v>
13Explained in Wight v. Eckhardt Marine GmbH 2003 CILR 211 (at p.
222); and in which the Cayman Liquidators obtained declaratory relie
f
from the Privy Council confirming the applicability of the pari passu
p
rinciple to ring-fenced branches which remained the legal subsidiaries
of BCCI Overseas and provided the indebtedness had not been fully
and legally extinguished at the branch level. See also In Re BCCI 2009
CILR 373: the need for a standard rate of exchange for payment o
f
dividends across global liquidation estates to ensure ap
p
lication of the
p
ari passu principle.
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persuading the United States author ities to abate the very
draconian penal sanc tions they had imposed o n BCCI for
its role in the unlawful acquisition of certain American
banking interests, a role that led to the subsequent col-
lapse of the banks involved. As a result, after arduous
negotiations between the Liquidators (approved by their
respective courts) and the American authorities, a plea
agreement was struck which allowed, among other things,
for the restoration to the BCCI liquidation estate of more
than 1.2 billion dollars of forfeited assets. The following
is an extract from the BCCI (Overseas) Liquidators’ re-
port:
In November and December of 1991, under the su-
pervision of the Grand Court of the Cayman Islands, the
District Court of Luxembourg, and the High Court in
England, the BCCI liquidators negotiated an historic
plea and co-operation agreement with the United States.
The Agreement was presented to the Grand Court of the
Cayman Islands and approved in December 1991.”
In accepting this agreement, Judge Joyce Hens Green
of the United States District Court for the District of Co-
lumbia stated:
The Plea Agreement now before the court reflects on a
truly global measure extraordinary efforts and amazing
co-operation of a multitude of signatories representing
myriad jurisdictions, to fully settle actions against the
corporate defendants, which had operated in 69 coun-
tries around the globe, and through the plea restitution,
to locate and protect all realizab le assets of BCCI for the
ultimate benefit of the depositors, creditors, United States
financial institutions, and other victims of BCCI. The
promise of the Plea Agreement is that those extraordi-
nary efforts, that amazing co-operation, should continue.”
Seven and a half years later, as she closed the case,
Judge Green found that the promise of the Plea Agree-
ment for unprecedented international co-operation had
been realized. She called the agreement a “partnership
between the Department of Justice and the Court Ap-
pointed Fiduciaries” and praised the foresight of the offi-
cial liquidators acting pursuant to the direction of the
Cayman Court, stating that “their efforts on behalf of the
victims in this case and beyond have been truly inspira-
tional”.14
Here, too, were to be found early emanations of the
doctrine of universalism, as the judge reflected that the
hallmarks of the Plea Agreement “are principles which
should serve to guide the relationship between (countries)
in dealing co-operatively with international frauds in the
future. Those principles are restitution to victims, co-
operation in sharing investigative materials and respect
and comity for their respective legal systems”.15
The Case of FU JI Food and Catering Services Hold-
ings Limited: From the Cayman Islands perspective, the
inventiveness of the common law and the benefit of
co-operation have become manifest in this still further
example of judicial cooperation in aid of trans-border
insolvencies.
The Matter of FU JI Food and Catering Services
Holdings Limited (FSD Cause No: 222 of 2010, Grand
Court of the Cayman Islands) involved an unusual re-
quest for judicial assistance from the High Court of Hong
Kong to the Grand Court.
Fu Ji Food and Catering Services, is a Cayman Islands
holding company which has subsidiaries operating a sub-
stantial business in the People’s Republic of China
(PRC). The group’s underlying business interests—prin-
cipally in food production, restaurants and related ser-
vices—experienced massive strain in 2009 and the trad-
ing of the company’s shares on the Hong Kong Stock
Exchange (HKSE) was sus pended.
As the company was also registered in Hong Kong, th e
High Court there was persuaded to place it into provi-
sional liquidation to allow for its capital restructuring, an
eminently attainable objective, given the substantial un-
derlying value of the company and the then active in-
terest of potential buyers.
This objective would not have been realised, however,
if, despite its provisional liquidation in Hong Kong,
creditors remained able to petition for the winding up of
the company in the Cayman Islands, the place of its in-
corporation and domicile, or remained able otherwise to
sue the company for recovery of indebtedness before the
Cayman Courts.
