The Companies Act

• Jurisdiction: Cayman Islands
• Judge: Mr Justice Segal
• Judgment Date: 03 February 2022
• Court: Grand Court (Cayman Islands)
• Docket Number: CAUSE NO: FSD 108 of 2019 (NSJ)

In the Matter of the Companies Act

And in the Matter of Direct Lending Income Feeder Fund, Ltd. (In Official Liquidation)

Before:

The Hon. Mr Justice Segal

CAUSE NO: FSD 108 of 2019 (NSJ)

IN THE GRAND COURT OF THE CAYMAN ISLANDS

FINANCIAL SERVICES DIVISION

HEADNOTE

Application by official liquidators for the approval of their remuneration – application opposed by the liquidation committee – what approach to be taken by the Court when reviewing the official liquidators' fees – to what extent is the Wednesbury reasonableness test relevant – the need to file sufficient evidence in advance of the hearing wherever possible

Appearances:

Mr Matthew Dors of Collas Crill for the Joint Official Liquidators of Direct Lending Income Feeder Fund, Ltd (in official liquidation)

Mr David Lewis-Hall of Appleby for the Liquidation Committee of Direct Lending Income Feeder Fund, Ltd (in official liquidation)

IN CHAMBERS

Introduction

1 This is my judgment on the fee approval application made by the joint official liquidators (the JOLs) of Direct Lending Income Feeder Fund, Ltd (in liquidation) (the Company). The application was made by way of summons dated 16 June 2021 (sealed on 18 June 2021) and the JOLs relied on the Fifth Affidavit of Mr Christopher Johnson, one of the JOLs, sworn on 16 June 2021 ( Johnson 5) and Mr Johnson's Seventh Affidavit sworn on 27 September 2021 ( Johnson 7).

2 The application sought the Court's approval for:

• (a). the rates to be applied for work done and to be done by the JOLs for the calendar year 2021.

• (b). the JOLs' fees incurred in the period from 1 March 2020 to 31 August 2020 (the Second Fee Period) in the sum of US$679,972.70 (together with disbursement costs of US$28,383.15).

• (c). the JOLs' fees incurred in the period from 1 September 2020 to 28 February 2021 (the Third Fee Period) in the sum of US$582,710.10 (together with disbursement costs of US$24,896.29).

3 The application in respect of (b) and (c) above was opposed by the liquidation committee (the LC). The LC argued that some of the fees incurred in the Second Fee Period and the Third Fee Period should not be approved. The LC relied on the First Affirmation of Mr Elias Toby sworn on 10 August 2021 ( Toby 1). Mr Toby is the chief operating officer and chief financial officer of Aubrey Dan Holdings Inc. (which is an investor in the Company). Aubrey Dan Holdings Inc has been a member of the LC (with Mr Toby as its representative) since 4 June 2010.

4 The application was heard on 22 October 2021. The JOLs were represented by Mr Dors of Collas Crill, and the LC was represented by Mr Lewis-Hall of Appleby.

5 At the end of the hearing of the application, I directed that the LC file further evidence to substantiate a number of the challenges to the JOLs' remuneration that were made during the hearing, but which had not been dealt with, or adequately dealt with, in Toby 1. I ordered that the LC serve any further evidence on which it wished to rely by 4pm on Friday 5 November 2021 and that the JOLs had until 4pm on 19 November to file any evidence in reply. I further ordered that on or before 4pm on Friday 26 November 2021, the parties should write jointly to the Court setting out their preferences (with reasons in the event of disagreement) as to whether the Court should determine the application on the basis of the further evidence but without further submissions; the further evidence and further written submissions or the further evidence and further oral submissions.

6 On 22 November 2021, Collas Crill and Appleby wrote to the Court in the following terms:

“The LC has elected not to file any further evidence in accordance with paragraph 1(a) of the Order. Therefore, it is not necessary for the JOLs to file any reply evidence in accordance with paragraph 1(b) of the Order.

Accordingly, and with a view to minimising any further costs arising in relation to the Application, the JOLs and the LC have agreed:

• 1. that the Court should disregard any submissions that were made at the hearing on 22 October 2021 on behalf of the LC in so far as the Court considers that they related to matters not raised in Toby 1 and therefore that the points raised on behalf of the LC that should be taken into account by the Court in determining the reasonableness of the JOLs' fees should be confined to those set out in Toby 1;

• 2. to jointly invite the Court to determine the Application on the papers based on the evidence filed to date; and

• 3. that in the event that the Court (having considered the Application on the papers) wishes to raise further questions of the JOLs, then it can require answers in writing or list a hearing at its own instigation.

