The Companies Law (2012 Revision) (as Amended) and Srt Capital Spc Ltd
| Jurisdiction | Cayman Islands |
| Judge | The Hon. Mr. Justice Angus Foster |
| Judgment Date | 18 October 2013 |
| Court | Grand Court (Cayman Islands) |
| Docket Number | CAUSE NO. FSD 115 OF 2013 (AJEF) |
| Date | 18 October 2013 |
The Hon. Mr. Justice Angus Foster
In Chambers as Open Court
This matter concerns an opposed creditor's winding up petition. The petition is brought on the ground that the company concerned is alleged to be unable to pay its debts and consequently insolvent because of its failure to pay a particular sum said to be due pursuant to a share swap transaction between the petitioner and the company. The company opposes the petition on the ground that the debt on which the petition is based is disputed and that the question whether or not it is due and payable is required to be determined by the courts in England.
The petitioner, Morgan Stanley and Co. International PLC, with registered office at Canary Wharf, London (‘the Petitioner’), by its petition dated 20th August 2013 seeks the winding up of SRT Capital SPC Ltd (‘the Company’), pursuant to Sections 91(a) and (b) and 92 (d) and (e) of the Companies Law (2012 Revision) (as amended).
The Company is an Exempted Segregated Portfolio company incorporated pursuant to the Companies Law on 14th December 2009, and having its registered office at Maricorp Services Ltd, The Strand, West Bay Road, Grand Cayman. The Company carries on business in trading and dealing in investments, securities and commodities. It is not registered as a mutual fund. The sole director of the Company is Ms Oya Okay, who is apparently based in Turkey.
In connection with the transaction which the Petitioner contends gives rise to the allegedly due debt, the Company dealt principally through its investment manager, Emerging Markets Intrinsic Ltd of Connecticut, USA, the managing partner of which is Mr. Eric Maas. Mr. Maas swore an affidavit on behalf of the Company. In turn, Mr. Maas used the services of a broker, Mr. Slim Jmel of SFG Partners LLP, an FSA registered broker dealer. The Petitioner acted through its associated company in Hong Kong, Morgan Stanley Asia Limited, principally by the vice-president thereof, Mr. Christian Lhert. Mr. Lhert swore two affirmations on behalf of the Petitioner, the first in support of the petition and the second in response to Mr. Maas's affidavit.
The necessary formalities with regard to the petition have been complied with by the Petitioner. In particular the petition has been advertised in compliance with the Companies Winding up Rules 2008 in the Caymanian Compass newspaper and also, in Turkish, in a widely read newspaper in Turkey. Apart from the Petitioner and the Company, no other person or entity appeared on or has given notice of any interest in the winding up petition.
The Company was out of time in entering an appearance and filing evidence in response to the petition and applied for leave to do so late. After a contested hearing, I duly granted such leave by order dated 25th September 2013. Following directions given in that order, as I have already mentioned, the Company filed the affidavit of Mr. Maas explaining its opposition to the petition and its dispute of the alleged debt. In response to that affidavit the Petitioner filed the second affirmation of Mr Lhert. It is that affidavit and that affirmation and their exhibits which respectively comprise the substantive evidence relied upon by each of the parties.
It is not disputed that during the early part of this year, 2013, the Company decided to seek financing to fund the purchase of a significant number of ordinary shares in a company, Gitanjali Gems Ltd, listed on the National Stock Exchange India (‘the Shares’) on a leveraged basis. For this purpose the Company approached several brokers, including Mr. Jmel. The evidence of Mr. Maas for the Company is that it was made plain to the brokers, including Mr. Jmel, that the Company was seeking such financing on the basis that it would be secured over the Shares themselves and not over any of the assets of the Company, i.e. it would be non-recourse, with the financing party assuming some of the risk in relation to the on-going value of the Shares.
In March 2013 Mr. Jmel informed the Company that the Petitioner would be able to provide financing which would fit within the Company's requirements. Negotiations then took place between the Company, the Petitioner and Mr. Jmel during the course of which the parties held telephone discussions and exchanged emails. Amongst other terms it was agreed that the total initial acquisition would be USD30m worth of the Shares with the Petitioner paying 55% of the price and the Company paying 45%. Title to and custody and control of the Shares were to be held by the Petitioner.
