Useful guidance on the Bermudan courts' approach to assisting foreign liquidators

14 November 2014

The Privy Council in Bermuda has this week handed down judgment in the connected cases of Singularis Holdings Limited (Appellant) v PricewaterhouseCoopers (Respondent) and PricewaterhouseCoopers (Appellant) v Saad Investments Company Limited (Respondent).

Both cases provide useful guidance on the stance the Bermudan courts will take in relation to assisting foreign liquidators and make clear that the courts will only assist to the extent of the laws of the jurisdiction in which such liquidators have been appointed permit.

The facts

These connected cases concerned two related companies incorporated in the Cayman Islands. Both companies were wound up in Grand Cayman and three individuals from Grant Thornton Specialist Services (Grand Cayman) were appointed as the joint official liquidators.

Following their appointment, the liquidators made various attempts to obtain information from the companies' auditors, PricewaterhouseCoopers (PwC), on the basis that they believed PwC had, in their possession, either in Bermuda or in Dubai, relevant information or documentation which the liquidators needed to further their investigations.

In September 2010, the liquidators obtained an order from the Cayman Grand Court for delivery up of what amounted to PwC's working files relating to every aspect of the companies' businesses, including their annual audited accounts, statutory records, tax affairs, bank statements and records and notes relating to all other aspects of the businesses. Having received such disclosure, the liquidators were of the view that many of the documents that had been provided had been heavily and, unjustifiably, redacted.

In view of this limited disclosure, the liquidators tried to invoke the jurisdiction of section 195 of the Companies Act 1981 in Bermuda which is broadly equivalent to section 236 of the Insolvency Act 1986 here and allows for wide ranging disclosure.

First instance decisions

In relation to Singularis, the Bermudan court made an order recognising the status of the Grand Cayman liquidators in Bermuda and granted an order requiring PwC to disclose documents as if such order had been granted in accordance with section 195 of the Companies Act 1981 in Bermuda.

PwC appealed the decision and, on appeal, the Court of Appeal set aside the first instance decision on the basis that it doubted that there was jurisdiction to make a section 195 order at common law in circumstances where section 195 didn't apply in Grand Cayman. The Court of Appeal went on to say that the court shouldn't make an order in support of a Cayman liquidation which couldn't have been made by the Cayman court itself.

Interestingly, in relation to Saad, the company itself was wound up in the Supreme Court of Bermuda, being the court in the jurisdiction in which PwC was registered. Following the winding up, the court then granted an order under section 195 for PwC to disclose the relevant documents to the liquidators.

The Privy Council appeals

In the Singularis case, the liquidators appealed and the two issues on appeal were as follows:

  1. whether the Bermuda court has a common law power to assist a foreign liquidation by ordering the production of information in circumstances where the Bermuda court has no power to wind up an overseas company such as Singularis and its power to order the production of information is limited to cases where the company has been wound up in Bermuda; and
  2. whether such a power is exercisable in circumstances where an equivalent order couldn't have been made by the court in which the foreign liquidation is proceeding.

In the Saad case, PwC appealed the order and the question was whether the Court at first instance had jurisdiction to wind Saad up in circumstances where the company didn't carry on business in Bermuda. PwC argued that, if the Supreme Court didn't have such jurisdiction, it couldn't then exercise its jurisdiction to require PwC to produce documentation and attend court for examination.

The Privy Council decisions

In the Singularis case, the liquidators' appeal was dismissed with a majority of the Board holding that a common law power of assistance does exist, but this power is subject to a number of important limitations and should not therefore be exercised in this case.

The Board reaffirmed that the principle of "modified universalism", which is to say a power to assist foreign winding up proceedings so far as the court properly can, exists at common law and extends to assisting a foreign court of insolvency jurisdiction by ordering the production of information which is necessary for the administration of a foreign winding up. 

However, and importantly, it was noted that such power is limited to only enabling liquidators to do what they would be entitled to do under the laws by which they are appointed and it's only available when necessary for the performance of the officeholder's functions.

In this case, given that the material which the liquidators were seeking wouldn't have been obtainable under the law of the Cayman Islands, their appeal was dismissed.

In the Saad case, the Privy Council agreed with PwC. The Board held that the Supreme Court didn't have the jurisdiction to wind Saad up. The mere fact that Saad held assets in Bermuda (being shares held in another Bermudan company) wasn't sufficient to constitute the "carrying on of business" which statute required in order for the court to take jurisdiction.

The Board then went on to consider whether, despite the fact that the Supreme Court didn't have jurisdiction to wind Saad up, PwC could still be required to comply with an order of that court, requiring disclosure.

In considering this, the court noted that, as a general proposition, it was no doubt correct that a court would not normally be prepared to entertain submissions from "strangers" to a winding up on the issue of whether or not a winding up order should have been made.

However, the court went on to say that, there were two differentiating factors in this case. The first was that the ground of opposition to the winding up order was based purely on jurisdiction and the second was that PwC was only a "stranger" in the most technical sense. In fact, it was clear that the sole basis of the winding up in Bermuda was that it would enable the liquidators to invoke section 195 of the Companies Act 1981 against PwC.

For these reasons and the fact that the Privy Council stayed the winding up, PwC's appeal was successful.

Commentary

Both these cases are interesting as they are yet further evidence of the cross-border element of many insolvencies these days.

The Singularis case is important as, although it confirms the concept of assistance and comity between courts, it does lay down the limitations of such concept. It is clear that, although the courts are willing to assist, they will only do so to the extent that what is being ordered is allowed in the local courts where the officeholders have been appointed and that any such order is consistent with the substantive law and public policies of the assisting court.

The Saad case sets out quite clearly the statutory basis that needs to be satisfied before the Bermudan court can, and will, take jurisdiction of insolvency proceedings and this clarification is welcomed.


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