The co mpany the refore ne eded the pr otection of a s tay
of proceedings by the Cayman Courts and the ability of
its provisional liquidators (the JPLs) to act for the com-
pany in the Cayman Islands. Hence the request from the
High Court of Hong Kong.
The Grand Court first noted the existence of its inhe-
rent jurisdiction at common law to send or receive letters
of request for judicial assistance.16
15Ibid.
16Fully discussed in In the Matter of Basis Yield Alpha Fund (Master)
2008 CILR 50 in which the Grand Court issued letters of request to the
Australian court in New South Wales seeking the recognition of its
court-appointed liquidators and authority for them to garner informa-
tion about the Fund in Australia by reliance on the powers of the Aus-
tralian Court. That court granted the letter of request and accorded the
Cayman Proceedings “Foreign main proceedings” recognition in keep-
ing with Article 20 of the UNCITRAL Model law. In Basis Yield Al-
p
ha in the Cayman Court, the earliest exercise of the jurisdiction by the
Grand Court in which letters of request were sent to the English High
Court was noted and applied: In Re BCCI (Overseas), Grand Cour
t
Cause 284 of 1991, December 7 2002, unreported, applied. The Eng-
lish Courts judgment in which that request was granted by reliance on
the statutory jurisdiction under section 426 of the English Insolvency
Act 1986 is reported at Bank of Credit and Commerce Intl S.A. (1994)
3 All. E.R. 764 (per Rattee J).
14United States v BCCI Holdings (Luxembourg) S.A. 1999 WL 499134
at 27.
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Recognising and accepting that the objectives of the
restructuring involved the protection of the interests of
all the creditors of the company and its subsidiaries, as
well as the interests of the company itself (in being al-
lowed to resume listing and trading on the HKSE and so
to be divested as a going concern), the request of the
High Court was regarded as justified. In granting the
request, the Grand Court accepted that, although it was
asked to act in aid of the provisional liquidation order of
a foreign court over a Cayman Islands company, doing
so in the circumstances pr esented no public policy ob jec-
tions but complied with the need to ensure the protection
of the legitimate interests of all stakeholders in keeping
with the principle of universality. The following further
dicta from Cambridge Gas was not ed and applie d:
The purpose of recognition is to enable the foreign
office holder or the creditors to avoid having to start
parallel insolvency proceedings and to give them the
remedies to which they would have been entitled if the
equivalent proceedings had taken place in the domestic
forum (para 22, page 518).
In accepting the request, the Grand Court also ac-
cepted that the company (Fu Ji Food Ltd) had a real and
substantial connection to Hong Kong, being the jurisdic-
tion from which its underlying business interests in the
PRC were administered and in which its financing and
working capital were raised. The restructuring was aimed
at restoring the company to th e HKSE and, wit h the new
investor, to enable it to carry on its business in Hong
Kong, where the provisional liquidation would close
without a winding up.
It was ordered that the JPLs and their Appointment
Order be recognized in all respects as if appointed and
made by the Grand Court, including, in particular, the
power and authority of the JPLs to alter or otherwise deal
with the capital structure of Fu Ji Food in accordance
with the terms of the Appointment Order.17
It was further ordered, therefore, that section 97 of the
Cayman Islands Companies Law shall apply in relation
to the company so that no action or proceeding shall be
commenced or proceeded with against the company
within the jurisdiction of the Grand Court except by
leave of that court and subject to such terms as it may
impose. It was additionally ordered that the JPLs have
liberty to apply to the Grand Court in respect of any
matter concerning the company and arising during the
period of the JLPs’ appointment.18
Difficulties in deciding whether to accede to foreign
insolvency proceedings may, however, arise when there
are compelling reasons for winding up in the Cayman
Islands or where there are already insolvency proceed-
ings underway before the Cayman Courts involving the
same company or involving related companies. These
difficulties are likely to be addressed o n the case-by-case
basis, although the emergent principles of private inter-
national law, as recognised in Article 29 of the UNCI-
TRAL Model Law, would maintain the pre-eminence of
local insolvency proceedings ove r foreign proceedings.
In the now commonplace context of the master/feeder
hedge fund structure, corporate operations take place in
different jurisdictions. Often, in the Cayman context, the
structure involves investors’ participating in the fund
through Cayman Islands entities which are either the
feeder or master fund administered in the Cayman Is-
lands, but where the investment management takes place
elsewhere in an onshore jurisdictio n.
