The Bankruptcy Law (Cap 7) (1997 Revision) Robert Don Foster, a Debtor

• Jurisdiction: Cayman Islands
• Judge: Hon. Justice Ingrid Mangatal
• Judgment Date: 07 September 2016
• Judgment citation (vLex): [2016] CIGC J0907-1
• Docket Number: CAUSE NO FSD 183 of 2010 (IMJ)
• Court: Grand Court (Cayman Islands)
• Date: 07 September 2016

In the Matter of the Bankruptcy Law (Cap 7) (1997 Revision)

In the Matter of Robert Don Foster, a Debtor

[2016] CIGC J0907-1

Before:

Hon. Justice Ingrid Mangatal

CAUSE NO FSD 183 of 2010 (IMJ)

IN THE GRAND COURT OF THE CAYMAN ISLANDS FINANCIAL SERVICES DIVISION

HEADNOTE

Application for discharge of Bankrupt, pursuant to section 68 of the Bankruptcy Law (1997 Revision).

1 This is an application by the Bankrupt, Mr. Robert Don Foster (‘Mr Foster’), for discharge from bankruptcy. The following is a broad chronology of events:-

CHRONOLOGY OF EVENTS

DATE	ACTION TAKEN
7 October 2011	Mr. Foster was placed into provisional bankruptcy
17 November 2011	Mr. Foster provided a Statement of Affairs to the Agent of the Trustee
18 November 2011	Meeting of Mr, Foster's creditors held, at which creditors in attendance resolve that the adjudication of bankruptcy be made
9 December 2011	Mr. Foster adjudged Absolute Bankrupt
1 February 2012	Mr. Foster underwent public examination. The examination was adjourned generally.
24 May 2013	Trustee issued a notice of dividend of four cents to the dollar to three proved creditors of the estate.
2 July 2014	Mr. Foster issued an Application for Discharge (First Application)
12 August 2014	The Application was heard by the Hon. Mr. Justice Henderson. It could not proceed as the Report of the Trustee had not been filed. The court directed that the report be filed by 12 March 2015.
13 March 2015	The Agent filed the Report of the Trustee.
4 February 2016	Mr. Foster issued the current Application for Discharge.

CHRONOLOGY OF EVENTS

THE APPLICATION

2 The Application was first listed for hearing on 15 April 2016, but was adjourned because a number of the relevant papers were filed quite late, and the Court did not have sufficient time to read the Bundles filed by the parties. However, it seems that in the interim, Mr. Foster and the Trustee have managed to have some useful discussions and there has been considerable progress made in a manner favourable to the unsecured creditors.

SUBMISSIONS ON BEHALF OF MR. FOSTER

3 On behalf of Mr. Foster, Mr. Broadhurst submitted that as at the date of the hearing of his Application, Mr. Foster will have been in bankruptcy for four and a half years. In the affidavit filed in support of the Application he has set out the severe impact which he says the bankruptcy has had upon him.

4 Mr. Broadhurst indicated that, up to 7 April 2016, it was not clear whether the Trustee would oppose the Application, or if she did, upon what basis she would do so. Counsel therefore in his written submissions at that time accordingly addressed two main points:

• A. It is no longer of any benefit to the estate for Mr. Foster to remain in bankruptcy; and

• B. The continuation of the bankruptcy will have a disproportionate punitive effect upon Mr. Foster.

A. It is no longer of any benefit to the estate for Mr. Foster to remain in bankruptcy

5 The Assets of the Estate have been identified

Counsel submitted that the Agent has identified the assets contained within the estate. It did not avail itself of any further examination of Mr. Foster subsequent to 1 February 2012. As a result of the Order of the Hon. Mr. Justice Henderson on 12 August 2014, no further examination of Mr. Foster is permitted.

6 The Assets are significantapproximately US$ 800,000 in realization has been received by the estate. Mr. Foster's interest in the property known as the Waterford Property is likely to result in a further realization in excess of US$2,000,000, Mr. Broadhurst submitted. The total value of the proved claims in the bankruptcy is US$2,615,192.97.

7 The Assets of the estate will remain vested in the Trustee

Pursuant to section 37 of theBankruptcy Law (1997 Revision) (the ‘Law’) the assets of Mr. Foster were vested in the Trustee upon the making of the provisional bankruptcy order. Those assets remain vested in the Trustee when Mr. Foster is discharged. Further, pursuant to section 68(9) of the Law, Mr. Foster remains obligated to assist the Trustee with respect to the realization and distribution of those assets.

8 As the position of the estate will not be negatively impacted by Mr. Foster's discharge, it was submitted that this is a strong factor in favour of granting this Application.

