The Companies Law (2011 Revision) and Trident Microsystems (Far East) Ltd

• Jurisdiction: Cayman Islands
• Judge: The Hon Sir Peter Cresswell
• Judgment Date: 12 April 2012
• Court: Grand Court (Cayman Islands)
• Docket Number: CAUSE NO: FSD 1 OF 2012 (PCJ)
• Date: 12 April 2012

In the Matter of the Companies Law (2011 Revision)

And in the Matter of Trident Microsystems (Far East) Ltd.

[2012] CIGC J0420-1

The Hon Sir Peter Cresswell

CAUSE NO: FSD 1 OF 2012 (PCJ)

IN THE GRAND COURT OF THE CAYMAN ISLANDS

RULING

The Cross-Border Insolvency Protocol

‘Application and definitions (0.21, r.1)

1 1. (1) In this Order ‘company in liquidation’ means a company which is incorporated under the Law and is the subject of an official liquidation under Part V.

(2) This Order has no application to foreign companies which are the subject of an official liquidation under Part V.

(3) This Order applies –

• (a) when a company in liquidation is the subject of a concurrent bankruptcy proceeding under the law of a foreign country; or

• (b) when the assets of a company in liquidation located in a foreign country are the subject of a bankruptcy proceeding or receivership under the law of that country.

(4) In this Order –

• (a) ‘foreign officeholder’ means a person appointed by a foreign court or other authority to exercise powers similar to those of an official liquidator in respect of a company or to exercise powers similar to those of a receiver in respect of assets of a company;

• (b) ‘foreign court or authority’ means the foreign court or foreign governmental authority which has appointed and exercises supervisory jurisdiction over a foreign officeholder; and

• (c) ‘international protocol’ means an agreement made in respect of a company in liquidation between an official liquidator and a foreign officeholder with the approval of the Court and of the foreign court or authority.

Consideration of international protocols (0.21, r.2)

2 2. (1) It shall be the duty of the official liquidator of a company in liquidation to consider whether or not it is appropriate to enter into an international protocol with any foreign officeholder.

(2) The purpose of an international protocol is to promote the orderly administration of the estate of a company in liquidation and avoid duplication of work and conflict between the official liquidator and the foreign officeholder.

(3) An international protocol agreed between the official liquidator and a foreign officeholder of a company in liquidation shall take effect and become binding upon them only if and when it is approved by both the Court and the foreign court or authority.

Scope of international protocols (0.21, r.3)

3 3. (1) An international protocol may define and allocate responsibilities between the official liquidator and foreign officeholder (by reference to geographical location or otherwise) in respect of –

• (a) the formulation and promotion of restructuring proposals, including a scheme of arrangement pursuant to section 86 of the Law;

• (b) the preservation of assets located outside the Islands;

• (c) the realisation of assets located outside the Islands;

• (d) the pursuit of causes of action against debtors or other persons outside the Islands;

• (e) procedures for the exchange of information between the official liquidator and foreign officeholder;

• (f) procedures for reporting to and communicating with the liquidation committee and with creditors and/or contributories;

• (g) procedures for co-ordinating sanction applications made to the Court and to the foreign court or authority;

• (h) administrative procedures relating to the adjudication of proofs of debt and consequential appeals or expungement applications;

• (i) procedures relating to the payment of claims; and

• (j) procedures relating to the remission of funds between the official liquidator and foreign officeholder.

(2) An international protocol may establish procedures for the review, approval and payment of –

• (a) the remuneration of the official liquidator and foreign officeholders;

• (b) the fees of counsel to the official liquidator and lawyers engaged by the foreign officeholder; and

• (c) other expenses incurred by the official liquidator and/or foreign officeholder.

(3) Any provision contained in international protocol which is contrary to the provisions of the Law or purports to exclude the jurisdiction of the Court in respect of the company in liquidation shall be void and of no effect.’

The present case, of course, concerns a provisional liquidation but, in my opinion, similar principles apply.

