accepted and agreed that the petitioner is entitled to a redemption amount calculated by the administrator.
There is no bona fide or substantial dispute as to the petitioner's status and tellingly there was no hint or suggestion of a challenge to that status until the proceedings were commenced in Hong Kong. In fact, the company for a long period and on many occasions accepted the validity of the redemption requests but in the face of winding up proceedings and the bankruptcy proceedings against Mr Dominick now has performed a ‘volte face’.
Additionally, Intertrust, the former administrator of the fund and the cash custodian has resigned and the financial documentation which the company has produced is obscure. The debt has been outstanding for some time and so...
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