Lancelot Investment Fund Limited: This scenario
also applied to Lancelot Investment Fund Limited, a
Cayman Islands domiciled open-ended investment fund
through which investors provided funds, of over USD1
billion, for investment in specified United States securi-
ties to be managed by a United States investment man-
ager.
When allegations of fraudulent misappropriation of its
assets were raised by the investment manager against a
borrowing syndicate to which all the assets had been
loaned, a Trustee-in-Bankruptcy was appointed by the
U.S. Court under Chapter 7 of the US Bankruptcy Code
and he took control of the known assets, all of which
were located in the United States.
Nonetheless, some investors—a major international
bank and a third party investment fund, to the combined
value of more than USD80 million—petitioned the Cay-
man Court for the winding up of Lancelot in the Cayman
Islands. They petitioned on the basis that they had made
their investments through Lancelot as a Cayman Islands
entity governed by Cayman Islands law and, as the sub-
stratum had failed amidst the allegations of fraud, they
were entitled to a winding up on the “just and equitable
basis”, so that their interests may be protected by the
involvement of a liquidator acting under the aegis of the
Cayman Court. A particular concern was that it was the
17In this way observing nonetheless, the dictum from Lord Hoffman in
Cambridge Gas (518 e - f) as to the limits of the common law jurisdic-
tion to grant recognition and assistance: “At common law, their Lord-
ships think it is dou
b
tful whether assistance could take the form o
f
applying provisions of the foreign insolvency law which form no part
of the domestic system. But the domestic court must at least be able to
p
rovide assistance by doing whatever it could have done in the caseo
f
a domestic insolvency”.
18Unusual though the case was, it was not unprecedented. Kawaley J.
of the Bermuda High Court
I
n Re Dickson Group Holdings Limite
d
[2008] Bda LR 34, granted a stay of proceedings against a Bermuda
company, at the instance of itsHong Kong Court appointed permanent
liquidators, to enable and facilitate parallel schemes of arrangement
under both Bermudian and Hong Kong law designed to restructure the
company’s debt and capital so that its shares (under substantially new
ownership) cou ld once again trade on the HK SE.
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investment manager responsible for placing the loans
with the syndicate, which had itself petitioned the U.S
Court after the allegations of fraud had come to light.
In an approach that demonstrates that there can indeed
be a “(modified) universalism”, Quin J. of the Grand
Court made the order for winding up over the objection
(raised by letter but without formal appearance) of the
Chapter 7 Trustee and the majority of investors (who
formally appeared), as he was satisfied that the peti-
tioners should have someone to represent their particular
concerns to both the U.S. Court and the Cayman Court.
Even though the judge recognized the United States as
the principal place for the liquidation of Lancelot, as its
incorporation and many of the arrangements for the in-
vestments were governed by Cayman Islands law and
would therefore have to be examined and assessed
against that law, he resolved to appoint only a single li-
quidator, mindful that the Chapter 7 Trustee may wish
and should be free to app ly for the recognition of his ap-
pointment in the Cayman Islands. Furthermore, the
Cayman winding up order was stayed, in keeping with
the principles of comity and universality in corporate
insolvency.
This approach would give both the Cayman Liquidator
and the Chapter 7 Trustee an opportunity to discu ss their
respective roles and attempt to reach an agreed protocol
for the efficient liquidation of Lancelot, thus avoiding
multiple proceedings and duplication of costs. Further,
the Court was keen to encourage co-operation with the
US Court, both in recognizing the Cayman Liquidator in
the US Court, with the Chapter 7 Trustee reconsidering
his stated intention to oppose, and in the Trustee simi-
larly being enco uraged to apply to the Cayman Court for
recognition of his appointment.
The wisdom and efficacy of this approach has been
borne out by the fact that a protocol was entered into
between the two Court-appointed office holders and has
been successfully implemented. In practice, the minimal
costs—of having a Cayman liquidator who can liaise
with his U.S. counter-part and the U.S Court and report
to the Cayman Court, with an eye to the Cayman public
interests in the proper investigation and resolution of
allegations of fraud for the protection of investors in a
Cayman Fund company and for the protection of inves-
tors as a whole—is likely to prove a small price to pay.
