Proof of debt appeals: The Court's approach to a challenge to an Official Liquidator's adjudication

In a recent case before the Grand Court of the Cayman Islands, Walkers successfully acted for the Joint Official Liquidators of China Branding Group Limited (in Official Liquidation) (the "JOLs") in respect of a creditor's appeal against the JOLs' partial rejection of his proof of debt claim. In rejecting the creditor's appeal, the Grand Court (McMillan J) delivered a robust judgment on 23 January 2019 and applied the principles set out in Re Ardon Maroon Asia Master Fund when adjudicating upon a rejection of a proof of debt. In particular, the Court recognised that the burden rests on the putative creditor to provide satisfactory proof that its claim is founded on a real debt.

Unusually for a proof of debt appeal, the appeal proceedings were ongoing for around 18 months and ultimately involved a multi-day trial involving cross-examination of witnesses and expert evidence as to California law as to issues such as waiver, promissory estoppel and the validity, or otherwise, of the appellant's asserted security interest. After hearing oral evidence and detailed submissions from Leading Counsel for both parties over a period of three days, the Court ultimately dismissed the appeal on the basis that the appellant's evidence fell short of the required standard of proof required to establish the existence of a debt in the liquidation over and above that which was admitted by the JOLs when adjudicating the initial proof of debt claim.

When considering the evidence of the parties' respective experts, the Court also gave useful guidance on the duties and responsibilities of an expert in these circumstances. McMillan J relied on the principles as set out in the well-known English case of The Ikarian Reefer and determined that it was significant that the appellant's expert had a history of acting on behalf of the appellant. He concluded that the Court could not ignore the possibility of the appellant's expert having conflicting duties to the Court and to his client and noted that the Court must exercise a high degree of care and caution in such circumstances.

Whilst the issues raised in the appeal were fact specific, the judgment may be of some interest to creditors and insolvency practitioners in the Cayman Islands.