Cayman Court Supports Practical Approach to Liquidation Debt Arbitration – Corporate/Commercial Law

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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 recently sanctioned a pragmatic solution.

Introduction

Premier Assurance Group SPC Ltd (in official liquidation) (the
Company), a separate exempt holding company, was placed under supervision on September 29, 2020,
1 then subsequently in liquidation on October 27, 2020 with Jeffrey Stower and Jason Robinson of KPMG appointed as joint liquidators (the JOL). One of the company’s segregated portfolios, the Premier Assurance Segregated Portfolio, had offered life insurance portfolios to 11,160 participants (the Speakers), all of which had a claim in the liquidation. In circumstances where it was impractical to manually adjudicate 11,160 proofs of debt, an application was filed to sanction an alternate means of adjudicating debts in a cost effective manner. 2

Background

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.

Consequently, the JOL proposed (a) to admit the claims of the Participants in respect of the sums recorded as being due to them in the SVRs and without asking them to produce proof of claims; (b) send each Entrant a notice of admission informing the Entrant that their evidence has been admitted (the Notice projects); and (c) give each Participant the opportunity to challenge the amount admitted as evidence within 21 days.

JOL estimated that the proposed streamlined method would save insolvent assets approximately US$2.6 million and allow the adjudication process to be completed in a much shorter time frame.

The Companies Act (2021 Revision)

In order to obtain the order sanctioning the alternative procedure proposed by the liquidators, the JOL applied to the Grand Court for leave to do so under section 110(2)(a) of the Companies Act ( revision of 2021) (the Companies Act). 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”.

The Court has considered previous cases, as in Re Centaur Litigation SPC in which the Court (a) had sanctioned an alternative form of evidence in circumstances where it was cost effective to do so and (b) confirmed that it is within its jurisdiction to sanction the exemption of JOLs from the formal evidence requirement debt. 3 In the circumstances of this case, the Court was satisfied that the proposed alternative method was cost-effective and valid, and that the decision to waive formal proof of debt was within the powers of the liquidators and subject to sanction.

Sanction of the decision

The Court summarized the principles to be applied to sanctioning the powers of a liquidator, as follows: “The Court should normally respect the commercial judgment of the liquidator and impose 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 accept it”.

The Court deemed it appropriate to sanction the alternative format of evidence of debts 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 under $20,000

  • Most of the participants only speak Spanish and there was a risk that some would understate their claims, submit evidence in the wrong form, or not submit any at all.

  • 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 within the normal path)

Conclusion

The judgment is remarkable because it shows the flexibility of the application of section 110(2)(a) of the Companies Act and the willingness of the Grand Court to take a pragmatic approach to the practical difficulties encountered by the liquidators and to lend them assistance. to bring about the orderly liquidation of a Cayman company.

Footnotes

1. In Premier Assurance Group SPC Ltd (in control) (FSD case #210 of 2020)

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

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

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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