While the protocol allows in practical terms for the im-
perative that insolvency shall be “both unitary and uni-
versal”—(as Lord Hoffmann further described the prin-
ciple in the House of Lords decision in Re HIH Casualty
& Gen. Ins. Ltd (above) p. 852, para 6)—it also allows
for the legitimate public policy concerns recognized by
the Grand Court. In this regard, the following passage
from Lord Hoffmann in the HIH case (at para 30) was
adopted and applied :
The primary rule of private international law which
seems to me applicable to this case is the principle of
(modified) universalism, which has been the golden thread
running through English cross-border insolvency law
since the 18th century. That principle requires that Eng-
lish courts should, so far as is consisten t with justice and
UK public policy, co-op erate with the courts in the coun-
try of the principal liquidation to ensure that all the com-
panys assets are distributed to its creditors under a
single system of distribution. That is the purpose of the
power to direct remittal [of assets to Australia]19 (em-
phasis supplied).
In citing and following the earlier decision of Hender-
son J of the Grand Court in Re Philad elph ia20 Quin J also
applied the following dictum from Robert Walker J. (as
he then was) in Re Gordon & Breach Science Publishers
(1995) 2 BCLC at 199: dictum that had found favour
with Henderson J. in Re Philadelph ia.
Fairness and commercial morality may require that a
substantial independent creditor (in this case investor)
which feels itself to be prejudiced by what it regards as
sharp practice should be able to insist on the companys
affairs being scrutinized by the process which follows a
compulsory orde r. Such a creditor is en titled to an inves-
tigation which is not only independent, but can be seen to
be independent. This may be so even where the voluntary
liquidation is already well advanced and a compulsory
order may cause further expense and delay….
Such concerns, about “fairness and commercial mo-
rality”, have dictated the need in still further cases for the
appointment of different liquidators after winding up had
commenced by removing liquidators who had been ap-
pointed but who were likely to suffer from a potential
conflict of interest. See Re Bear Sterns High-Grade
Structural Credit Enhanced Leverage (Overseas) Ltd.
Grand Court, February 22, 2008, unreported.
Potential conflicts of interests to arise from the ap-
pointment of the same liquidators over both the master
and feeder funds have also dictated the need for separate
appointments and separate windings up before different
Courts: In the Matter of DD Growth Premium Master
Fund 2009 CILR Note 11.
The foregoing survey of cases reveal the approach
taken by the Cayman Courts at common law and the
general adherence, where circumstances and policy allow,
towards the unitary and collective approach to trans-
19In the Matter of Lancelot Investment Fund Limited 2009 CILR 7.
20In re Philadelphia Alternative Asset Fund Ltd. 2006 CILR, Note 7,
unreported.
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A Cayman Islands Perspective on Transborder Insolvencies and Bankruptcies: The Case for Judicial Co-Operation153
border co-operation in insolvency matters.21
6. Cayman Islands Legislation Complies
with UNCITRAL Model
Legislation, aimed at expressing statutory confirmation
of the common law precepts of co-operation in trans-
border proceedings and at further achieving the objec-
tives of the UNCITRAL Model Law on Cross-Border
Insolvency, was passed in 2009 with the enactment of
Part XVII of the Companies Law. This came about al-
though the Cayman Islands, unlike the United Kingdom,
have not itself subscribed to the UNCITRAL Model
Law.
7. Orders Made Under Cayman Islands
Legislation
Pursuant to Part XVII, orders “ancillary to foreign bank-
ruptcy proceedings,” have already been made by the
Grand Court.
Among these, on 24th June 2009, the Icelandic court-
appointed “Moratorium Assistant” in bankruptcy pro-
ceedings in relation to the affairs of Straumur Bank—
Iceland’s largest investment bank—was recognized by
the Grand Court as, in the words of the Law, “a foreign
representative”. This recognition authorized him to act
within the Cayman Islands on behalf of Straumur Bank,
including for the purposes of identifying and restraining
assets of the Bank located within the Cayman Islands.