In due course, as discussions progressed, the Petitioner produced various term sheets reflecting the proposed terms of agreement. Two of these, including the final one, wereexhibited to the affidavit of Mr. Maas. On 19th March 2013 Mr. Lhert, for the Petitioner, sent a revised term sheet by email to Mr. Jmel and other representatives of the Company, including Mr. Maas and Mr. Bulent Toros, a senior manager of the Company. In his email Mr. Lhert said that the main transaction documents would include: ‘1. A swap under long form confirmation. This is the key document which will be approx. 20 page (sic) long and will reflect the key commercial terms described in the termsheet 2. Other ancillary documents (for example board resolutions for the Swap buyer [the Company]). These documents are very standard and should not be controversial. The exact nature/content is primarily driven by the countiy of incorporation of the issuer. Our counsels (sic) will draft these documents as well to facilitate the execution process. Mr. Lhert also said: ‘The finalization of the transaction documents is typically much smoother as it is a pure legal reflection of what's been pre-agreed commercially and this can definitely be done within a week’.
On the same date, 19th March 2013, Mr Jmel emailed Mr. Kummer, an executive director of the Petitioner, and Mr. Craig Donadio, a vice president of the Petitioner, with copy inter alia to Mr. Lehert. Mr. Maas and Mr. Toros, asking Mr. Kummer and Mr. Donadio to confirm that there was ‘no need for ISDA’ as they were using a long form confirmation for the swap. Later that same day Mr. Kummer replied by email, copying in the same people, confirming that there was no need for ISDA.
On 15th April 2013 Mr. Lhert sent out a final term sheet. Both this term sheet and the earlier one dated 19th March referred to the transaction as an ‘Equity Swap Financing Facility>‘ and described the structure as a ‘Stake-building Equity Swap (the ‘Equity Swap’) secured against the Underlying Shares. The economic exposure to the Underlying Shares will be acquired in synthetic form via the Equity Swap in a transaction partially financed by the Swap Seller’ [The Petitioner]. While the term sheets provided for a margining mechanism whereby if the value of the Shares fell and the leverage ratio rose over 61.1% the Petitioner could make a margin call for additional cash collateral to be paid by the Company in order to maintain the Petitioner's exposure at not more than 55%, the term sheets also provided that final settlement would be by ‘Cash or Physical [meaning the Shares] at the Option of the Swap Buyer’ [meaning the Company], Neither of these term sheets made any mention of ISDA or of recourse to the Company's assets.
The day after the date of the final term sheet the Petitioner apparently produced a formal agreement referred to as the ‘Confirmation’ in the form of a letter dated 16th April 2013 addressed to the Company and headed ‘Share Swap Transaction’. The document indicates that it was executed on the same date on behalf of the Company by its sole director, Ms. Okay. The Confirmation also indicates that on the same day Mr. Jmel, on behalf of SGG Partners LLP, executed a statement at the end of the document that as part of the transaction SFG Partners LLP made the same representations, warranties and undertakings as were set out in paragraph 10 of the Confirmation as if the references to the Company therein were references to SFG Partners LLP.
The Confirmation made no reference to the swap being secured against the Shares; on the contrary it provided throughout that settlement, including final settlement, was to be in cash. Furthermore, the Confirmation made a number of references to ISDA. It incorporated ISDA definitions and it also provided that the parties would use all reasonable efforts to negotiate and agree an agreement in the form of the 2002 ISDA Master Agreement (‘the ISDA Form’). It stated that until such an agreement in the ISDA Form was executed, the Confirmation would nonetheless be deemed to be part of and subject to an agreement in the ISDA Form as if such agreement had in fact been executed.
Apparently also on 16th April 2013, Ms. Okay, together with Mr. Toros acting as secretary, executed minutes of a board meeting of the Company, prepared by the Petitioner as part of the transaction documentation. The minutes referred to the transaction with the Petitioner as contemplated by the Confirmation. In summary, the minutes stated that the terms of the Confirmation and the transaction were carefully considered and the benefit to the Company of the transaction referred to in the Confirmation was noted and participation in the transaction contemplated in the Confirmation was determined by the director to be in the best interests of the Company. The minutes then recorded formal resolutions basically to the same effect and authorized execution of the Confirmation (and any ancillary documentation necessary to give effect to the...
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