Cayman Court Supports a Practical Approach to Liquidating Debt Settlement – Commentary

Facts
Decision
Comment

How should liquidators manage the administrative burden of adjudicating thousands of evidences of low value debts in a liquidation estate, without exhausting the limited assets available in the liquidation estate? The Grand Court of the Cayman Islands recently approved a pragmatic solution.

Facts

Premier Assurance Group SPC Ltd (in official liquidation) (the company), a separate exempt holding company, was placed in custody on September 29, 2020(1), then in liquidation on October 27, 2020 with Jeffrey Stower and Jason Robinson of KPMG appointed co-liquidators (JOL). One of the company’s separate portfolios, the first insurance separate portfolio, had offered life insurance portfolios to 11,160 participants (the participants), all of whom had a claim in the wind-up. In circumstances where it was impractical to manually settle 11,160 proofs of debt, a request was made to approve an alternate means of settling debts cost-effectively.(2)

Information regarding the status of insurance policies issued to participants was obtained from the company’s database and was sufficient to determine the book value of each policy held by a participant.

Accordingly, the JOL proposed to:

  • admit to substantiate the claims of the participants in respect of the sums recorded as being due to them in the Seriatim Valuation Reports and without requiring them to produce debt securities;
  • to send each participant a notice of admission informing the participant that his evidence has been admitted (the draft opinions); and
  • give each participant the possibility of contesting the amount accepted in the supporting document within 21 days.

The JOL estimated that the proposed simplified method would result in cost savings to the insolvent estate of approximately $2.6 million and allow the arbitration process to be completed in a much shorter time frame.

In order to obtain the order approving the alternative process proposed by the liquidators, the JOL applied to the Grand Court of the Cayman Islands for leave to do so under section 110(2)(a) of the Companies Act (2021 Revision). Under this provision, the Court has broad powers to adjudicate on matters submitted to it by a liquidator “concerning or affecting in any way the assets or the liquidation of the company”.

Decision

The Court has considered previous cases, as in Re Centaur Litigation SPC in which the Court:

  • had approved another form of evidence in circumstances where it was cost effective to do so; and
  • confirmed that it was within its competence to authorize the JOL to waive the requirement of formal supporting documents(3).

In the circumstances of the case, the Court was satisfied that the proposed alternative method was cost-effective and sound, and that the decision to waive formal evidence of debt was within the powers of the liquidators and subject to approval.

The Court summarized the principles applicable to the scope of a liquidator’s powers as follows:

the court should normally respect the liquidator’s business judgment and grant the sanction, unless the course of action proposed by the liquidator is considered by the court to be so unreasonable or untenable that no reasonable liquidator would adopt it.

The Court considered it appropriate to allow the alternative format for evidence of debt for the following reasons:

  • the JOLs were convinced that it was both cost effective and faster than the conventional approach;
  • the JOLs were satisfied with the accuracy of the relevant database;
  • the proposal was reasonable in circumstances where the vast majority of claims were likely to be less than $20,000;
  • most of the participants only spoke Spanish and there was a risk that some underestimated their applications, submitted proof in the wrong form or did not submit it at all; and
  • there was little or no risk of harm to participants as they retained the right to dispute the value of the claim and submit new proof of debt (which, if rejected by the liquidators, could be subject to an appeal to the court within 21 days in the normal way).

Comment

The judgment is remarkable because it shows the flexibility of application of Article 110(2)(a) of the law and the will of the Court to adopt a pragmatic approach in the face of the practical difficulties encountered by the liquidators and to assisting liquidators in obtaining an orderly liquidation of a Caymanian company.

For more information on this, please contact Max Galt or Gemma Lardner in Ogier by phone (+1 345 949 9876) or email ([email protected] or [email protected]). The Ogier site is accessible at the address www.ogier.com.

Endnotes

(1) In Premier Assurance Group SPC Ltd (in control) (FSD case no. 210 of 2020).

(2) In Premier Assurance Group SPC Ltd (in formal liquidation) (FSD Case No. 264 of 2020).

(3) Following Kawaley J in Re Herald Fund SPC (in official liquidation) [2018] (2) CILR 162].