The Companies Law (2018 Revision) v Acl Asean Tower Holdco Ltd
| Jurisdiction | Cayman Islands |
| Judge | Justice Kawaley |
| Judgment Date | 08 March 2019 |
| Court | Grand Court (Cayman Islands) |
| Docket Number | CAUSE NO: FSD 171 OF 2018 (IKJ) |
| Date | 08 March 2019 |
The Hon. Justice Kawaley
CAUSE NO: FSD 171 OF 2018 (IKJ)
IN THE GRAND COURT OF THE CAYMAN ISLANDS
FINANCIAL SERVICES DIVISION
Application by shareholder and creditor to further adjourn creditor petition to explore restructuring-weight to be attached to support for adjournment from creditors affiliated with the company-relevance of joint provisional liquidators' report-onus on stakeholders seeking to promote a restructuring after the court has found a creditor is prima facie entitled to a winding-up order to advance a coherent case for restructuring in a timely manner
Mr Mark Goodman, Campbells, on behalf of the Petitioners
Mr Tim Baildam, Carey Olsen, on behalf of the Company
Mr Stephen Leontsinis, Ms Jennifer Colegate and Mr Justin Naidu, Collas Crill, for the Joint Provisional Liquidators
Ms Katie Pearson and Ms Anna Krendzelekova, Harneys, for Mr El Ard, a creditor and shareholder
Mr Guy Dilliway-Parry and Mr Lawrence Aiolfi, Priestleys, for Mr Uebach, a creditor
Ms Sarah Dobbyn and Ms Tetrina Rivers, Sinclairs, for Messrs Kabbani, Al-Ken and Darwish, creditors
On September 13,2018, the Petitioners, Alcazar Capital Limited (“Alcazar”) and Forest Capital Holdings Limited (“Forest”) presented the Petition to wind-up the Company on the grounds of its failure to pay debts totalling US$2,495,900. The Company tendered partial payment of US$367,000 on October 19, 2018 (which the Petitioners accepted) and applied on October 23, 2018 to strike-out the Petition on the grounds that the remaining sum of US$2,168,900 was disputed and the Petition was being presented improperly to pressurize the Company into paying disputed debts.
On October 23, 2018, the First Affidavit of Kai Uebach was filed on behalf of the Company and it accepted that further unquantifiable sums were due to the Petitioners and asserted rights of set off. The Second Affidavit of Mr Uebach was sworn on or about November 23, 2018. It exhibited an apparently independent forensic report prepared for the Company by a Dr. Frisanco which analysed the dealings between the parties which gave rise to the Petitioners' claims. The Company admitted that more than US$400,000 was still owed to Alcazar but asserted rights of set-off in an amount of US$750,000. The precise numbers were clarified in the Third Uebach Affidavit sworn on December 3, 2018.
The Company's strike-out Summons was listed on the first return date of the Petition, December 11,2018. My provisional view was, based on the fact that the Petitioners had accepted post-petition payments and the Dr Frisanco Report supported the Company's case that it had set-off rights greater than what was properly due, that the Petitioners were improperly using the winding-up jurisdiction as a debt-collection mechanism. This changed having heard oral argument in the course of which the Company's evidence as to the existence of its set-off rights was seriously undermined and, more importantly still, Mr Smith QC confirmed that the Petitioners now positively sought a winding-up Order and would account to the liquidators for the post-petition payments received. I found that a case for winding-up had been made out.
I was concerned that the provisional views that I had expressed at the beginning of the hearing may have unfairly wrong-footed the Company and deprived Mr Golaszewski of the opportunity to take instructions as to what course the Company wished to adopt in the event that its strike-out Summons was dismissed. To eliminate any risk that the value of underlying assets might be unintentionally impaired by the making of a winding-up Order which the Company did not appear to me to expect would be made on the date of the hearing, I decided to adjourn the Petition.
