The Companies Act (2021 Revision) Global Fidelity Bank, Ltd (in Voluntary Liquidation)

• Jurisdiction: Cayman Islands
• Judge: Justice David Doyle
• Judgment Date: 20 August 2021
• Court: Grand Court (Cayman Islands)
• Docket Number: FSD CAUSE NO: FSD 168 of 2021 (DDJ)

In the Matter of the Companies Act (2021 Revision)

In the Matter of Global Fidelity Bank, Ltd (In Voluntary Liquidation)

Before:

The Hon. Justice David Doyle

FSD CAUSE NO: FSD 168 of 2021 (DDJ)

IN THE GRAND COURT OF THE CAYMAN ISLANDS

FINANCIAL SERVICES DIVISION

HEADNOTE

In an insolvency situation where one major creditor has raised an objection to the proposed joint official liquidators on the ground of a perceived lack of independence, said to arise out of a prior relationship with the insolvent company, the court should take account of the views and wishes of the creditor, giving them significant weight where appropriate, and adopt a 3-stage approach namely (1) identify the relationship; (2) determine whether it is capable of impairing the appearance of independence and if so (3) whether it is sufficiently material to the liquidation in question that a fair-minded and informed stakeholder would reasonably object to the appointment of the nominated practitioners in question

Appearances:

Tony Heaver-Wren and Heather Froude of Appleby (Cayman) Ltd for Adam Keenan and Michael Pearson of FFP Limited, the Petitioners;

Mark Goodman and Katie Logan of Campbells LLP for Ascentra Holdings, Inc (in voluntary liquidation)

REASONS

Introduction

1 On Thursday 22 July 2021 I granted relief requested by Adam Keenan and Michael Pearson (the “Petitioners”) of FFP Limited (“FFP”) in a petition dated 16 June 2021 and made an order that:

I now provide my reasons for such decisions.

• (1) the voluntary winding up of Global Fidelity Bank, Ltd (in voluntary liquidation) (the “Bank”) be continued subject to the supervision of the Grand Court under the provisions of the Companies Act (2021 Revision) (the “Act”); and

• (2) the Petitioners be appointed as joint official liquidators (“JOLs”) of the Bank.

2 The first part of the requested judicial relief in respect of the supervision order was not contentious. The directors had not provided a declaration of solvency pursuant to section 124(1) of the Act. It was sensible and appropriate that the liquidation of the Bank, which had been granted a Class B Bank License on 31 October 2014, be continued subject to the supervision of the court and I made an unopposed order to that effect.

3 The second issue as to who should be appointed as JOLs of the Bank was however contentious.

4 The Petitioners had been appointed joint voluntary liquidators (“JVLs”) of the Bank prior to the supervision order being made. The Petitioners did not advocate for their own appointment as JOLs (but were willing to act if appointed) and they stated that they took no position in respect of the opposition from one significant creditor to their appointment as JOLs. The Petitioners did however provide the court with useful information and evidence which greatly assisted the court in the fair and just determination of the petition.

5 Ascentra Holdings, Inc (in voluntary liquidation) (“Ascentra”) is one of the Bank's largest creditors. It holds over US$8 million in its account with the Bank. Ascentra did not oppose the making of a supervision order but vigorously opposed the appointment of the Petitioners as JOLs. Ascentra initially sought the appointment of Ms Margot MacInnis and Mr John Royle of Grant Thornton Specialist Services Limited as official liquidators but once conflicts became apparent Ascentra promptly filed alternative consents to act from Ms Elizabeth Mackay and Ms Paula Richmond of Kalo (Cayman) Limited (“Kalo”).

6 I should record that no other creditors opposed the appointment of the Petitioners as JOLs. Indeed, on the eve of the hearing a significant development occurred in that a letter dated 21 July 2021 from Bedell Cristin Cayman Partnership was filed with the court indicating that Sterling Trust (Cayman) Limited in its capacity as trustee of the CS Irrevocable Trust (“Sterling”), holding deposits to a value in excess of $8 million with the Bank, expressly did not object to the Petitioners being appointed as JOLs.

