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
| Jurisdiction | Cayman Islands |
| Judge | The Hon. Chief Justice |
| Judgment Date | 13 November 2012 |
| Court | Grand Court (Cayman Islands) |
| Docket Number | FSD 16 OF 2009 ASCJ |
| Date | 13 November 2012 |
IN CHAMBERS
The Hon. Chief Justice
The JOLs apply for approval of their fees charged to the liquidation estates for the period 1 January 2010 to 31 August 2010.
Their application is opposed by the LC on the basis that the fees are excessive and unreasonable. In support of their objection the LC relies on a report prepared by the accountancy firm Moore Stephens who were appointed on 9th September 2010, with the approval of the Court, as consultant to the LC for the appraisal of the JOLs' fee invoices. Moore Stephens' report has been submitted by Mr. Phillip Sykes who is in attendance to speak to the report. Mr. Sykes also filed an affidavit in response to the JOLs critique of his report.
The amount claimed by the JOLs for the period is USD4,214,768 and the Moore Stephens Report recommends a reduction of between USD1,357,156 to USD1,515, 912 or 32 to 36 percent. This is the reduction for which the LC now contends.
As a separate matter, the LC in its cross-summons also sought the appointment of Mr. Sykes by the Court on the ongoing basis as an independent fee assessor to assess whether the fees of the JOLs are reasonable. This would imply not only the LC relying on Mr. Sykes for those purposes, but the Court as well and, as no provisions appear in the Insolvency Practitioners Regulations (“the IPRs”) to enable such an appointment, the question of the jurisdiction to make the appointment also arises. As it was eventually agreed that Mr. Sykes may continue to act as consultant to the LC for the purposes of the ongoing appraisal of the JOLs fees, it was acknowledged that I need not make the appointment as assessor or answer the jurisdictional question.
Nonetheless, as significant time and expense was taken in presenting the question to the Court, and as the question is likely to arise again, I will venture to provide an answer after dealing with the primary issue relating to the JOLs' fees.
Section 104(2) of the Companies Law (2010 Revision) confers on this court a primary jurisdiction to assess and approve the remuneration of liquidators. TheCourt exercises this jurisdiction pursuant to the IPRs, Regulation 10 of which provides:
“…an official liquidator is not entitled to receive any remuneration out of the assets of a company in provisional or official liquidation (including a liquidation under the supervision of the Court) without the prior approval of the Court.”
An official liquidator may, however, receive a payment on account, in advance of Court approval, of up to eighty percent of his remuneration sought in his report and accounts which must be also presented.
The JOLs have received payment on that basis and so, in effect, now seek the Court's approval before they might receive the remaining twenty percent and with the understanding that any net overpayment found to be the result, must be repaid to the estate.
Before seeking the Court's approval, the JOLs are obliged to seek the approval of the LC but, as mentioned above, that approval has not been forthcoming and hence this application.
In circumstances where the approval of the LC is not forthcoming, the JOLs bear the burden of proving that the remuneration sought is reasonable and justified.
This is all in keeping with IPR Regulation 12(2) which imposes the duty upon liquidators to provide a report and account to their liquidation committees upon which an informed decision about the reasonableness of the proposed basis of remuneration and the amount claimed can be made. It is to be remembered that this regime is intended to avoid but also to address concerns which may well arisein the context of liquidations where liquidators are allowed to pay their own invoices from the funds which they control as officers of the Court and as fiduciaries.
As was observed by this court inIn Re Liberty Capital (above) at p625:
“The liquidator must exercise his own best judgment and determine what has to be done and how to do it most effectively. In the liquidation field, he has extraordinary discretion and latitude. The liquidator must therefore satisfy the court (to which he is by law accountable in the interests of the creditors and shareholders), as its officer, that the time spent is reasonable in the circumstances, is necessary and has achieved a useful result.”
The respective roles of the court and the LC in scrutinizing the fees of the liquidator were the subject of further comments in the Privy Council case ofAttorney General v Cleaver & Co. 2006 CILR 222, where, in upholding the earlier decision of this Court in In Re Liberty Capital (above) it was held, among other things, that while the court would attach weight to the LC's opinion, it was not obliged to adopt them but was obliged to ensure that the fees charged were fair and reasonable in the attendant circumstances.
