The Bankruptcy Law (Cap.7) (1997 Revision) Patricia H. Millard, A Debtor William H. Millard, A Debtor

• Jurisdiction: Cayman Islands
• Judge: The Hon Mr Justice Andrew J. Jones
• Judgment Date: 03 June 2013
• Court: Grand Court (Cayman Islands)
• Docket Number: FSD #60 and #61 of 2013 (AJJ)
• Date: 03 June 2013

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

In the Matter of Patricia H. Millard, A Debtor

In the Matter of William H. Millard, A Debtor

[2013] CIGC J0603-1

The Hon Mr Justice Andrew J. Jones QC

FSD #60 and #61 of 2013 (AJJ)

IN THE GRAND COURT OF THE CAYMAN ISLANDS

Introduction

1 Personal bankruptcy proceedings (as opposed to corporate liquidation proceedings) are rarely filed in this jurisdiction. It may be that no more than half a dozen bankruptcy petitions have been presented in the past 40 or 50 years. On 10 May 2013 Mr and Mrs William H. Millard (collectively ‘the Millards’) presented petitions against themselves in which they state that they are unable to pay their debts and are desirous of being made bankrupt and having their estates administered pursuant to the Bankruptcy Law. This may well be the first time that a debtor's petition has ever been filed in this Court.

2 The Millards have filed sworn statements of affairs which list their assets and liabilities and explain the causes of their insolvency. The bulk of their assets consists of shares in wholly owned Cayman Islands incorporated investment holding companies. The assets of these companies mainly comprise real estate located in the Cayman Islands. One of these companies also owns a condominium in Florida and there are some assets in Belgium and Switzerland. The Millards' principal liability comprises judgment debts owing to theGovernment of the Commonwealth of the North Mariana Islands (‘the Marianas’) in respect of unpaid taxes. Default judgments were entered against both of them 1994 for US$18,317,980.80. The total amount now owing, including interest accrued up to 1 July 2011, is about US$59 million. Their only other stated liabilities are legal fees owing to various law firms. The Millards are said to be insolvent in the sense that the realizable value of their worldwide assets is less that the amount of their total liabilities by a substantial margin.

3 In the case of a debtor's petition the Bankruptcy Rules contemplate that an absolute order for bankruptcy may be made summarily, without notice to the creditors, if the judge is satisfied that the debtor has filed a statement of affairs which appears on its face to comply with the rules. If it subsequently turns out that a bankruptcy order ought not to have been made for whatever reason, the Court has power under section 170 to revoke it. On 14 May 2013 the Millards made application for a summary order but Henderson J. adjourned the application and directed that the petitions, statements of affairs and verifying affidavits be served on all those creditors owed more than US$50,000. Apart from the Millards' own lawyers, the only creditor owed more than $50,000 is the Government of the Marianas. The matter then came on for hearing before me on 29 May 2013 when the Government of the Marianas appeared by counsel who argued that the petitions should be struck out or dismissed on three grounds. First, it is said that the Millards are not entitled to present petitions against themselves because they are not insolvent in the narrow sense that the realizable value of their assets (or at least those assets located in the Cayman Islands) is greater than the amount of the liabilities which are enforceable against them in the Cayman Islands. Second, it is said that the petitions are an abuse of the process because they have been presented for an improper purpose. Third, even if the Millards were properly entitled to present these petitions, it is said that I should nevertheless exercise my discretion by dismissing them because it would serve no useful purpose to make any order for bankruptcy in this jurisdiction and the Court should not make orders which are futile. The crucial point underlying all three of these arguments is that foreign judgments in respect of taxes are not enforceable in this jurisdiction.

4 It is well established that a foreign judgment in respect of taxes or other charges of a like nature will not be enforced either at common law or pursuant to the Foreign Judgments Reciprocal Enforcement Law (1996 Revision). Counsel referred me to the well known decision of the House of Lords inGovernment of India v. Taylor [1955] 401 which concerned an attempt by the Government of India to prove in the liquidation of an English company for taxes owing as a result of its trading activities in that country. It was held that the expression ‘liabilities’ (as used in the applicable provisions of the Companies Act) meant only such liabilities as are enforceable in an English court. Viscount Simonds said (at page 509) –

‘I conceive that it is the duty of the liquidator to discharge out of the assets in his hands those claims which are legally enforceable, and to hand over any surplus to the contributories. I find no words which vest in him a discretion to meet claims which are not legally enforceable. It will be remembered that, so far as is relevant for this purpose, the law is the same whether the winding up is voluntary or by the court, whether the company is solvent or insolvent, and that an additional purpose of a winding up is to secure that creditors who have enforceable claims shall be treated equally, subject only to the priorities for which the statute provides.’

It was held that the Government of India could not prove in the liquidation of an English company for unpaid taxes. That case concerned a corporate winding up proceeding under the English Companies Acts, but I agree with Counsel for the Marianas that the principle is equally applicable to personal bankruptcy proceedings under the Bankruptcy Law. It follows that ‘liabilities’ as defined in section 121 means liabilities which are enforceable by this Court and that the amounts owing to the Government of the Marianas are not provable debts under section 119 of the Bankruptcy Law. I should perhaps emphasize that Cayman Islands law relating to insolvency, in the case of both corporate liquidation proceedings and personal bankruptcy proceedings, does not discriminate against foreign creditors. All creditors, both foreign and domestic, are treated equally. It is the nature of the debt, not the identity of the creditor, which renders the judgments in favour of the Marianas unenforceable in this jurisdiction.

5 On this narrow test, taking into account only assets located in the Cayman Islands and liabilities enforceable in the Cayman Islands, it may be said that the Millards are solvent. On a broader test, taking into account all their worldwide assets...