The Companies Act (2021 Revision) and Herald Fund SPC (in Official Liquidation)

JurisdictionCayman Islands
Judgment Date01 April 2021
CourtGrand Court (Cayman Islands)
Docket NumberCAUSE NO. FSD 27 OF 2013 (IKJ)
In the Matter of the Companies Act (2021 Revision)
And in the Matter of Herald Fund SPC (In Official Liquidation)

The Hon. Justice Kawaley

CAUSE NO. FSD 27 OF 2013 (IKJ)




Joint official liquidators' costs and expenses-application for Court approval opposed by Liquidation Committee-governing principles—Companies Act (2021 Revision), sections 109(2), 115(1)-Insolvency Practitioners Regulations 2018, regulations 10–13-Companies Winding Up Rules 2018, Order 25 rule 3(2)


Mr Matthew Goucke and Mr Jonathan Turner of Walkers on behalf of the Principal Liquidators

Mr Colm Flanagan, of Nelsons on behalf of the Liquidation Committee


By Summons dated January 14, 2021, the Principal Liquidators sought approval for their fees for the period March 1, 2020 to August 31, 2020 (the “Relevant Period”). The application was supported by the Nineteenth Affidavit of Russell Smith and approval was sought for fees and disbursements totalling US$805,909.60 (excluding legal fees). Walkers' legal fees for the Relevant Period amounted to US$442,805.03. These sums viewed in isolation seem large. The Principal Liquidators invited the Court to have regard to the fact that in the course of the Relevant Period in excess of US$123 million was distributed to stakeholders, with the lion's share being distributed to a small group of large shareholders including all of the members of the Liquidation Committee.


At the beginning of the hearing, I indicated that my initial impression was that the objections to the application appeared to be motivated by the Committee's perception that the Principal Liquidators had failed to pay due regard to their views as to what scope of work was properly required. The objections themselves lacked coherence and seemed somewhat artificial. The application appeared to me to raise for adjudication the broader question of the extent to which official liquidators are required to seek the approval of or tacit support from the Liquidation Committee when defining the scope of their operational functions and, consequentially, incurring liquidation costs and expenses.


Both the objections and the wider liquidation governance question fall to be determined within the statutory framework of Cayman Islands liquidation law.

Legal findings: statutory framework
Companies Act (2021 Revision) (“Act”)

The relevant provision on remuneration in the Act is section 109:

Remuneration of official liquidators

109. (1) The expenses properly incurred in the winding up, including the remuneration of the liquidator, are payable out of the company's assets in priority to all other claims.

(2) There shall be paid to the official liquidator such remuneration, by way of percentage or otherwise, that the Court may direct acting in accordance with rules made under section 154; and if more liquidators than one are appointed such remuneration shall be distributed amongst them in such proportions as the Court directs.”


At the primary legislation level, the Court alone is empowered to approve remuneration in general terms, but the detail is left for rules to prescribe.


The broader statutory context is directly relevant to the underlying “dispute” about the respective roles of the Principal Liquidators and the Committee as regards whether official liquidators can, subject to this Court's ultimate supervision, define for themselves the scope of their mission. However, this broader statutory context is indirectly relevant to the construction of the remuneration approval jurisdiction as it indirectly informs how the remuneration approval provisions should be understood. The following subsections of section 110 of the Act (“Functions and powers of official liquidators”) are pertinent in this regard:

  • 110. (1) It is the function of an official liquidator —

    • (a) to collect, realise and distribute the assets of the company to its creditors and, if there is a surplus, to the persons entitled to it; and

    • (b) to report to the company's creditors and contributories upon the affairs of the company and the manner in which it has been wound up.

  • (2) The official liquidator may —

    • (a) with the sanction of the Court, exercise any of the powers specified in Part I of Schedule 3; and

    • (b) with or without that sanction, exercise any of the general powers specified in Part II of Schedule 3.

  • (3) The exercise by the liquidator of the powers conferred by this section is subject to the control of the Court, and subject to subsection (5), any creditor or contributory may apply to the Court with respect to the exercise or proposed exercise of such powers (hereinafter referred to as a ‘sanction application’).”


