The Companies Act (2023 Revision) Between: Ascentra Holdings, Inc. (in Official Liquidation) Plaintiff v (1) Ryunosuke Yoshida (2) Shang Peng Gao Ke, Inc. Sezc (3) SPGK Pte Ltd (4) Growth Today Inc. (5) Scuderia Bianco Pte Ltd Defendants
| Jurisdiction | Cayman Islands |
| Judge | Justice Parker |
| Judgment Date | 23 May 2024 |
| Court | Grand Court (Cayman Islands) |
| Docket Number | CAUSE NO.: FSD 300 OF 2023 (RPJ) |
| Year | 2024 |
In the Matter of the Companies Act (2023 Revision)
The Hon. Justice Parker
CAUSE NO.: FSD 300 OF 2023 (RPJ)
IN THE GRAND COURT OF THE CAYMAN ISLANDS
FINANCIAL SERVICES DIVISION
Interlocutory proprietary injunction-Disputed ownership of funds-agency — fiduciary obligations trust-Jurisdiction-GCR Order 29-whether monies in bank account ‘property’-specific fund-intermingling-serious issue to be tried-balance of convenience-delay-just and convenient-mandatory order for transference of funds from one jurisdiction to another-level of assurance — cross undertaking in damages-joint official liquidators-discretion-expenses.
Ms Blair Leahy KC of Counsel instructed by Mr Guy Cowan, Ms Nienke Lillington and Ms Katie Logan of Campbells for the Plaintiff
Mr Vernon Flynn KC of Counsel instructed by Mr Andrew Johnstone, Ms Jessica Williams, Ms Caitlin Murdock and Ms Kelsey Sabine of Harney Westwood & Riegels for the Defendants
The Plaintiff (the “Company”) is a Cayman Islands exempt company in official liquidation. It has obtained the Court's sanction to bring these proceedings. 1
It seeks an interlocutory proprietary injunction in relation to cash at bank totalling c.US$250,000,000 (the “Funds”) over the trial of its claim for declaratory relief in relation to the ownership of the Funds. The Company's main cause of action in the proceedings are its trust claims in relation to ownership of the Funds. This has been the sole cause of action (there are others) 2 considered on this application.
The Funds are said by the Company to represent the gross income from a profitable e-commerce business operated in the PRC until March 2021 (the “PRC Business”). The Company's essential case is that the PRC Business was operated in the name of the Second Defendant (“SPGK Cayman”) on the Company's behalf and that the Funds are held on trust for the Company accordingly.
The Defendants' case is that the PRC Business was operated by SPGK Cayman for its sole benefit and it therefore owns the Funds.
The majority of the Funds are held in bank accounts in Taiwan under the control of the First Defendant (“Mr Yoshida”). The remainder of the funds (c. US$72m) (the “Planet Payment Funds”) are held in the ‘disputed ownership account’ of the US Court Registry Investment System of the US Bankruptcy Court of the Southern District of New York consequent upon the Chapter 15 recognition of the Company's liquidation in 2021. SPGK Cayman and the Third Defendant (“SPGK Singapore”) have filed motions for the termination of the Chapter 15 proceedings and the release of the Planet Payment Funds.
Mr Yoshida is a former director of the Company and is said to be the controlling mind of the Second to Fifth Defendants (together, the “Corporate Defendants”). None of the Corporate Defendants are currently trading.
As to this the Company says: (1) SPGK Cayman ceased trading in March 2021; 3 (2) the Fourth Defendant (“Growth Today”) is the 100% registered owner of the shares in SPGK Cayman and holds no other assets; 4 (3) SPGK Singapore is a wholly owned subsidiary of SPGK Cayman whose sole function has been to provide cash management services in relation to the PRC Business; 5 and (4) the Fifth Defendant (“Scuderia Bianco”) is a Singapore Company whose sole function has also been to provide cash management services to the PRC Business. 6
The Company says that in 2.5 years (during which time the Corporate Defendants have been inactive) Mr Yoshida has spent approximately US$26m on so-called “ordinary course expenses”, which amounts to a ‘burn rate’ of US$10m per year. Those funds, it says, form the subject matter of the underlying proprietary claims which are being unjustifiably spent, where the ownership of the funds is disputed and forms the subject matter of the substantive claims.
