The Companies Act (2023 Revision) and Canterbury Securities, Ltd
| Jurisdiction | Cayman Islands |
| Judge | Justice Kawaley |
| Judgment Date | 31 January 2024 |
| Docket Number | Cause No. FSD 364 of 2023 (IKJ) |
| Court | Grand Court (Cayman Islands) |
The Hon. Justice Kawaley
Cause No. FSD 364 of 2023 (IKJ)
IN THE GRAND COURT OF THE CAYMAN ISLANDS
FINANCIAL SERVICES DIVISION
Creditor's petition for winding-up-insolvency-need for an investigation-relevance of appeal against judgment debt to creditor's standing-failure of management to cooperate with joint provisional liquidators-whether petition should be adjourned-Companies Act (2023 Revision), sections 92, 104
Ms Katie Pearson and Ms Alexia Adda, Claritas Legal Limited, for the Petitioner
Mr Ben Tonner KC and Ms Sally Bowler of McGrath Tonner, for the Company 1
Mr John Harris of Nelsons, for the Joint Provisional Liquidators
The Petition herein was presented on or about 4 December 2023 by the Petitioner in the capacity of a creditor or contingent creditor. The Petitioner sought to wind-up the Company on the grounds of (1) insolvency and/or (on the just and equitable ground) based on (2) the need for an investigation into its affairs and/or (3) loss of substratum. The Petitioner also filed a Summons for the appointment of Ms Karen Scott and Mr Russell Homer of Chris Johnson Associates Ltd as Joint Provisional Liquidators of the Company (“JPLs”).
On 13 December 2023 I granted an Order appointing the JPLs with full powers, but additionally directed that the JPLs should seek to form a preliminary view by the return date of the Petition on the Company's solvency, the risk of asset dissipation or managerial misconduct which would warrant an investigation into its affairs. In my Reasons for Decision dated 18 December 2023, I explained both the reasons for appointing the JPLs and requesting them to provide an interim report.
As for the grounds for the JPLs' appointment, I summarised the position as follows:
“ 19…the Company's conduct in the Writ Action (which included a blatant act of asset dissipation designed to defeat the relief the Court was actively considering granting) and repeated breaches of Court orders was difficult to comprehend. It implied that the Company was no longer conducting business at all, prompting a “loss of substratum” plea in the Petition the merits of which did need to be considered. It was ultimately not necessary to interrogate or seek to understand the Company's motivations; its overt conduct was all that needed to be assessed…
25. The cumulative effect of all of these considerations was the most compelling case imaginable for the appointment of joint provisional liquidators in relation to an FSP to prevent the dissipation or misuse of assets and/or misconduct by the Company's directors. It was compelling because I was not required to assess the need for an appointment based merely on affidavit evidence sworn by a commercial and litigation adversary; I had the benefit of a ringside view of the matters complained of as the presiding Judge in the Writ Action. It is important to add that I had regard to not simply the narrow interests of the Petitioner, but also the wider interests of other actual or prospective clients as well. As I observed in the course of the hearing, it would be damaging to the reputation of this Court and this forum if any other investor suffered harm after this Court failed to remove the Company's existing management despite all the material before the Court.”
As for the grounds for directing the JPLs to provide an interim or preliminary report to the Court in advance of the hearing of the Petition on 16 January 2024, I stated:
“ It seemed inherently improbable that a company which had no compunction about adopting a cavalier approach to litigation in the face of the Court would have been conducting its private commercial dealings in an entirely proper manner. However, I was concerned to ensure that my interlocutory finding that there was a prima facie case for winding-up was capable of being fairly re-evaluated at the hearing of the Petition and was critically assessed. I accordingly directed the JPLs to prepare a preliminary report before that hearing indicating, to the extent possible, their independent views as to the Company's solvency and the need for an investigation into its affairs.” [Emphasis added]
It is essentially standard judicial fare to be required to make a series of adverse findings against a party without allowing one's objectivity to be clouded by an overly cynical view of a litigant which demonstrates complete disdain for the processes of the Court. Such litigants fall within the parameters of the “ all manner of people” whom the judicial oath requires the Judge to “ do right to”. Accordingly, justice appeared to me to require that the Company's management be given a reasonable opportunity to demonstrate to independent officers of the Court (whose stock-in-trade is making hard-headed professional commercial judgments) that the concerns which prompted their appointment were misconceived. As I observed early in the hearing, I have never known the respondent to a winding-up petition to fail so spectacularly to seize the opportunity offered to it by the Court to extricate itself from the peril of a winding-up order.
