The Companies Act (2022 Revision) and Ascentra Holdings, Inc. (in Official Liquidation)

• Jurisdiction: Cayman Islands
• Judge: Justice David Doyle
• Judgment Date: 03 November 2022
• Court: Grand Court (Cayman Islands)
• Docket Number: FSD NO. 189 OF 2021 (DDJ)

In the Matter of the Companies Act (2022 Revision)

And in the Matter of Ascentra Holdings, Inc. (In Official Liquidation)

Before:

The Hon. Justice David Doyle

FSD NO. 189 OF 2021 (DDJ)

IN THE GRAND COURT OF THE CAYMAN ISLANDS

FINANCIAL SERVICES DIVISION

HEADNOTE

Jurisdiction of the court to give directions to official liquidators in respect of a sanction application made by them pursuant to section 110 of the Companies Act

Appearances:

Blair Leahy KC, Guy Cowan, Nienke Lillington and Katie Logan of Campbells LLP on behalf of the Joint Official Liquidators of Ascentra Holdings, Inc (in official liquidation)

Nikki Singla KC, Jessica Williams, Caitlin Murdock and Catie Wang of Harneys on behalf of Shang Peng Gao Ke, Inc. SEZC

INDEX

HEADING	PAGE
Introduction	4
The Amended Summons	4
Jurisdictional and procedural issues	5
Section 110 and Schedule 3 of the Companies Act	7
Order 11 of the Companies Winding Up Rules, 2018	8
Section 129 of the Act	9
Section 138 of the Act	10
Section 48 Trusts Act (2021 Revision)	11
Some authorities:	12
DD Growth Premium	13–14
Belmont Asset	15–17
Emergent Capital	17–18
Traianedes	18–19
Polarcus	20–22
Re Exchange Securities	22–24
London Iron and Steel	25–26
Sealey and Milman	26–29
Marley	29 – 30
Macedonian Orthodox Community Church	30 – 32
Mento Developments	32–34
McPherson	34
CanArgo	34 – 37
Conclusion on jurisdictional issue	37
One other procedural issue — alleged abuse	39
The relief sought by the JOLs	41
The relevant law	43
The Deed	47
The submissions	50
Ms Leahy's submissions on behalf of the Company	50–52
Mr Singla's submissions on behalf of SPGK Cayman	52–54
Determination of the construction issue	54
The relief granted	55
Draft order and ancillary applications	56

Introduction

1 Even before I opened the 28 page skeleton argument of Shang Peng Gao Ke, Inc. SEZC (“SPGK Cayman”) dated 14 September 2022 authored by Nikki Singla KC of Wilberforce Chambers, Jessica Williams and Caitlin Murdock of Harneys, I had concerns as to whether the joint official liquidators (“JOLs”) of Ascentra Holdings Inc (the “Company”), represented by Blair Leahy KC of Twenty Essex, Guy Cowan, Nienke Lillington and Katie Logan of Campbells LLP, had adopted the correct procedure in respect of the relief they were requesting from the court.

2 Having considered the skeleton arguments and the oral submissions on 20 and 21 September 2022 on various jurisdictional and procedural issues I have concluded that the court had jurisdiction to entertain the summons of the JOLs dated 6 May 2022 and amended on 25 May 2022 pursuant to Grand Court Rules Order 32, rule 2 (3) (the “Amended Summons”). I have further concluded that the JOLs had adopted the correct procedure and that I should exercise my discretion in favour of the JOLs and grant them some relief. I give my reasons for reaching these conclusions as follows.

The Amended Summons

3 The Amended Summons is stated to be pursuant to section 110 (2) of the Companies Act (2022 Revision) (the “Act”) and seeks “orders and directions” that “pursuant to paragraph 7 of Part 1 of Schedule 3 of the Act” the JOLs “be authorised” to treat approximately US$11 million in accounts held at Bank of the West (the “BoW Funds”) as unencumbered assets of the Company. Paragraph 2 of the Amended Summons reads as follows:

“Further, or in the alternative, the JOLs be authorised pursuant to paragraph 1 and/or paragraph 7 of Part II of Schedule 3 of the Act, to take possession of, collect and/or get in the BoW Funds.”

4 At paragraph 3 of the Amended Summons the JOLs seek that their costs of and incidental to their Amended Summons shall be paid from the assets of the Company as an expense of the official liquidation.