That the main function of an official liquidator is to “collect, realise and distribute the assets of the company to its creditors and, if there is a surplus, to the persons entitled to it” is the overarching statutory definition of an official liquidator's mission. This much is obvious and uncontroversial.


It also ought to be obvious and uncontroversial that the liquidator's powers under Part I of Schedule 3 are exercisable “with the sanction of the Court” and that the powers under Part II of that Schedule are exercisable “with or without that sanction”. The Liquidation Committee has no statutory power of sanction at all. The Liquidation Committee has no statutory function under the primary legislation at all. I remind myself of these basic provisions, because they reflect a different approach to that adopted in my “mother” insolvency law regime.


Section 175 of the Bermudian Companies Act 1981 distinguishes between liquidators' powers which are exercisable:

  • (a) with the sanction either of the Court or of the committee of inspection (section 175(1)); and

  • (b) without any sanction at all (section 175(2)); and

  • (c) the powers which require a sanction correspond broadly to Schedule 3 Part I powers, while the powers which do not correspond broadly to Schedule 3 Part II powers. However, Part II is in some respects a more modern provision and confers broader express powers on official liquidators which do not require sanction than under the corresponding Bermudian 1948 UK Companies Act-derived provisions.


Official liquidators can most pertinently exercise the following powers without sanction of the Court or the Committee under Part II of Schedule 3 of the Act:

1. The power to take possession of, collect and get in the property of the company and for that purpose to take all such proceedings as that person considers necessary.” 1


Although the Liquidation Committee has no express statutory role under the Act, section 115 provides:

(1) The Court shall, as to all matters relating to the winding up, have regard to wishes of the creditors or contributories and for that purpose it may direct reports to be prepared by the official liquidator and meetings of creditors or contributories to be summoned.”


Moreover section 110(3) of the Act provides that an official liquidator's powers, in addition to being subject to control by the Court, are also indirectly subject to challenge by creditors or contributories: “any creditor or contributory may apply to the Court with respect to the exercise

or proposed exercise of such powers”. So although the Liquidation Committee has no express statutory role in sanctioning the exercise of liquidators' powers in the ordinary course of a liquidation, it arguably has standing to challenge the proposed exercise of a liquidator's powers

However, it is to subsidiary legislation that one must turn to discern the statutory functions of the Liquidation Committee.

Companies Winding Up Rules 2018 (“CWR”)

The CWR provide for, inter alia, the establishment of the Liquidation Committee (Order 9, rule 1), its membership (Order 9 rule 2), the official liquidator's duty to report (Order 9 rule 4) and the proceedings of the Committee (Order 9 rule 5). Although the Committee may pass resolutions, it has no express or implied power to bind an official liquidator by its decisions. The primary express obligation of the liquidator is to inform the Committee; the primary implied obligation is to consult with the Committee. For example, Order 9 rule 4 provides:

(1) It is the duty of the official liquidator to report to the members of the liquidation committee all such matters as appear to him to be, or as the members have indicated to him as being of concern to them with respect to the winding up.

(2) The official liquidator need not comply with a request for information where it appears to him that –

  • (a) the request is frivolous or unreasonable;

  • (b) the cost of complying would be excessive, having regard to the relative importance of the information; or

  • (c) there are not sufficient assets to enable him to comply…”


The Committee's function under the CWR appears to be consultative one. However, this role is not an insignificant one, because the primary function of an official liquidator is to discharge the company's obligations to its stakeholders and it is a general principle of company law that those interested in a company are generally the best judges of where their best interests lie. This principle underpins section 115(1) of the Act cited above. Official liquidators will generally seek to obtain the support of the Liquidation Committee for any important decisions in the liquidation. By way of analogy, the trustee of a discretionary trust considering exercising an unfettered discretion will, in relation to important and potentially controversial matters, consult with the beneficiaries (even if they are strictly only mere objects of a discretionary power) and seek to obtain their support.


As the Walkers fees were...

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