The Companies Law (2018 Revision) and Saad Investments Company Ltd (in Official Liquidation) (“SICL” or “The Company”)
| Jurisdiction | Cayman Islands |
| Judge | Anthony Smellie |
| Judgment Date | 01 October 2019 |
| Court | Grand Court (Cayman Islands) |
| Docket Number | CAUSE NO: FSD0015 OF 2010 (ASCJ) |
THE HON. Anthony Smellie, CHIEF JUSTICE
CAUSE NO: FSD0015 OF 2010 (ASCJ)
IN THE GRAND COURT OF THE CAYMAN ISLANDS
FINANCIAL SERVICES DIVISION
Liquidators' application for sanction of proposal for interim payment of dividends — existence of competing proprietary claims to all assets — whether liquidators allowed to distribute dividends despite being on notice of the competing proprietary claims — legal tests for grant of sanction by the Court in such circumstances — requirements of adequate security for repayment of the distribution if proprietary claims succeed.
Walkers, Attorneys-at-law, for the Joint Official Liquidators
This is the application of the Joint Official Liquidators (the “JOLs”) for the Court's sanction of their plan for a distribution of assets by way of an interim payment of dividends to the admitted unsecured creditors of the SICL estate.
The application is taken administratively “on the papers” in keeping with section B1.1(c) of the Financial Services Division Guide. The JOLs have secured the unanimous agreement of the Liquidation Committee (the “ LC”) that the matter may proceed without the need for an oral hearing, to save costs. This, even while the LC is divided, as will be explained, on the substance of the application.
While the need for sanction of other than a full payment of dividends to any class of creditors is not expressly contemplated by the governing statute 1, the JOLs would not have been allowed in their own right to make the interim payments in any event, having regard to the existence of an Order of this Court (as subsequently amended) which prevents them. That Order, the background to which will be explained below, was made in recognition of the proprietary claim of Ahmad Hamad Algosaibi and Brothers Company (“AHAB”) to all the assets of SICL (as well as those of other related Saad group companies in liquidation). The purpose of the Order (as amended) has been to preserve the assets pending the resolution of AHAB's claim, subject to allowing for the JOLs' reasonable costs of defending against AHAB's claim 2. AHAB's claim was rejected in its entirety by judgment of this Court delivered on 31 May 2018 (“the Judgment”) but AHAB has exercised its right of appeal and the outcome of its appeal is still pending.
The application of the JOLs is supported by full written submissions from Walkers and the 19 th Affidavit of Mr Hugh Dickson (one of the JOLs) (“Dickson 19”) along with relevant documents exhibited to the Dickson 19. Accordingly, the JOLs seek orders from the Court that:
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(a) The JOLs should, notwithstanding (a) the Orders of this Court dated 10 February 2010, 24 October 2013, and 20 July 2018; and (b) the claims of the proprietary claimants over the assets in the estate of the Company as detailed in Dickson 19, including those being pursued by AHAB against the Company in CICA Civil Appeal No: 15 of 2018, be permitted and be authorised to cause the Company to make interim distributions to its unsecured creditors in the liquidation of the Company upon the terms detailed in Dickson 19 (the “Distributions”) and to take such additional steps and execute such additional documents as might be necessary or desirable in order to fulfil the obligations relating to the Distributions (and, if necessary, the aforesaid Orders be varied accordingly), and that in so doing, the JOLs and the Company shall be deemed to have discharged their duties and the Company and the JOLs shall be released from any and all liability (personal or otherwise) to creditors and the proprietary claimants in respect of the aforesaid proprietary claims and any other claims arising out of or relating in any way to the Distributions, including any sums paid thereunder (the “Distribution Application”);
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(b) The JOLs' and the LC's costs of and incidental to the Summons be costs in the winding up; and
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(c) Such further or other order as the Court sees fit.
The JOLs explain, in summary, that the essence of the Summons is to seek the sanction of the Court to enable the JOLs, as a matter of principle, to make the Distributions to all creditors of SICL who are prepared to enter into an appropriate seemed indemnity. If the Court sanctions the Distributions as a matter of principle, then the JOLs will need to do further work to identify the quantum of the Distributions, the mechanics by which the Distributions will be effected, and the cost of the Distributions. That may necessitate a further application to the Court.