Apropos the LC's argument for the appointment of Moore Stephens, it is said that the LC has not been and will not in future properly be able to scrutinize the invoices of the JOLs without the assistance of an expert. This assistance will be by way of advice as to whether the tasks undertaken are reasonably necessary, the allocation of staff respectively to those tasks appropriate and whether the amountscharged to the liquidation estates are reasonable and proportionate. It is submitted that the Court itself faces a similar difficulty. This can indeed sometimes be the case and is well recognised. As Hoffman J acknowledged inRe Potter's Oils Ltd. No. 2 [1980] 1 WLR 201 [1980] 1 WLR 201 at 207H, in commenting on the remuneration of a receiver appointed by a debenture holder:
“…the court is ill-equipped to conduct a detailed investigation of receivers' charges on an itemized basis. A judge could not do so without being expensively educated by expert evidence.”
This dictum met with the express approval of the Privy Council in A.G. v Cleaver & Co . (above) (at p 246) and points heavily in favour of the ongoing engagement of Moore Stephens, given the complex nature of this liquidation.
The approach that the Court should take when assessing whether a liquidator's charges represent fair and reasonable remuneration for the work properly undertaken, has itself been the subject of frequent judicial commentary. Indeed inIn Re Liberty Capital (above), this Court discussed a number of criteria which will guide the assessment. There is no need to repeat them in detail now. It will, I think, suffice to adopt the following summary from a latter discussion of them from In Re BCCI (O) 2007 CILR 300 at 314:
“Factors of primary importance relevant to determining the levels of remuneration are classically identified in the English Insolvency Rules 1986. r.4.127, discussed in 7(3) Halsbury's Laws of England, 4th Ed. para 2256 at 1591 and adopted in the case law….They are worth repeating here:
(i) The time properly given by the liquidator and his staff in attending to the company's affairs;
(ii) The complexity (or otherwise) of the case;
(iii) Any respects in which, in connection with the company's affairs, there falls on the liquidator any responsibility of an exceptional kind or degree;
(iv) The effectiveness with which the liquidator appears to be carrying out, or to have carried out, his duties; and
(v) The value and nature of the property with which he has to deal.
Some of these inevitably overlap. For instance, the more complex the case, the more time the liquidator and his staff will spend attending to it….
Equally, however, it has been the established practice to delegate downwards within the ranks of the staff, in keeping with descending orders of complexity. The less complex the assignment, the less experienced should be the staff member needed to do it.”
The general rationale of the Court's approach was helpfully explained by Ferris J. inRe Mirror Group Newspapers [1998] BCC 324 in dicta that has often since been cited: (at pp333–334):
“The essential point which requires constantly to be borne in mind is that office-holders are fiduciaries charged with the duty of protecting, getting in, realizing and ultimately passing on to others assets and property which belong not to themselves but to creditors or beneficiaries of one kind or another.
They are appointed because of their professional skills and experience and they are expected to exercise proper commercial judgment in the carrying out of their duties. Their fundamental obligation is, however, a duty to account, both for the way in which they exercise their powers and for the property with which they deal
Office-holders are nowadays not normally expected to act gratuitously. It is salutary to remember, however, that the rule that a trustee must not profit from his trust is a rule that apples to all kinds of persons who are in a fiduciary position (See Snell's Principles of Equity’ (28th Edn. Sweet and Maxwell) pp. 249–252). The allowance of remuneration in particular cases represents an exception to this rule, but it inevitably involves a conflict between the interests of the fiduciary who is to receive such remuneration and the interests of those to whom the fiduciary duties are owed, who will bear whatever remuneration is allowed. A consequence of this is that it must be for the office-holder who seeks to be remunerated at a particular level to justify his claim. As I see it, it is simply one aspect of his obligation to account. What he retains for himself out of the property which comes into his hands as office-holder is not available for those towards whom he is a fiduciary. He cannot...
To continue reading
Request your trial