B. Continuation of bankruptcy will have a disproportionate punitive effect on Mr. Foster

9 Bankruptcy has lasted four and half years Pursuant to section 67 ofthe Law, the Trustee was required to make a report as soon as possible after the close of the public examination of the Debtor. Thereafter, the Debtor could make an application for discharge.

10 Pursuant to section 68(3) ofthe Law where an application of discharge is made, the Court may make several different orders including the suspension of the discharge for a period of not less than two years. It further provides that upon the expiration of two years from the date of such an order, the Debtor can make an application for a modification of that order.

11 Despite the examination being adjourned generally in February 2012, no further examination took place. The report of the Trustee was not filed until March 2015.

12 Had the Report been issued within a year of the commencement of the bankruptcy, Counsel submitted, Mr. Foster would have had the opportunity to bring an application for discharge at that time. If the Court had then ordered the discharge to be suspended or subject to some other conditions, two years would have now expired since the making of such an order. Mr. Foster would now be entitled to seek a review of such an order if necessary, Mr. Broadhurst reasoned.

13 Mr. Broadhurst submitted that effectively, the delay in the filing of the Report has operated such that Mr. Foster has been forced to remain in bankruptcy without Court review for four and half years. He lost the ability to seek a discharge and the ability to seek a review of that decision if it had not been granted. It was submitted that this is manifestly unjust to Mr. Foster.

14 The Bankruptcy has had a dramatic punitive impact upon Mr. Foster While it is accepted that bankruptcy is by its very nature a difficult process, it was submitted that the position which Mr. Foster now finds himself in well exceeds what is to be expected. Mr. Broadhurst opines that at the time of the commencement, Mr. Foster was a man of significant wealth. The value of his assets well exceeded his liabilities. Despite his age, physical limitations and low earning capacity he was provided with no allowance for support for himself and his family after he was placed into bankruptcy.

15 In October 2013, Mr. Broadhurst wrote to the Agent requesting a reconsideration of its position with respect to the allowance to be provided to the debtor. Section 137 ofthe Law was expressly drawn to the attention of the Agent, together with the fact that Mr. Foster was expecting the birth of a child and his earning capacity remained limited. Despite this, Counsel indicated that the request for reconsideration was refused and Mr. Foster's legal aid certificate was amended to state that he not be permitted to instruct his attorneys to challenge the management of the affairs of the estate.

16 Due to having insufficient funds, the argument continued, Mr. Foster has gone without necessary medical treatment. He lives in a one-bedroom apartment with his wife and two year old daughter. They rely upon friends and family to allow them to make ends meet.

17 The full up-to-date costs of the Agent and its attorneys have not been disclosed. It however appears that the costs well exceed US$2,000,000, Counsel submitted. Pursuant to section 138 ofthe Law, the debtor is entitled to any surplus remaining after payment of this creditors and the costs and expenses of the bankruptcy petition. If permitted, the charges of the Agent and its attorneys almost certainly guarantee, Mr. Broadhurst contends, that there will be no surplus for Mr. Foster. The impact of this is that even upon discharge, his future prospects given his age (64) and his health are very poor.

18 Taking into account the length of the bankruptcy and its impact upon Mr. Foster, Mr. Broadhurst opines that it has clearly had a deeply punitive impact upon him. It was submitted that this impact is well beyond what could be reasonably intended by the law or can be seen to be reasonable in all the circumstances of this matter.

THE APPROACH OF THE AGENT OF THE TRUSTEE IN BANKRUPTCY

19 When this Application for discharge first came on for hearing on 15 April 2016, it was opposed by the Trustee. Anne Scarborough (‘Ms Scarbrough’), who is the former wife of Mr. Foster and Petitioning Creditor, also opposed the Application. Appleby, who have previously advised Ms. Scarbrough, filed an affidavit on her behalf for the hearing in April 2016.

20 However, the Trustee's position, as set out in the sixth affidavit of Mr. Penner, the Partner at Deloitte & Touche with responsibility for appointment as agent of the Trustee, has changed. It is now that the Trustee takes a neutral stance on the question of discharge. This was the position taken at the hearing conducted in June 2016.

21 In his sixth affidavit, sworn on 8 June 2016, Mr. Penner stated as follows:

• ‘1) …………………

• 2) At the time of my fifth Affidavit in these proceedings, (15 April 2016) the Trustee opposed the application to discharge. There was concern that a discharge might prejudice recoveries of certain further assets for the benefit of the creditors of the bankruptcy estate. This Affidavit updates the Court on the progress which the Trustee has made with respect to recoveries since the Application was adjourned on 15 April 2016, and how that has affected the Trustee's position with regard to the application to discharge.

• 3) There is now produced and shown to...