I accordingly appointed David Griffin of FTI Consulting (Cayman) Ltd and John Batchelor of FTI Consulting (Hong Kong) Ltd as joint provisional liquidators (“JPLs”) with full powers, explicitly charged with reporting to the Court at the next hearing of the Petition on whether or not the best interests of creditors would be served by pursuing a restructuring in provisional liquidation rather than immediately winding-up the Company. The Order appointing the JPLs dated December 11, 2018 (perfected on or about December 21, 2018, embodying the return date fixed the day before) provided, so far as is material for present purposes, as follows:
“6. The JPLs be directed to prepare and submit a report… to the Court on the conduct of the provisional liquidation and, specifically, the questions of whether or not, in all of the circumstances and in light of their investigations as at the date thereof, the JPLs consider that a Restructuring of the Company deserves further consideration or whether it is appropriate that a winding-up order should be made in respect of the Company.”
On or about December 20, 2018, the adjourned hearing date for the Petition was fixed for February 8, 2019. Clearly, the main task of the Company's management and majority shareholders in the interim, assuming they wished to avoid a winding-up order being made on February 8, 2019, was first and foremost to seek to persuade the JPLs that a restructuring outside of an official liquidation was worth further considering. Instead, on January 24, 2019, the majority shareholder threatened to exercise certain security rights unless a loan he had made was repaid in full.
On January 30, 2019, the JPLs filed their First Report to the Court. The Executive Summary of the Report crucially stated (at page 3):
“For the reasons highlighted above and discussed in detail within the remainder of this report, the JPLs no longer consider a restructuring of the Company's financial obligations within the provisional liquidation to be a viable course of action and recommend that the Company be placed into official liquidation at the earliest possibility.”
On February 8, 2019, the adjourned hearing date fixed on December 20, 2018, the majority shareholder and three past or present directors filed Notices of Appearance as creditors opposing the Petition. The majority shareholder (Mr El Ard) on the same date also filed a Summons formally seeking a further adjournment of the Petition. I refused that application and granted the winding-up Order sought by the Petitioner.
I promised to supplement the summary reasons I delivered orally at the conclusion of the hearing with fuller reasons for refusing the adjournment application. These are those reasons.
My summary reasons were as follows:
“[1] Having heard very interesting and robust argument, I find that this is an appropriate case for a winding-up order to be made. This Court found on 11 th December 2018 that the Petitioners had made out a case for winding-up. The Court was somewhat concerned that the Company might not have adequately prepared for that outcome and accordingly appointed provisional liquidators and invited them to advise the Court whether they thought that a restructuring was viable.
[2] They have prepared a Report, which was filed on or about the 31 st January, 2019, which clearly was some considerable time after the 11 th December 2018 hearing. And the primary concern before the Court today is whether or not the Court should, in effect, ignore the recommendations that it sought from independent officers as to whether or not a winding-up order should be made.
[3] The adjournment application that has been made, while argued in the most persuasive way possible by a combination of counsel for the Majority Shareholder and various directors at the adjourned hearing today, has simply failed to come up with any sufficiently cogent justification for granting the adjournment sought.
[4] The critical question is, where do the best interests of creditors lie? And when one speaks of creditors in the winding-up context, one is talking about unsecured creditors who do not have any other significant interests which might impact on the position they adopt. And in this case the Petitioners are the only real creditors before the Court.
[5] Mr El Ard is first and foremost, it seems to me, a shareholder and founder of the Company. And even though it is technically right to say that, as a shareholder, he has no interest in an insolvent company, it is also relevant to note that he has that commercial interest that is likely to colour the position that he adopts in relation to a winding-up petition. But not only that; he is also a creditor with security that was obtained, or purportedly obtained (because there is doubt about its validity), after the Petitioners' Statutory Demands were served and in addition shortly before the hearing of the Petition on 11 th December 2018. Not long before the adjourned hearing today took place, Mr El Ard was invited to undertake not to enforce his security and declined to provide that undertaking to the Joint Provisional Liquidators.
[6] In those circumstances it is impossible for the Court to give any weight to his adjournment request, insofar as that request is advanced as an unsecured creditor. There is no proper basis for the Court to equate his interests with those of the Petitioners.
[7] The only issue which concerned me was whether there was a possibility that Mr El Ard might be able to ‘pull a rabbit out of a hat’, as it were, and come up with a proposal that might residt in the Petitioners agreeing to withdraw their Petition. The possibility of that happening is very cloudy indeed. And a significant factor is not only the somewhat exaggerated public interest argument that Mr Goodman relied upon, but more importantly than that that the Petitioners themselves are adamant that they wish a winding-up order.
[8] In these...
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