The Companies Act (2022 Revision) and Polarcus Ltd (in Official Liquidation)
| Jurisdiction | Cayman Islands |
| Judge | Justice Kawaley |
| Judgment Date | 06 July 2022 |
| Court | Grand Court (Cayman Islands) |
| Docket Number | CAUSE NO: FSD 31 OF 2021 (IKJ) |
and
The Hon. Justice Kawaley (in Chambers)
CAUSE NO: FSD 31 OF 2021 (IKJ)
IN THE GRAND COURT OF THE CAYMAN ISLANDS
FINANCIAL SERVICES DIVISION
Application for declarations as to the legal authority of company in liquidation to enter into an acquisition transaction-jurisdiction of Grand Court to grant declaratory relief in winding-up proceedings-Grand Court Act (2015 Revision), sections 11(2), 19(3)-Companies Act (2022 Revision) sections 110(1), 155(1)(a)—Companies (Winding Up) Rules 2018, Grand Court Rules Order 15 rule 16
Walkers on behalf of the Joint Official Liquidators
By a letter application dated May 25, 2022, the Joint Official Liquidators (“JOLs”) sought the following relief:
“a declaration from this Honourable Court that, as a matter of Cayman Islands law, the Company, acting by the JOLs, is authorised:
a) to acquire 75 quotas (the “PEL Quotas”) in Polarcus Egypt Limited (“PEL”) from Polarcus DMCC pursuant to the terms of a quota purchase agreement (the ‘QPA’) to be entered into by the Company and Polarcus DMCC (the ‘PEL Transfer’) and to take such additional steps and the execution of such additional documents by the JOLs as are necessary or desirable in order to effect the transfer of the PEL Quotas; and
b) to authorise the JOLs to incorporate a special purpose vehicle (‘SPV’) in the Cayman Islands for the principal purpose of acquiring the PEL Quotas, (together, the ‘Declarations’).”
The legal content of the Declarations sought was entirely uncontroversial in Cayman Islands legal terms. The need for the JOLs' powers to be confirmed only arose because the acquisition limb of a larger transaction involving the disposition of assets required regulatory approval from a jurisdiction unfamiliar with the local insolvency law regime.
More legally significant was a point which did not appear to have been directly addressed by local authority and which counsel properly raised. Did this Court, in the absence of any express provision in the Companies (Winding Up) Rules 2018 in this respect, possess the jurisdiction to grant declaratory relief within a winding-up proceeding? Counsel persuaded me that the answer was very definitively yes despite the absence of direct authority on an important jurisdictional point.
These are the reasons for my decision on June 22, 2022 to grant the Declarations which the JOLs sought.
Messrs. David Griffin and Andrew Morrison of FTI Consulting Cayman Islands) and Ms Lisa Rickleton of FTI Consulting LLP (in London) were appointed as JOLs of the Company on June 21, 2021. They initially were appointed as joint provisional liquidators on February 8, 2021, and commenced a restructuring of the Company's business which was continued on an insolvent basis after a winding-up order was made.
Section 110 of the Companies Act (2022 Revision) provides, so far as is relevant to the authority question, as follows:
“ Function and powers of official liquidators
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.”
To “collect, realise and distribute the assets of the company” is necessarily, and especially in the context of companies (such as the Company) conducting complex business on a multi-jurisdictional basis, a very broad and fluid function indeed. When the JOLs were appointed, they were expressly authorised to exercise any of the Schedule 3 Part 1 powers without further sanction of the Court. The liquidators powers, defined in Schedule 3, and derived from the Companies Act 1948 (UK), are correspondingly broad as well and include carrying on the Company's business so far as may be necessary and broad powers to compromise claims which may be asserted against the Company by creditors and claims the Company may have against its debtors.
The JOLs' counsel rightly submitted that the acquisition of the PEL Quotas by the JOLs on behalf of the Company is ancillary to a sale and purchase agreement which this Court has already been approved. The relevant acquisition was simply now proposed to be direct as opposed to indirect. Paragraph 1 of the Order dated December 14, 2021 (the “Sanction Order”) which I made herein:
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(a) described the transaction as “ … a disposal of the Company's assets pursuant to section 110(2)(a) and Schedule 3, Part I, paragraph 8 of the Companies Act (2021 Revision) (the 'Act))”; and
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(b) also authorised “the taking of such additional steps and the execution of such additional documents by the JOLs as are necessary or desirable in order to discharge any obligations in connection therewith.”
So, the JOLs clearly had the requisite authority to cause the Company to acquire the PEL Quotas as part of the same broad transaction they were authorised to enter into by the Sanction Order.
The JOLs' counsel submitted that this Court clearly had the inherent jurisdiction to grant declaratory relief in the winding-up context even though no such power was conferred by the Companies Winding-Up Rules 2018 (“CWR”) and the provisions of Grand Court Rules (“GCR”) Order 15 rule 16 did not apply to winding-up proceedings. There is direct judicial support for the proposition that the Court's inherent jurisdiction may properly be invoked to fill gaps in the CWR, as opposed to overriding the express provisions of the CWR which counsel cited HSH Cayman IGP Limited et al [ 2010 (1) CILR 114] (Cayman Islands Court of Appeal). Sir John Chadwick P at paragraph 27 opined as follows:
“(3) In the absence of a power to relieve from the consequences of failure to comply with the Winding Up Rules either in the Rules themselves; or incorporated in the Rules by reference to the Grand Court Rules; or made applicable to winding up by the Grand Court Rules; or exercisable pursuant to s.18 (2) of the Grand Court Law, the judge was entitled to invoke the inherent jurisdiction of the court to control its own process. But, in exercising that power, he was not entitled to vary the scheme for the winding up of companies in this jurisdiction laid down by the Winding Up Rules.” [Emphasis added]
The power considered in that case was the power to grant relief from non-compliance with the CWR. As regards the power to grant declaratory relief generally, counsel referred to Insurco IntlLtd v Gowan Company [ 1994 CILR 210] where the Court of Appeal (Kerr JA, at page 230) approved Schofield J's finding that:
“The jurisdiction of the Grand Court to grant declarations is, it seems, as wide as that of the English courts…”
Although those observations were not made in the winding-up context, in my judgment it is clear that they apply with equal force in the winding-up context. This is in part because although the CWR do not expressly confer a power to grant declaratory relief, such relief cannot be said to be inconsistent with the scheme of either the Companies Act or the Rules made under it. More fundamentally still, it must be remembered that this Court has an express general statutory power to grant declaratory relief conferred by the following provisions of the Grand...
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