Cross-Border Insolvency: Challenges and Solutions at Ritz-Carlton, Grand Cayman
Explore recent developments and potential reforms in cross-border insolvency at the event held at Ritz-Carlton, Grand Cayman. The program includes discussions on restructuring, obtaining documents abroad, a case study on cross-border insolvency, and more. Learn about practical problems facing directors, their duties in cash-flow insolvency situations, and options available under Cayman law. Delve into the complexities of handling cross-border insolvency issues and the impacts on stakeholders.
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Presentation Transcript
Tuesday 22 November Ritz-Carlton, Grand Cayman
Welcome Hugh Dickson Chair, RISA
Introduction Antony Zacaroli QC South Square
Programme Panel 1: Restructuring - recent developments and potential reforms Coffee Panel 2: Obtaining documents abroad Panel 3: Case study on cross-border insolvency Summing up Cocktail Reception
Panel 1: Restructuring - recent developments and potential reforms Jeremy Goldring QC, South Square (Chair) Mark Arnold QC, South Square Hugh Dickson, Grant Thornton Guy Manning - Campbells Michael Pearson - Fund Fiduciary Partners
Part 1: Brief facts Company X is incorporated in the Cayman Islands on 29 February 2008. The relevant Articles are in a form similar to those in Emmadart - board given broad management powers, but no express power to present a winding up petition
Facts (continued) Shares of 100 million held by two HK companies in equal proportions, who are in dispute. Shareholders appoint one nominee director each, and there is a Cayman Island independent director Company X owns, directly and indirectly, operating subsidiaries in China. The Company appears marginally balance sheet solvent, though there are various valuations which are not clear. It has issued notes in HK, due for repayment 2020, governed by English law and payable in England. Interest payment due on 1 December, which cannot paid. The CI director considers that the interests of noteholders will be best protected by a debt restructuring, including a moratorium on claims if possible.
Part 2: What are the issues for the directors? What can they do? Practical problems facing directors Duties of directors where cash-flow insolvency: duty to act in what they believe to be best interests of the Company taking account of creditors interests Options under Cayman law as currently understood Lacuna under current Cayman law how does it impact on directors? Adverse effects of lacuna from the insolvency practitioner s perspective Options elsewhere
Part 3: Possible reforms? The need for reform. The UK experience. Options for the Cayman Islands. Alternative reforms.
Panel 2: Obtaining documents abroad - recent cases and their implications for liquidators in the Cayman Islands Barry Isaacs QC, South Square Tony Heaver-Wren - Appleby Fraser Hughes Conyers Dill & Pearman
OBTAINING DOCUMENTS ABROAD: EY Cayman and Pioneer Applications by JOLs for the purpose of obtaining documents held by third parties abroad against EY Cayman for documents held by EY Luxembourg against Pioneer for documents held by Bank Austria and Austrian directors Applications followed orders made by Hon Justice Jones QC on applications made by HSBC Jurisdictional basis of applications Companies Law, section 103 Companies Law, section 138 Common law
OBTAINING DOCUMENTS ABROAD: JURISDICTIONAL BASIS S 103(3)(b): the official liquidator may apply to the Court for an order that a relevant person transfer or deliver up to the liquidator any property or documents belonging to the company. S 103(7): The Court shall have jurisdiction: to issue a letter of request for the purpose of seeking the assistance of a foreign court in obtaining the evidence of a relevant person outside the jurisdiction. S 138: Where any person has in his possession any property or documents to which the company appears to be entitled, the Court may require that person to transfer or deliver such property or documents to the official liquidator. Common law/Re China Milk Products: Section 138 contains no express power for the Court to issue a letter of request to a foreign court. However, the expression anyperson must include foreigners who are in possession of property or documents outside the jurisdiction.
OBTAINING DOCUMENTS ABROAD: RELIEF SOUGHT Order sought from Hon Justice McMillan against EY Cayman: that EY Cayman use its best endeavours to obtain and provide to the JOLs (specified categories of) documents held by EY Luxembourg SA in Luxembourg Application dismissed Order sought from Hon Justice Jones against Pioneer: that a letter of request be issued to the Ministry of Justice of the Republic of Austria for the purpose of compelling Bank Austria and the Austrian Directors to deliver up all hard copy and electronic documents which belong to Primeo or to which Primeo is otherwise entitled; and that the JOLs take all such steps as are necessary or appropriate to carry the Letter of Request into effect. Application granted and overturned on appeal
OBTAINING DOCUMENTS ABROAD: EY case Jurisdiction no jurisdiction to order EY Cayman to issue proceedings against EY Luxembourg unless EY Cayman had an enforceable right to delivery up from EY Luxembourg Primeo s liquidators asserted an enforceable right existed on basis of: contractual terms between the EY firms agency principles the Court found that EY Cayman did not have the right to possession of any of the said documentation , on either basis
OBTAINING DOCUMENTS ABROAD: EY case Jurisdiction continued no express or implied contract between the EY firms the character of the relationship of the EY firms lacked key elements of an agency relationship EY Cayman and EY Luxembourg each contracted directly with Primeo
OBTAINING DOCUMENTS ABROAD: EY case Discretion factors relevant to discretion: improper use of liquidator powers no reasonable requirement for documents Luxembourg Court could not order EY Luxembourg to deliver up order sought was imprecise, impractical and oppressive the Court placed particular emphasis on the first and last of the above factors
