Section 93 of the Companies Law (2020 Revision) and Sky Solar Holdings, Ltd
| Jurisdiction | Cayman Islands |
| Judge | Kawaley |
| Judgment Date | 12 October 2020 |
| Court | Grand Court (Cayman Islands) |
| Docket Number | FSD CAUSE NO 190 OF 2020 (IKJ) |
The Hon. Justice Kawaley
FSD CAUSE NO 190 OF 2020 (IKJ)
IN THE GRAND COURT OF THE CAYMAN ISLANDS
FINANCIAL SERVICES DIVISION
Creditor's winding-up petition-disputed debt-whether petition should be struck-out on abuse of process grounds-cross-claim and ‘reverse cross-claim’-relevance of pending proceedings in foreign forum pursuant to exclusive jurisdiction clause
Mr Barry Isaacs Q.C. instructed by Ms Gemma Lardner and Ms Victoria King, Ogier, on behalf of the Petitioner
Mr Jonathon Milne, Mr Spencer Vickers and Ms Sean-Anna Thompson, Conyers, on behalf of the Company
The Petitioner is a Delaware limited partnership and general partner of Hudson Solar (Cayman) LP, a Cayman Islands limited partnership. On August 26, 2020, the Petitioner presented a petition to wind-up the Company on the grounds that it was unable to pay its debts pursuant to sections 92(d) and 93 of the Companies Law (2020 Revision) (the “Petition”).
The Petition alleges that the Petitioner was owed at least US$93,253,792 and is seeking a determination of the precise amount due through summary judgment proceedings commenced on May 26, 2020 (Supreme Court of the State of New York, County of New York, Cause No. 652002/2020 (the “New York Proceedings”)), a smaller portion of that larger sum, demanded on February 18, 2020, US$7,141,444 was undisputed. Paragraph 14 of the Petition defines this sum as the “Undisputed Debt”.
The Petition on its face accepts that all other amounts were disputed and the Company's liability to pay any further sums would be determined in the New York Proceedings, which it referred to as the “2020 Proceedings”. It is averred:
“ 18. The Company is contesting the 2020 Proceedings but, in its evidence filed in the 2020 Proceedings filed in July 2020, the Company admitted its inability to pay the Undisputed Debt.”
Because standing to petition to wind-up a company is fundamentally dependant on a petitioner's ability to establish its standing as a creditor to whom an undisputed debt is owed, the debt relied upon for this purpose is a central averment in every creditor petition. The “Undisputed Debt” is, on a straightforward reading of the Petition, the debt upon which the Petition is based. Where a winding-up is sought on the insolvency ground, a creditor's petition must also clearly set out the basis on which it is alleged that the respondent is “unable to pay its debts”. Is it unable to pay its debts generally, or is reliance based solely (or primarily) on the respondent's inability to pay the petition debt? In this regard, the Petition does make reference to the Company's general financial position on a balance sheet basis under the heading “ Cash Flow Position”. But it makes no general allegations of cash flow insolvency. The only positive averments in this regard relate to inability to pay the Undisputed Debt:
“ 24. The Company is unable to pay the Undisputed Debt, and has admitted the same (see paragraph 18 above)…
25. The Petitioner has no confidence that the Company has the means to pay the Undisputed Debt (or the Total Outstanding Debt).
26. On 17 August 2020 the Petitioner again requested payment of the Undisputed Debt from the Company, or evidence that the Company was able to do so. The Company did not provide any evidence of its ability to pay the Undisputed Debt…
27. In the premises the Company is insolvent and should be wound up in accordance with sections 92(d) and 93 of the Companies Law.”
The Petition was the second set of proceedings commenced in the Cayman Islands in connection with the sums sought in the New York Proceedings. On July 22, 2020, the Petitioner issued an Originating Summons seeking freestanding injunctive relief pursuant to section 11A of the Grand Court Law (2015 Revision) (the “Section 11A Proceedings”). I granted an ex parte freezing order (including a receivership order) following a hearing on notice to the Company on July 30, 2020 (the “Freezing Order”), very narrowly, and directed that the Company should be able to seek to discharge the Freezing Order on short notice. Following an inter partes hearing on August 13, 2020 1, I discharged the Freezing Order. In my Reasons for Decision delivered on August 27, 2020, the day after the Petition was presented, I described what appeared to me to be the following uncontroversial facts:
“ 1… The Plaintiff's pending application for summary judgment in the New York Proceeding is hotly contested. It is admitted that certain sums will become due and payable to the Plaintiff under a guarantee, but disputed whether any of the approximately $93 million the Plaintiff seeks is presently due and payable.”