I refer to the paper written by the Chief Justice extra-judicially entitled ‘A Cayman Islands Perspective on Trans-Border Insolvencies and Bankruptcies — The Case for Judicial Co-operation’. In that paper the Chief Justice said:

‘…the recent global financial crisis and the consequential failure of many trans-national entities have challenged the courts of countries — including the OFCs — to respond with unprecedented urgency and efficacy. The nature of the challenge has come to be described in the ‘co-operation’ and ‘co-ordination’ principles of the UNCITRAL Model Law on Cross-Border Insolvency, Articles 25, 26, 27, 29 and 30. These provisions place obligations on both courts and insolvency representatives in different States to communicate and co-operate tothe maximum extent possible, to ensure that a debtor entity's insolvent estate is administered fairly and efficiently, with a view to maximizing benefits to creditors. Those principles are designed to meet the following public policy objectives:

(a)The need for greater legal certainty for trade and investment;

(b)The need for fair and efficient management of the international insolvency proceedings, in the interests of all creditors and other interested persons, including the debtor;

(c)Protection and maximization of the value of the debtor's assets for distribution to creditors, whether by reorganisation or liquidation;

(d)The desirability and need for courts and other competent authorities to communicate and co-operate when dealing with insolvency proceedings in multiple states; and

(e)The facilitation of the resumption of financially troubled businesses with the aim of protecting investment and preserving employment.

This is a far-reaching and daunting mandate but, as a basic position from which to respond, it is reassuring that the commercial necessity for international co-operation between courts in matters of cross-border insolvency, has long been recognised and is repeatedly stressed in the case law … the seminal Cayman Islands decision [is]Kilderkin v Player [ 1984 CILR 63].Judicial international co-operation is a well-established tradition in Cayman Islands jurisprudence and the common law conflict of law rules applicable in this area are carefully applied.’

As to protocols between the Grand Court and courts overseas, I refer to In the matter of Philadelphia Alternative Asset Fund Limited (in liquidation) 17 July 2007 where in the ruling of the Chief Justice at page 4 the following passage appears:

‘…There is a Protocol in place which was agreed at the direction of this Court, to govern the working relationships of the [joint official liquidators] and the United States Receiver. The protocol identifies distinct divisions of work, with the United States Receiver being primarily responsible for the litigation in that country.’

InLancelot Investors Fund Limited[2009] CILR 7 at paragraph 70 and following, Quin J stated that the Grand Court embraces the concept of facilitation of co-operation and co-ordination in cross-border insolvency proceedings. (See further the commentary of the Chief Justice on that case in his paper referred to above.)

As to England and Wales, by way of example only I refer toRe Maxwell Communications Corporation plc (No 2); Barclays Bank plc v Homan and Ors[1992] BCC 757 at 760 where Hoffman J, as he then was, said:

‘The administrators and examiner, subject to the respective jurisdiction of the courts here and in New York, have carried on the administration of MCC in co-operation with each other. On 31 December 1991, I authorised the administrators to consent to an order of the US Court in New York which would enable the administrators and examiner to enter into an agreement to harmonise their work and eliminate unnecessary duplication and expense. On 15 January 1992 Brozman J made a final supplemental order approving the agreement. By the same order, the administrators were recognised as the corporate governance of MCC, subject to the terms of the order. But the order was expressed not to affect the jurisdictions of this Court and the US Court under their respective laws or to preclude any party in interest from seeking an expansion or reduction of the examiner's powers’.

See further Glidewell LJ in the Court of Appeal at page 769 under the heading “Proceedings in the US and England”.

On 25 January, I conducted a joint hearing by telephone conference with the Honourable Christopher S. Sontchi of the Delaware Bankruptcy Court, with the assistance of counsel appearing before that Court and Mr. Colin McKie appearing for the JPLs in this Court.

We arrived at a cross-border insolvency protocol stipulation regarding TMI and the Company. The protocol sets out, by way of background, the parties and the proceedings and contains detailed provisions to protect the interests of all creditors of TMI and the Company and to protect the process by which the Delaware Bankruptcy Proceedings and the Cayman proceedings are administered. The protocol provides a framework for the co-operation between multiple jurisdictions and seeks to eliminate, wherever possible, duplication of effort and to promote judicial economy and co-operation. To this end, on 25 January, I approved the terms of the protocol and the Honourable Christopher S. Sontchi did the same in the Delaware Bankruptcy Court. A copy of the protocol as approved is at Appendix 1 to this ruling.

This Court will continue to work in co-operation and co-ordination with courts in other jurisdictions when appropriate to ensure the fair and efficient management of international insolvency...