The Companies Law (2007 Revision) and the Sphinx Group of Companies (in Official Liquidation) as Consolidated by the Order of this Court Dated 6th June 2007 (‘Sphinx’)

• Jurisdiction: Cayman Islands
• Judge: The Hon. Chief Justice
• Judgment Date: 26 March 2013
• Court: Grand Court (Cayman Islands)
• Docket Number: CAUSE FSD 16 OF 2009 ASCJ
• Date: 26 March 2013

In the Matter of the Companies Law (2007 Revision)

And in the Matter of the Sphinx Group of Companies (In Official Liquidation) As Consolidated by the Order of this Court Dated 6^th June 2007 (‘Sphinx’)

[2013] CIGC J0411-2

Before

The Hon. Chief Justice

IN CHAMBERS

CAUSE FSD 16 OF 2009 ASCJ

IN THE GRAND COURT OF THE CAYMAN ISLANDS

1 The JOLs apply for an increase in the hourly rates that they may charge to the SPhinX Liquidation Estates for their services. These increases are sought to be effective retroactively from 1^st July 2012. The application requires a review of the history.

2 The rates agreed between the JOLs and the LC for the period 27 July 2006 (the commencement of the liquidation) to 1^st January 2010 are in the second and third columns of the Table following.

3 The current rates, which were set by the Court effective as from 1^st January 20101 are set out in the fourth column.

4 The proposed rates, to be effective from 1^st July 2012, are set out in the fifth column and the proposed percentage increases which they involve, in the sixth column.

GRADE	Agreed Rate as at 27 July 2006 US$	Agreed Rate as at 27 July 2008 US$	Rate set by the Court as at 1 January 2010 US$	Proposed new rate	Proposed Percentage Increase
Managing Director	495	585	655	790	21%
Director	N/A	440	492	625	29%
Senior Manager	360	400	448	550	23%
Manager	275	350	392	460	17%
Senior Accountant/Analyst	210	245	274	340	24%
Junior Accountant/Analyst	105	125	140	210	50%
Administrator	N/A	65	106	106	-
Consultant	N/A	125-245	284	284	�
�	�	�	�	�	�

5 As justification for the increases, the JOLs posit the increased costs of doing business. These they identify as the increase in work permit fees; the costs of IT Services and equipment and other overheads such as rent.

6 The JOLs also argue that the increases are also justified by reference to the statutory rates set by the Insolvency Practitioner Rules (IPRs).

7 For the following reasons, I do not consider it appropriate to grant an increase in rates by reference to the JOLs” increased costs of doing business. A primary reason is that those costs would not provide an objective basis for approval of fees. An obvious consideration is that the IPR rates upon which the JOLs” rate have been set and approved, were themselves set as a benchmark having regard to a compendium of relevant factors central to which were the acknowledged costs of doing insolvency business in the Cayman Islands. And, as one would expect, it was then recognised that as those costs will increase from time to time so should the IPR rates be revisedto ensure that they continue to be an appropriate basis for the remuneration of liquidators.

8 By contrast to that objective approach, the kind of enquiry into their subjective costs of doing business now proposed by the JOLs would be a departure from the IPR rates as an objective benchmark generally for the setting of fees for insolvency work.

9 The foibles of such a subjective approach are also readily identified by reference to the present context.

10 Apart from anything else, as the LC argues through Mr. Turner, the SPhinX engagement is one that has earned the JOLs something in the order of $35 million in fees so far; all paid in a timely manner from the available assets by virtue of their highly liquid state from near the outset of the liquidation process. It would therefore be quite meaningless to consider the JOLs” costs of doing business as a basis for increasing fees without considering how those costs translate into the JOLs” work for the SPhinX estate itself and so into the level of profitability of the engagement. It has not been denied by the JOLs that the SPhinX engagement has been and will continue to be, even at the current rate of fees, a profitable engagement.

11 Thus, the JOLs may not rely on their costs of doing business for the SPhinX estate without also disclosing the extent of the profitability of their engagement, but the latter is precisely the kind of information that they (and all other liquidators) have steadfastly refused to disclose; citing their proprietary right to business confidentiality.

12 This exactly is the kind of debate that the IPR rates were designed to avoid. They are based on considerations which are intended to render them acceptable as representingthe rates of remuneration that liquidators might reasonably and objectively expect to be paid for their services in this jurisdiction. Before the IPR rates were first set, there was full consultation with the insolvency practitioners whose representatives served on the rule making body — the Insolvency Rules Committee — which is established under section 154 of the Companies Law. The IPR rates are therefore to be regarded as having been set by reference, among other things, to the costs of conducting liquidation work in this jurisdiction, with an uplift for a reasonable margin of profit for liquidators.

13 The IPR rates are however expressed as bands of rates, leaving it to the liquidators, and their respective liquidation committees, to agree on the correct points within the band or failing agreement, for the Court to decide on the correct points.

14 A number of factors go into making that decision, not least the anticipated complexity and longevity of the particular liquidation engagement. Also considered is the availability of liquidity for ready payment of the liquidators” fees and so, the absence of delay in payment and risk of non-payment.

15 As to the longevity of the assignment, the JOLs now also express the view that the SPhinX...