The focus of the Section 11A Proceedings was, of course, entirely different, but those proceedings sought what from the outset appeared to me to be overreaching relief which I ultimately determined was not properly available because there was no risk of impermissible dissipation of assets made out. But the fact that distinctly inapposite pre-judgment interim relief was sought in aid of the New York Proceedings implied that the
more straightforward remedy of petitioning for winding-up was not available. This appeared to be because the existence of any presently due liability from the Company to the Petitioner would only crystallize with a judgment of the New York Court. If the Petitioner was indeed an undisputed creditor based on admissions made by the Company in evidence filed in New York (on July 14, 2020), just over a week before the Section 11A Proceedings were commenced (on July 22, 2020), it seemed odd that the winding-up jurisdiction was being resorted to as the second port of callThe effect of the Freezing Order was to impede the Company from completing a go-private transaction in New York on or about August 28, 2020. The effect of the presentation of the Petition on August 26, 2020, which the Petitioner was keen to make the Company aware of before the Petition had been processed by the Court for formal service, was precisely the same. Unsurprisingly, the Company applied by Summons dated September 10, 2020 to set aside or strike-out the Petition in early course.
Not only did the Petitioner have a very recent track record of commencing proceedings which this Court had found to be misconceived (just over 2 weeks before the present proceedings were commenced), the important averment in the Petition to the effect that the Company's alleged inability to pay the Undisputed Debt had been admitted appeared on superficial analysis to be wholly unsupportable. Based on my pre-hearing reading of the papers, I formed the provisional view that the Petition would probably have to be struck-out. I accordingly declined to hear full oral submissions from the Company's counsel to afford the Petitioner's counsel the fullest possible opportunity to displace my provisional views.
The strike-out Summons was listed for a 1 day hearing. Mr Isaacs QC spent almost a full day addressing the Court on the Petitioner's behalf. The Petitioner's case was sculpted into a far more solid piece of legal architecture than had seemed possible at the outset. And so, at the end of an extended sitting day, I felt compelled to reserve judgment. Nevertheless, I am indebted to counsel for the wide range of authorities placed before the Court and for the relative conciseness and clarity of their written and oral submissions.
Near the beginning of the hearing, I suggested to Mr Milne that his case effectively entailed the assertion that the background to the present Petition proceedings was the most unusual in the world. This was because in the Company's Skeleton Argument it was submitted:
“ 4.1 Context is important. There is a long history of oppressive conduct by the Petitioner against the Company which cannot be ignored for the purposes of the Company's present strike-out application…”
Complaint was made about five attempts to serve the Petition. It was further argued that the Petition was presented for an improper purpose and that the Petitioner had adequate alternative remedies which it should be left to pursue in the New York Proceedings.
Mr Isaacs QC submitted that the mere fact that the Petitioner had commenced two sets of proceedings (in New York and Cayman) before presenting the Petition, one of which was still pending, was an essentially irrelevant consideration. The winding-up jurisdiction ought to be available to any creditor petitioning on the basis of an undisputed debt. The Petition could only be struck-out if a collateral purpose could be shown to be the “only” purpose of the Petition and (as I accepted in the course of the hearing) the issue of alternative remedies was only relevant in the context of petitions seeking a winding-up order on just and equitable grounds.
I accept the Petitioner's counsel's submission that the pre-Petition litigation skirmishes, and any suggestion that the Petitioner ought to have litigated in a different manner (e.g. presenting the Petition as a first resort, not commencing the Section 11A Proceedings), are largely irrelevant in general terms. Indirect support for this conclusion may be found in the judgment of Kwan J (as she then was) in Re City Top Engineering Ltd. [2006] 3 HKC 455 at paragraphs [11]–[13]. The background to the petition in that case was a civil action in the midst of which statutory demands were served, a factor which was not considered to be abusive conduct.
More general judicial support for the proposition that this Court should be slow to second-guess litigants' tactical machinations may be found in the recent local case of Marsh Management...
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