The Companies Law (2018 Revision) and ACL Asean Tower Holdco Ltd
| Jurisdiction | Cayman Islands |
| Judge | Justice Kawaley |
| Judgment Date | 02 January 2019 |
| Year | 2019 |
| Court | Grand Court (Cayman Islands) |
| Docket Number | CAUSE NO: FSD 171 OF 2018 (IKJ) |
and
The Hon. Justice Kawaley
CAUSE NO: FSD 171 OF 2018 (IKJ)
IN THE GRAND COURT OF THE CAYMAN ISLANDS
FINANCIAL SERVICES DIVISION
Application to strike out creditor petition-whether debt disputed bona fide on substantial grounds-test for insolvency-whether winding-up order should be made-appointment of joint provisional liquidators and adjournment of petition so viability of a restructuring can be investigated
Mr Tom Smith QC of counsel and Mr Mark Goodman and Mr Guy Cowan, Campbells, on behalf of the Petitioners
Mr Jan Golaszewski, Mr Tim Baildam and Ms Chandra Solomon, Carey Olsen, on behalf of the Company
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. 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. I declined the Company's invitation that I should make a finding that a specific sum was due so that the Company could tender that sum. However, 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 also appointed David Griffin of FTI in of FTI Consulting (Cayman) Ltd and John Batchelor of FTI Consulting (Hong Kong) Ltd as joint provisional liquidators (“JPLs”) with full powers, and specifically 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. I somewhat reluctantly declined to appoint the initial nominees from the local office of Ernst & Young. They were objected to by the Company because another office of Ernst & Young had previously certified (as auditors) the validity Alcazar's claims against the Company. I found that this did not give rise to any formal conflicts, but could give rise to an appearance or at least complaints of an appearance of a lack of impartiality.
I now give reasons for my December 11, 2018 decision. Legal principles
The Petition invoked the jurisdiction of the Court under section 92(d) of the Companies Law to wind-up a company on the grounds that it is unable to pay its debts. The Petitioners petitioned as creditors and assumed the further burden of establishing that they were creditors for a sum exceeding CI$100 and that the Company was unable to pay its debts (section 93(c)). In this regard, they relied upon Angel v British Gas Trading Ltd [2012] EWHC 2702 (Ch) where Norris J held:
“29… On this application the question is whether or not there is an indisputable debt owed by Angel to BG sufficient to support a winding up petition. There may be uncertainty about the precise sum: but the court at this stage is not concerned to determine what could be proved in a winding up. It is concerned to see that the petitioner is indisputably a creditor in a sum exceeding the statutory minimum and so entitled to present a winding-up petition.. In Re A Company No.2340 (2001) Mr Justice Blackburne held:-
‘At the end of the day the question is whether or not there is a debt owed by [the Debtor] to [the Creditor] over and above £750, sufficient therefore in amount to support a winding up petition, which is not bona fide disputed on substantial grounds. In my judgment, there clearly is. Even making allowance for the various points which [Counsel] has raised, on any view further substantial sums are owing. In my judgment therefore, it cannot be said that if [the Creditor] were now to present a petition to wind up [the Debtor] it would be an abuse of process. True it is that there is a dispute as to the precise amount of the sum to which [the Creditor] is entitled but, on the evidence I have seen, I am satisfied that there is no genuine dispute… as to the existence of an indebtedness on the part of [the Debtor] to [the Creditor] amply sufficient in amount to support a winding up petition. I propose therefore to dismiss this application.”’
I readily accepted the proposition that the Petitioners did not have to establish that any specific sum was owed having regard to the fact that they were not relying on deemed insolvency based upon a statutory demand under section 93(a) of the Law. The governing legal principles on what constitutes a disputed debt were not themselves capable of serious dispute. The Company's counsel cited Mann v Goldstein [1968] 1 W.L.R. 1091 (Ungoed-Thomas J, at 1098H–1099B) as authority for:
“…the comparatively simple propositions that a creditor's petition can only be presented by a creditor, that the winding-up jurisdiction is not for the purpose of deciding a disputed debt (that is disputed on substantial grounds and not insubstantial grounds) since, until a creditor is established as a creditor he is not entitled to present the petition…”
The Company's counsel also accepted that subsequent case law establishes that that it is merely a rule of practice that a petition based on a disputed debt will ordinarily be dismissed: Parmalat Capital Finance Limited v Food Holdings Limited [2008] CILR 202 (Privy Council). According to Lord Hoffman:
“9… If a petitioner's debt is bona fide disputed on substantial grounds, the normal practice is for the court to dismiss the petition and leave the creditor first to establish his claim in an action. The main reason for this practice is the danger of abuse of the winding up procedure. A party to a dispute should not be allowed to use the threat of a winding up petition as a means of forcing the company to pay a bona fide disputed debt. This is a rule of practice rather than law and there is no doubt that the court retains a discretion to make a winding up order even though there is a dispute: see, for example, Brinds Ltd v Offshore Oil NL (1986) 2 BCC 98,916. But the Board does not find it necessary to examine the limits of the discretion because they consider that there is no substantial dispute.”
When a cross-claim or set-off is relied upon, question of whether the set-off is a serious one applies in the same way as when one is considering whether the existence of a debt is disputed: Quarry Products Limited v Austin International Incorporated [2000] CILR 265 (Sanderson J). Not only does the Court have the discretion to wind-up a company when the petitioner's debt is itself disputed on substantial grounds. A corresponding discretion exists where a cross-claim is said to be larger than the petition debt: the Court may either dismiss or adjourn the petition to allow the cross-claim to be determined or make a winding-up order nonetheless. The usual practice is not to wind-up if it appears the company is likely a net creditor of the petitioner. This case also demonstrates that it is for the Company to demonstrate that the dispute about the existence of the debt or the cross-claim is genuine and/or based on substantial grounds (page 267, lines 40–44).
I also accepted the Petitioners' submission that the Court “is entitled and indeed bound to weigh the evidence to see whether there really is any substance in the dispute raised by the company or whether it is in reality contrived”: Banco Economico SA v Allied Leasing & Finance Corporation [1998] CILR 292 (Graham J at 303).
It was not disputed that the Company is the ultimate holding company of a Vietnamese operating company, Golden Tower BTS Corporation...
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