7 It is also important to note that the hearing of the petition was advertised on 14 and 16 July 2021. Moreover, in advance of the public advertisements, the Petitioners had sent communications to all account holders including one on 15 June 2021 in respect of the voluntary liquidation and one on 13 July 2021 in respect of the application for a supervision order and the appointment of JOLs which specifically brought to their attention the fact that “a depositor in the Bank has opposed our appointment and is seeking to have its nominees appointed in our stead.” The creditors knew that a challenge was on in respect of the identity of the JOLs but, other than Ascentra, not one creditor chose to oppose the Petitioners' appointment and Sterling, another significant creditor, expressly brought its non-opposition to the attention of the Petitioners who subsequently, as they were duty bound to do, brought it to the attention of the court.

8 The Cayman Islands Monetary Authority (the “Authority”) agreed that a supervision order should be made and remained neutral as to the identity of the JOLs. I am grateful to Menelik Miller and Marilyn Brandt (representatives of the Authority) who attended the hearing as observers and without making any formal appearances or making any submissions maintained their position of neutrality on the main disputed issue before the court.

The Petitioners' prior connection with the Bank

9 Before turning to the basis of Ascentra's opposition to the appointment of the Petitioners as JOLs and their preference for Kalo it will be helpful to consider in some detail the prior connection between the Petitioners and the Bank. In cases such as this the authorities stress that the court must first identify the relationship in respect of which complaint is made.

10 On behalf of Ascentra it was in effect submitted that the prior connection of the Petitioners with the Bank disqualified them from being appointed JOLs. Mr Graham Robinson the voluntary liquidator of Ascentra in his affidavit sworn on 8 July 2021 referred to the correspondence between Ascentra, the Bank and the Petitioners. The correspondence with the Bank from 2 June 2021 onwards culminated in Campbells LLP (for Ascentra) writing to the Bank on 11 June 2021 threatening the presentation of a winding up petition immediately after close of business on 11 June 2021 and without further notice if the payment of US$8,084,358.15 was not remitted to their client in full. The amount was not remitted. No winding up petition followed from Ascentra. The Petitioners' petition for a supervision order was filed on 16 June 2021.

11 Adam Keenan in his affidavit sworn on 16 June 2021 indicated that on 14 June 2021 he was appointed as joint voluntary liquidator of the Bank together with Mr Michael Pearson. This followed a short 4-day period of having been engaged by the Bank to review limited financial records and to produce an independent financial review of the Bank. Adam Keenan and Michael Pearson are stated to be of FFP. Mr Keenan stated that he understood from the directors that they were advised to seek a report on the financial status of the Bank. Accordingly, on or around 4 June 2021, FFP had been approached by the directors with a request that FFP conduct the independent financial review of the Bank and prepare a report setting out its findings (the “FFP Report”).

12 A letter of engagement between the Bank and FFP was signed on 10 June 2021. It was agreed with the directors that the FFP Report would be prepared by 14 June 2021. The limited work undertaken by FFP can be seen from the letter of engagement which is exhibited in the evidence and from the short confidential report dealing with the issues raised in the letter of engagement. The scope of services referred to a review of the Bank's current financial position including:

It was expressly stated for the avoidance of any doubt that the work would not constitute an audit performed in accordance with generally accepted accounting principles.

• • summary of the most recent audited financial statements;

• • review and comments on the most recent unaudited balance sheet including any adjustments that are proposed or which should be made;

• • review and comments on the most recent unaudited profit and loss account/income statement including any adjustments that are proposed or which should be made; and

• • review and comments on any forward-looking financial projections including any adjustments that are proposed or which should be made.

13 Mr Keenan said in order to prepare the FFP Report, FFP reviewed the Bank's audited financial statements for the year ended 31 December 2018 (being the latest audited financial statements available as the audits for 2019 and 2020 had not been finalised) and the Bank's internal management accounts for the period 1 January 2021 to 31 March 2021.

14 Mr Keenan said that the FFP Report was prepared on a limited and urgent basis. The scope of the FFP Report was limited to reviewing and commenting on the management accounts, unaudited profit and loss account/income statement and forward-looking financial projections including any adjustments to the same as proposed by the Bank's management. It was Mr Keenan's view that his role and FFP's role in their preparation of the FFP Report had not affected his independence vis-à-vis the Bank. It is, of course, helpful for Mr Keenan to express such a view but the issue, as he no doubt appreciated, was ultimately one for the court to determine taking into account all relevant factors.

15 Mr Keenan stated that on 14 June 2021 FFP sent a final draft of the FFP Report to the directors of the Bank. The FFP Report was then finalised and issued on 16 June 2021. There were no substantive changes between the version circulated to the directors on 14 June 2021 and the final version issued on 16 June 2021.

16 Mr Keenan stated...