Finally, the parties note that the Court will determine the issue of the costs of the Application in accordance with CWR O. 24 r.9 and that the usual rule would be for the parties' costs to be paid out of the assets of the company. The parties are content to leave the issue of costs to the Court, save that if the Court is minded after considering the Application, to depart from the usual rule in relation to either the JOLs or the LC, then the Court is invited to give that party the opportunity to be heard / to provide written submissions before any final order is made in relation to costs.”

7 Accordingly, I now turn to consider the application by reference to the evidence filed for the purpose of the hearing and the submissions made in writing before and orally at the hearing (to the extent, in the case of the LC, that they are based on and supported by the evidence filed in Toby 1).

The JOLs' evidence

8 Johnson 5 set out the background to the fee application. Mr Johnson noted that the LC had approved the remuneration agreement in July 2020, following amendments made at their request, and that this fixed the applicable rates up to 31 December 2020.

9 Johnson 5 exhibited the JOLs' fee report for the Second Fee Period (the Second Fee Report) which contained a seven-page summary of the JOLs' work in the period broken down by workstream, as well as brief summaries of the work undertaken by the JOLs' US and Cayman counsel. The categories of work undertaken with a breakdown of the fees incurred per category were as follows: Court /Statutory — US$9,390; Receivership/Protocol — US$42,161; Asset Realisation — US$76,473; Liquidation Committee — US$159,937; Creditors/Adjudication — US$95,911; Investigations/Litigation — US$93,230; Stakeholder Consultation/Reporting — US$122,680; Accounting/Banking — US$74,473 and Administration/General — US$5,718. For each workstream, a series of bullet point headlines identifying the type of activity and work involved (labelled the “ main tasks”) were provided. Significant detail was provided in appendices in the form of a summary of the JOLs' time costs by activity and staff grade together with corresponding detailed time entries for each activity recorded by each fee earner.

10 Mr Johnson confirmed that the JOLs considered that these fees and expenses were fair and reasonable in all of the circumstances, having regard to six factors. These factors were that (a) there had been frequent and comprehensive consultation with the LC; (b) there had been a need for significant engagement with stakeholders to respond to a high volume of detailed requests, some of which were addressed by the dissemination of the FAQ document in May 2020, and some of which necessitated direct correspondence in relation to, inter alia, document requests, share transfers, the claims adjudication process, payment of distributions, fraud allegations and requests for confirmation of holdings and creditor status; (c) a large volume of work had been done in relation to claims adjudication matters, including extensive analysis of the Company's records to determine the appropriate treatment and valuation of claims of both redemption creditors and late subscribers, detailed correspondence with redemption creditors regarding the likely valuation of their claims, extensive communications with various late subscribers (on an individual and collective basis) regarding the classification of their claims and requests to be treated as a group and consideration of various issues regarding investors with potential proprietary claims including the filing of claims in the receivership proceedings; (d) a substantial amount of work had been undertaken by the JOLs in relation to litigation claims during the period, which required significant coordination between the receiver's team and the JOLs' team (because, pursuant to the protocol between them the JOLs had responsibility on behalf of the Company for the evaluation and pursuit of all litigation claims), and produced some positive results; (e) considerable time had been spent on the negotiation and finalisation of the claims stipulation with the receiver (involving a review and analysis of the financial data regarding the Feeder Funds' respective holdings in the Master Fund and the preparation of an independent analysis with evidence to substantiate a significant uplift of the Company's net cash investment into and claim against the Master Fund) which took many months of negotiation and greatly increased the return prospects for the liquidation estate and (f) the JOLs had undertaken an exercise to identify time spent on case development which they considered should not be charged. They had treated 136 hours of time (roughly 11% of the total) equal to US$90,825 in fees as coming within this category and therefore as non-chargeable.

11 Johnson 5 also exhibited the JOLs' fee report for the Third Fee Period (the Third Fee Report) which contained a five-page summary of the JOLs' work in the period, once again broken down by workstream, as well as brief summaries of the work undertaken by the JOLs' US and Cayman counsel. The categories of work undertaken with a breakdown of the fees...