OBTAINING DOCUMENTS ABROAD: EY case Discretion improper purpose Liquidators purpose in application: to obtain third party discovery in the Primeo v HSBC proceedings the proper purpose of sections 103 and 138: necessary for the performance of liquidators statutory functions what may properly be given to a liquidator qua liquidator will not be given to a liquidator-litigant, qua litigant discovery is a different procedure, for a different purpose Liquidators using their powers to obtain discovery for use in the HSBC proceedings not a proper purpose
OBTAINING DOCUMENTS ABROAD: EY case Order sought order sought by liquidators, a mandatory injunction: that EY Cayman use its best endeavours to obtain and provide to the JOLs (specified categories of) documents held by EY Luxembourg SA in Luxembourg in granting a mandatory injunction, the Court must be careful to see that the defendant knows exactly what he has to do as a matter of fact, so that in carrying out an order he can give proper instructions mandatory injunctions expressed in terms of all necessary steps or best endeavours fail to do so and should not be ordered: Morris v Redland Bricks Ltd [1970] AC 652, 666 G
OBTAINING DOCUMENTS ABROAD: SIGNIFICANCE OF SINGULARIS AND CHINA MILK submission: the decisions in China Milk and Singularis extend [the company ]s entitlement to any documents containing information extracted or derived from [the company] s books and records. responses: information is not property China Milk and Singularis are not authority for the proposition that the company is entitled to documents containing information extracted or derived from the company s books and records
OBTAINING DOCUMENTS ABROAD: INFORMATION IS NOT PROPERTY Information cannot properly be regarded as a form of property, OBG Ltd v Allan [2008] 1 AC 1: what is happening, in legal terms, when a court makes an order for the protection of confidential information [and] there is no contractual tie the cause of action is the equitable jurisdiction to restrain breach of confidence. This jurisdiction does not depend on treating confidential information as property, although it is often referred to, loosely or metaphorically, in those terms. Information contained in the documents sought was not therefore property belonging to [the company] within the meaning of s 103 or to which [the company] appears to be entitled within the meaning of s 138
OBTAINING DOCUMENTS ABROAD: CHINA MILK AND SINGULARIS AS AUTHORITY In China Milk, JOLs applied under ss 103 and/or 138 for the issue of a letter of request to the Hong Kong Court to make orders that former auditor produce its working papers JOLs relied on opinion evidence as to Hong Kong law as the information contained in these documents was derived from or provided by China Milk, it is likely that China Milk is the owner of the information in these documents and, as such, is entitled to obtain a copy of them. Opinion was based on doubts expressed in Singularis about whether information which PwC acquired solely in their capacity as the company's auditors can be regarded as belonging exclusively to them simply because the documents in which they recorded that information are their working papers and as such their property. Opinion accepted in the absence of any expert evidence to the contrary ; creates no precedent China Milk and Singularis are not authority for the proposition that company is entitled to documents containing information extracted or derived from its books and records
OBTAINING DOCUMENTS ABROAD: CHINA MILK AND SINGULARIS APPLY TO LIMITED INFORMATION ONLY In Singularis, the Board proceeded on the basis that information in the auditors files related to property of the company which the JOLs had been unable to trace, to enable them to take possession of assets In China Milk, the claim was limited to copies of audit documents containing information derived from or provided by the company, and was sought for the purpose of investigating the whereabouts of its assets If information is property capable of belonging to the company or to which the company can be entitled within ss 103 and/or 138, the information is limited to that which was provided by the company and which relates to the recovery of the company s assets In EY, the JOLs sought documents, not information, and for the purpose of making discovery of those documents If JOLs are entitled to information, this is limited to information derived from the company s books and records, and not other information in the documents: Breen v Williams (1996) 186 CLR 71
OBTAINING DOCUMENTS ABROAD: Primeo v HSBC and Pioneer Documents Sought in Discovery
OBTAINING DOCUMENTS ABROAD: Primeo v HSBC and Pioneer
Panel 3: Case study on cross-border insolvency Felicity Toube QC, South Square Nilani Perara Borrelli Walsh Jeremy Hollembeak - Kobre & Kim New York Rachael Reynolds - Ogier
China Splash Background Cayman company Liquidators appointed in April 2013 Intermediate holding company Wanna Be in BVI its subsidiary SplashPad in PRC WannaBe Capital Management Bermuda manager to both China Splash and WannaBe China Splash is listed on: HK exchange NASDAQ
China Splash The Problem JOLs investigation revealed SplashPad not profitable Capital raised in 2011 of $550 million through bond issuance on NASDAQ Chairman of SplashPad Mr NotMe fraudulently transferred $320 million to entities owned or controlled by him
China Splash Work to Date Made Chapter 15 application granted foreign main recognition Obtained a winding up order in Hong Kong recognizing their appointment of China Splash Investigations reveal primary sources of recovery against Service providers Advisors/IPO Identified potential Bondholder clawback
China Splash Parties Advisors Audits R Us audit conducted in Cayman, Bermudian partners involved in audit sign off and US partners NeverSawIt financial advisor to bond issuance. Received $40 million in fees.
China Splash Parties Recipient of Bond Proceeds Big Money Ltd (Bondholder) Cayman company received $90 million repurchase payment FunPass a German company received $60 million through 35 payments to a New York bank account of Mr. Not Me s sister in law
China Splash Next Steps JOLs facing challenges to their production requests of auditors and advisors Notified of conflicting winding up proceedings commenced in Bermuda by Bondholder C Asked their legal team Global Law Partners to provide advice with respect to the options for pursuing a global asset recovery strategy.
Summing up Antony Zacaroli QC South Square
Closing remarks Hugh Dickson Chair, RISA
