Principles to be Applied by Cayman Court in Granting Leave to Pursue Company in Liquidation

The Grand Court of the Cayman Islands (the "Court") recently handed down a decision in the case of BDO Cayman Ltd. and BDO Trinity Ltd. v Ardent Harmony Fund Inc. (In Official Liquidation). This case provides helpful guidance on the exercise of the Court's discretion to grant leave to commence proceedings against a company in liquidation.

Background

The plaintiffs, BDO Cayman Ltd. and BDO Trinity Ltd. sought leave from the Grand Court pursuant to section 97(1) of the Companies Act (2020 Revision) (the "Companies Act") to commence proceedings against the defendant, Ardent Harmony Fund Inc. (In Official Liquidation) ("Ardent"), in which they sought, inter alia, a permanent injunction restraining Ardent from continuing proceedings commenced in New York against BDO Trinity Ltd., which were alleged to have been commenced in breach of agreements made between the parties, as well as damages for breach of such agreements.   

In short, section 97(1) of the Companies Act provides that when a winding up order is made or a provisional liquidator is appointed, a party cannot commence or continue proceedings against the company in question without leave of the Court and subject to any conditions it may impose.

Decision

The matter was heard by the Hon. Ramsay-Hale, who in reaching the decision to refuse leave, helpfully made reference to the following three principles which are to be extracted from the case law governing section 97:

  1. The applicant for leave must first establish an arguable case to be litigated;
  2. If it establishes an arguable case, the Court then has to consider whether it would be fair, in the context of the liquidation as a whole, for the joint official liquidators to have to deal with the burden of that litigation. The Court's discretion is wide and unfettered – there is no presumption in favour of or against giving leave – and each case turns on its own facts; and
  3. In deciding what would be fair, the Court can give section 97 leave subject to conditions subject to a consideration of what would be fair, in the context of the liquidation as a whole.

The fact that the plaintiffs had a lawyer who was of the view that Ardent's claims did not comply with New York pleading requirements did not, according to the Court, mean that they had a case which is "worth entertaining". Notwithstanding this, the Court considered that the New York Court is the best suited forum to determine if the pleadings were inadequate, since this was a question of New York law. The Court also recognised that it would not be either right or fair to Ardent's creditors to lift the statutory stay as this would result in an undue burden on the liquidation estate given Ardent's limited funding.

In addition, there was also a tolling agreement in place, which had been breached. However, the Court considered that breach to be "technical" and that the purpose of the tolling agreement had been achieved. As such, the Court held that the plaintiffs had not established that they had a case worth entertaining. The application would in any event be refused by the Court on the basis that the plaintiffs had suffered no loss.

CAYMAN ISLANDS
Neil LuptonPartnerT +1 345 914 4286neil.lupton@walkersglobal.com
Andrew GibsonSenior CounselT +1 345 814 4573andrew.gibson@walkersglobal.com