On 16 January 2024, I granted the Winding-Up Order sought by the Petitioner and appointed the JPLs as Joint Official Liquidators (“JOLs”). These are the reasons for that decision.
It was an essential jurisdictional basis for appointing the JPLs on 13 December 2023, that I be satisfied that there was a prima facie case for granting a winding-up order. The relevant findings recorded in my 18 December 2023 Reasons for Decision were the following:
“ Prima facie case hurdle
13. The Petition was based in many material respects on matters which were either uncontentious or not easily controvertible:
(a) the Petitioner's standing as a substantial judgment creditor of the Company;
(b) the Petitioner's conduct in the Writ Action was relied upon to support the need for winding-up on the grounds of insolvency or on the just and equitable ground based on the need for an investigation into mismanagement.
14. The primary facts were accordingly matters of record in the Writ Action of which judicial notice could be taken. The only obvious basis for controverting the Petition entailed an evaluation of matters of record as opposed to controverting disputed primary facts. The misconduct case pleaded concisely was elaborated upon in the Petitioner's Skeleton, and most pertinently invited the Court to draw the following inferential conclusions from the largely incontrovertible facts:
“5. Further, the behaviour post-trial of CSL, acting through its founder, CEO, director and, to the best of FDL's belief, sole owner, Ms Erin Winczura, leads to serious concerns that CSL is likely to dissipate assets and/or is being mismanaged by Ms Winczura. CSL has failed to comply with, or otherwise sought to evade the stringency of, a series of Court orders in the Proceedings leading the Court to find that it is ‘satisfied that the Defendant [CSL] is the sort of litigant which is not embarrassed to engage in blatant acts of asset dissipation in circumstances which constitute a serious abuse of the processes of this Court.’” (see Sin 1 at para. 39)…
23. The fact that CSL is in flagrant breach of a Court order to pay cash to its attorneys leads to the irresistible conclusion that it is insolvent. CSL is likely to be wound up on the insolvency ground and a good prima facie case is established. FDL is unaware of any assets in CSL's name belonging beneficially to CSL. FDL is aware that, prior to 6 December 2018, CSL appears to have had c. US$1.9 million held in CSL's account with a Canadian financial institution (“Hampton”), but CSL's evidence appears to be that this was other clients' funds (discussed further below at paragraph 29) and in any event is likely insufficient to satisfy the Judgment debt.
24. The only conceivable alternative to CSL being insolvent is that, acting through Ms Winczura, it chooses not to comply with orders of the Court. If that is true, CSL is being seriously mismanaged and it is appropriate to wind CSL up to enable a proper investigation to be carried out into Ms Winczura's (mis)management of the Company.” [Emphasis added]
15. These were powerful arguments which made it straightforward to conclude that the prima facie case hurdle had been met by the Petition. Insolvency could be inferred not from a failure to pay the judgment debt (which only fell due on the day the present application was heard). Instead I inferred insolvency from the Company's failure to keep the proceeds of the YRIV share sales as security for the judgment debt and its subsequent failure to comply with the Order directing it to provide cash security in the Writ Action. More straightforward was the case on the need for an investigation, the right of a creditor to seek a winding-up on the just and equitable ground. Ms Pearson pointed out that this alternative ground for a creditor to seek a winding-up order had been recently confirmed by this Court in Re Atom Holdings, FSD 54/2022 (IKJ), Judgment dated 18 May 2023 (unreported) at paragraph 46.”
I have always thought of a prima facie case as signifying a case which is sufficient to justify the grant of the relief sought unless the apparent merits of the case are undermined or discretionary factors weigh against the granting of relief. In Re Position Mobile Ltd. SECZ, FSD 79/2022 (DDJ), Judgment dated 31 October 2023 (unreported), David Doyle J (at paragraph 133 (10)) opined as follows:
“ A prima facie case for making a winding up order is established if the allegations made in the petition for the appointment of JPLs are supported by evidence and have not been disproved, with any conflicts of evidence to be...
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