5 The JOLs say that the Amended Summons “gives rise to a short point of construction, namely whether, pursuant to the terms of [a Deed of Mutual Release dated 5 May 2021], the BoW Funds should be transferred to SPGK Cayman or retained within the liquidation estate.” It is common ground that SPGK Cayman is not a creditor or contributory of the Company.

Jurisdictional and procedural issues

6 In his skeleton argument Mr Singla made various complaints in respect of the procedure adopted by the JOLs and submitted that where substantive rights are involved the appropriate way of proceeding is not by way of the JOLs seeking directions from the court but by way of an inter partes action with the usual orders for discovery and the giving of evidence. Mr Singla submitted that it was plainly inappropriate for the JOLs to seek to have determined the beneficial ownership of the BoW Funds within the sanction jurisdiction and the Application should accordingly be dismissed. Mr Singla's position was that formal pleadings, discovery and cross-examination was required for a proper determination of the issues and the matter should proceed by way of an inter partes proceeding.

7 Mr Singla did not initially question the jurisdiction of the court. At paragraph 114 of his skeleton he accepted that the JOLs had the right to apply to the court for advice when difficult questions arise and that a sanction application can raise substantive rights of the parties, which the court can go on to resolve. However he stressed that where substantive rights are required to be so resolved, the appropriate way of proceeding is for the court to make directions that the issue proceed by way of taking on the character of an inter partes action. Indeed he initially maintained this position in his opening oral submissions:

“… we are not contending that there are no circumstances, as a matter of jurisdiction, where liquidators can come to this court under section 110 and obtain relief which ultimately or incidentally has the effect of determining rights to property. What we do say is that as the procedure is currently being used, it is a matter of your discretion. It is wrong to use this procedure here, on its face, the very purpose of the summons is to obtain what Your Lordship will recognise as being effectively interpleader-type action, i.e. an action purely to determine proprietary rights to an asset … the sanction jurisdiction has a very useful role derived from the old trust jurisdiction to obtain the court's directions and advice …” (Transcript Day 1, pages 5 and 6).

8 The court having raised questions in respect of its jurisdiction under section 110 of the Act Mr Singla, somewhat opportunistically, changed horses and his closing oral submissions were to the effect that this court did not have jurisdiction under section 110 of the Act. We will therefore have to consider these jurisdictional and procedural issues in respect of section 110 of the Act in some detail.

Section 110 and Schedule 3 of the Companies Act

9 Under section 110 (1) of the Act 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.

10 Section 110 (2) of the Act provides that the official liquidator may:

• (a) with the sanction of the Court, exercise any of the powers specified in Part 1 of Schedule 3; and

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

11 Under section 110 (3) of the Act it is provided that the “exercise by the liquidator of the powers conferred” by section 110 “is subject to the control of the Court” and provision is made to enable creditors and contributories to “apply to the court with respect to the exercise or proposed exercise of such powers.”

12 The Amended Summons refers to paragraph 7 of Part 1 of Schedule 3 to the Act and paragraphs 1 and 7 of Part II of Schedule 3 to the Act.

13 Paragraph 7 of Part 1 of Schedule of the Act provides:

“Power to deal with all questions in any way relating to or affecting the assets or the winding up of the company, to take any security for the discharge of any such call, debt, liability or claim or to give a complete discharge in respect of it.”

14 Paragraph 1 of Part II of Schedule 3 to the Act provides as follows:

“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 he considers necessary.”

15 Paragraph 7 of Part II of Schedule 3 to the Act provides as follows:

“The power to do all other things incidental to the exercise of his powers.”

Order 11 of the Companies Winding Up Rules, 2018

16 Order 11 of the Companies Winding Up Rules, 2018 concerns what are referred to as “sanction applications”. Order 11 rule 1 (2) provides that sanction applications shall be made by summons in CWR Form No 16.

17 Order 11 rule 3 relates to the hearing of sanction applications. Order 11 rule 3 (3) provides that:

“The Court may direct that, when a sanction application gives rise to an issue in respect of the substantive rights as between the company and any creditor or contributory or any class thereof, it shall be adjudicated as an inter partes proceeding as between shareholders, creditors or any class of shareholders or creditors (as the case may be), for which purposes the court may —

• (a) make a representation order; and/or

• (b) direct that the official liquidator's role shall be limited in such way as The (sic) Court thinks fit; or

• (c) direct that the official liquidator shall take no further part in the proceeding.”

Section 129 of the Act

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