I note that the JOLs have sought to ensure that the Court receives the benefit of all arguments relating to the Distributions by making all relevant parties Respondents to the Summons. As Mr Dickson explains, each of the Respondents was served with the Summons.
Mr. Dickson explains that the JOLs are sympathetic to the concerns of the LC and other creditors who have been waiting for more than a decade for a first distribution where the estate is in funds and, but for AHAB's pending appeal, would otherwise be in a position to make a distribution. The JOLs explain that they find themselves in an unusual situation, faced with the challenge to find a mechanism to achieve a distribution which does not prejudice or impinge on their obligations to the creditors as a whole, including AHAB as a putative contingent creditor, but one that appropriately balances prejudice to the creditors from delay and costs of no distribution against the prejudice to its proprietary claims in the event that AHAB's claims are upheld on appeal.
As already mentioned, the LC is not unanimous in its support for the substance of the application and the proposed safeguards. Two of the three members, representing 62% of total unsecured creditors, support the application and proposed safeguards. The third LC member Credit Agricole Corporate and Investment Bank (“Credit Agricole”), representing 7% of the unsecured creditors, objects to the application. The LC's views are described in more detail below as are the detailed objections of Credit Agricole.
The JOLs posit that their proposal for the Distribution addresses the ongoing prejudice to admitted creditors from the delay in making distributions while providing adequate safeguards, so that in the event AHAB's claims (and by extension Barclays Bank Plc's (“Barclays”) “parasitic” or contingent claims 3) are ultimately successful, that those parties' interests are properly protected. On balance, the JOLs consider that the risk of recoveries for the proprietary claimants being impacted by an early distribution, is outweighed by the immediate and certain prejudice to the interests of the admitted creditors from a further delay in distribution for an uncertain period.
The position of each of the parties to the Summons is summarised as follows:
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(a) Two of the three members of the LC (who together represent 62% of the total creditors by value) have requested that the JOLs take all possible steps to obtain the sanction of this Court for the making of the Distributions.
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(b) Credit Agricole, the third member of the LC (and who represents 7% of the creditors by value) has expressed the reservations mentioned above and these are discussed below as responded to seriatim by the JOLs.
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(c) AHAB and Barclays are potential proprietary claimants in SICL's estate, Barclays' potential proprietary claim being parasitic on the success of AHAB's proprietary claim. This is in the sense, broadly speaking, that if AHAB succeeds in its proprietary claim against SICL, it will have been
proven that SICL, in its financial dealings with Barclays, fraudulently misrepresented that it had title to and authority to deal with funds which belong to AHAB and so Barclays would be entitled to rescind their transactions, giving rise to a proprietary claim by Barclays for recovery of the funds which it invested in Saad Investments Finance Company (No.5) Limited (“SIFC05”), in a secured leveraged arrangement with SICL.-
(i) AHAB has confirmed in a letter from its attorneys, Mourant, dated 15 April 2019 that provided that adequate protection is put in place (which the JOLs consider they have achieved for the reasons explained below), it supports the Distribution Application.
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(ii) Barclays had sought further information and confirmations in connection with the Distribution Application. I am told that this was provided pursuant to a letter from the JOLs' attorneys, Walkers, dated 15 May 2019, But Barclays has yet to confirm whether it supports or opposes the Distribution Application.
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The background to the winding up of the Company is in summary, as follows.
SICL is one of the main holding companies of the Saad group of companies. The group was formed in 1980 by Maan Al Sanea (“Al Sanea”), a Saudi Arabian/Kuwaiti national, and is headquartered in Al Khobar in the Kingdom of Saudi Arabia. Al Sanea was the group's Chairman and beneficial owner. SICL's stated purpose was to hold and manage the offshore assets of Al Sanea and his immediate family, including a portfolio consisting of equities, funds, interest bearing securities, and real estate. According to SICL's last audited accounts for the year ending 31 December 2008, SICL held approximately US$9 billion in assets and had US$4.5 billion in liabilities. SICL's then interests were spread across the globe, including in the Caribbean, Australia, Europe, and the Middle East.
On 30 July 2009, Barclays, Credit Agricole, and The Royal Bank of Scotland (the “Petitioning Creditors”), each a lender under a syndicated...
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