The Company says that the Defendants' evidence is that the current ‘burn rate’ is likely to continue up to and over the trial of these proceedings, and possibly increase. The Company says that Mr Yoshida has paid himself personally approximately US$3 million from the Funds, including US$12,500 per month on his private apartment. Mr Yoshida has also confirmed that he thinks the annual expenses going forward (excluding legal fees) will be in the region of US$4.5 million. Ms Leahy KC for the Company described that this expenditure reflects Mr Yoshida “… gallivanting
The Company, by its joint official liquidators (“JOLs”), applies for a proprietary injunction to effectively ‘hold the ring’ and put a stop on the spending until trial so the Funds are not further depleted. As at the date on which the Company's liquidation commenced:
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a) funds totalling approximately US$163 million were held in a bank account in Taiwan in the name of SPGK Singapore (D3) (the “SCSB Funds”);
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b) funds totalling approximately US$15 million were held in a bank account in Taiwan in the name of Scuderia Bianco (D5) (the “SB Funds”); and
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c) the Planet Payment Funds (amounting to approximately US$72 million) were held in an account with BMO Harris Bank in the name of Planet Payment (pursuant to the terms of the PP Contract (as defined in paragraph 56 below). 7
The Company says that it is at grave risk of injustice if matters are left where they are. The Company says the only just and proportionate way to rebalance the parties' interests is to ring-fence the Funds over the trial of these proceedings.
Mr Yoshida says no restraint should be put in place as this would prevent Mr Yoshida's ability to close-down the PRC Business and would prevent him from accessing funds necessary to defend these proceedings because he has personal savings of only US$500,000.
The Company says that it has always been willing to agree that the Funds may be used to meet the genuine, reasonable and proportionate expenses related to the winding down of the PRC Business out of the profits of that business.
As to legal expenses, the Company says the Defendants have spent US$14.5m to date defending these and related proceedings, and a very significant part of that sum has been spent on obstructing the JOLs' efforts to ring-fence the Funds pending determination of the Company's proprietary claim. It says that the sums paid to the Defendants' Cayman law attorneys to date (over US$6.5 million) should mean that those attorneys now hold sufficient funds to ensure that no further sums will need to be paid to cover future legal expenses. The Company says the total spent to date in relation to US attorneys alone is understood to be over US$2.5 million.
The Defendants, through Mr Flynn KC, resist the application in its entirety, which he argued was misconceived on many bases and moreover the Defendants say the JOLs have not remained dispassionate or objective.
On 4 October 2023, the Company, after obtaining the sanction of the Supervising Judge (Doyle J), commenced the present Proceedings against the Defendants, filing a Writ of Summons accompanied by a Statement of Claim which it subsequently amended on 10 October 2023.
The Amended Writ of Summons and the Amended Statement of Claim were served on all the Defendants on 11 October 2023. All of the Defendants acknowledged service on 25 October 2023 and have submitted to the jurisdiction of the Grand Court.
The Defendants' Defence and Counterclaim was served on 22 December 2023. The Company's Reply and Defence to Counterclaim was served on 2 February 2024. The Defendants' Reply to Defence to Counterclaim was served on 8 March 2024.
At its core, the case involves a dispute as to the ownership of the Funds with each side claiming beneficial ownership of all the Funds. The Company says that in light of the Defendants' failure to engage constructively with the JOLs' efforts to agree a regime for the appropriate preservation of the disputed Funds pending trial, the Company issued the Summons on 7 February 2024, seeking an interlocutory proprietary injunction (and appropriate relief ancillary thereto).
In addition to the present Proceedings, there have been (and continue to be) disputes between the Company/ JOLs and the Defendants. 8 They include contested recognition proceedings in the US and Singapore (the “Singapore Proceedings”), and a sanction application by the JOLs in relation to a sum of money (circa US$11 million) paid over to the JOLs by the Sanders Companies (as defined in paragraph 49 below) (the “BOW Funds”). 9
In the US, there are currently Motions (see below) which the Company says have as their sole objective the remittance of the Planet Payment Funds to Taiwan. The Defendants say the JOLs could and should have sought to restrain the Planet Payment Funds through the Cayman Islands Court instead of commencing satellite litigation in the US. They rely on a report prepared by AlixPartners dated 1 August 2022 10, which shows that in the ordinary course of business, the vast majority of the funds received by Planet Payment were transferred to SPGK Singapore's bank account with SCSB.
The Singapore Proceedings and the summons in relation to the BOW Funds were resolved in favour of the JOLs. In particular, the Company's liquidation is now recognised in Singapore 11, and the BOW Funds were held to be unencumbered assets in the Company's liquidation (and not to be held on trust for SPGK Cayman).
There are also funds totalling approximately US$25 million (the “HEC Funds”) held in an account which are in dispute...
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