Out of concern that competing claims to those assets may
be brought against the Bank in the Cayman Islands, on
the 9th September 2010 a further order was made on the
application of the Moratorium Assistant enjoining any
application against the Bank in the Cayman Islands
without the leave of the Court. The Court was informed
about the nature of the Icelandic bankruptcy proceedings
(which afforded the Bank a moratorium during which it
sought to arrive at a composition with all its creditors)
and was satisfied that the objectives of the Icelandic
Court should be supported. In enjoining the commence-
ment of proceedings in the Cayman Islands, the Court
stated:
Notwithstanding that there are currently no proceed-
ings against Straumur in the Cayman Islands and there
are no known Cayman Islands creditors, the fact that
there are significant Cayman assets may be sufficient to
tempt a putative creditor of Straumur to commence pro-
ceedings here. In order to protect the global integrity of
the Composition, it is of crucial importance that credi-
tors of Straumur (wherever they may be located) should
not be permitted, while the moratorium is in place, to
issue proceedings in the Cayman Islands against Strau-
mur. 22
The local statutory jurisdiction was also invoked on
February 5th 2010. Then Jones J. of the Grand Court
granted the petition of Irving H. Picard in his capacity as
Trustee of Bernard L. Madoff Investment Securities LLC
(BLMIS), for a declaration that he has the right to act in
the Cayman Islands on behalf of BLMIS. BLMIS was
incorporated in accordance with the laws of the State of
New York and was then the subject of bankruptcy pro-
ceedings before the Hon. Burton Lifland in the U.S.
Bankruptcy Court for the Southern District of New York.
On 15th December 2008, Mr. Picard had been appointed
trustee for the liquidation of the business of BLMIS with
all the duties and powers of a tr ustee as prescribed in the
U.S. Securities Investor Protection Act, 1970.
The Grand Court pronounced its decision in these
terms:23
Part XVI of the Companies Law (2009 Revision) was
enacted in 2008 and came into force with effect from 1st
March 2009. Section 241(1) (a) did not change the pre-
xisting conflict of laws rules relating to this subject. Its
purpose is to provid e foreign representatives with a con-
venient and expeditiou s manner of establishing their cre-
dentials and right to act on behalf of the debtor in a way
which will have universal effect within the jurisdiction,
without the need to establish his right separately as
against every individual counterparty. The Cayman Is-
lands conflict of laws rules applicable to this issue are
well established. First, all matters concerning the con-
stitution of a corpo ration a re governed by the p lace of its
incorporation. It follows that the law of the place of in-
corporation determines who are the companys officials
authorised to act on its behalf. Second, the authority of a
21Despite this history, Cayman insolvency proceedings have sometimes
not gained ready recognition by the U.S. Bankruptcy Court for reasons
which seem to ascribe too narrow an ambit to the fact of incorporation
in the Cayman Island and to the level of corporate activity that takes
p
lace there. For instance, notwithstanding that the SphinX Funds were
being liquidated in the Cayman Islands as the place of incorporation
and without any challenge as to it being the proper forum, recognition
of the Cayman proceedings were only accorded the “foreign non-main
p
roceeding status:” Re SphinX Ltd 371 B.R.10 (Bankr. S.D.N.Y.July
2007). Cayman proceedings were refused recognition altogether on a
very narrow view being taken of the test whether the Fund had an
“establishment” in Cayman and again, notwithstanding the presump-
tion accorded the place of incorporation as the proper forum and the
fact that liquidation was underway in the Cayman Islands:
I
n re Bear
Sterns Master Fund 374 B.R. 122 (Bankr. SDNY Sept. 2007). A more
acceptable position has however been taken in comparable circum-
stances by the same judge (Lifland J.) on July 22, 2010, by recognition
as “foreign main proceedings”, the liquidation in the BVI of Fairfield
Sentry Limited: In re Fairfield Sentry Limited, et al. Case No. 10-
13164 S.N.D.Y. 22 July 2010).
22Cause No. FSD 0188/2010-ASCJIn the Matter of Straumur-Bur-
daras Investment Bank HF, written judgment delivered on 9th Sep-
tember 2010.
23Cause FSD 47 OF 2010, written judgment delivered on 5th February
2010: In the Matter of BLMIS (In Securities Investor Protection Act
Liquidation).
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154
bankruptcy trustee or liquidator appointed under the law
of the place of a companys incorporation is recognised
in the Cayman Islands (Dicey and Morris, The Conflict
of Laws 10th Ed., Rule 139(2) and Rule 143).
…as a matter of Cayman Islands law, Mr. Picard is
entitled to be recognised as the sole person having the
right to act on behalf of BLMIS in this jurisdiction.”
8. Strong Tradition of Cooperation Set to
Continue
In the light of such decisions emanating from the early
exercise of the statutory jurisdiction under Part XVII of
the Companies Law, there is every reason to believe that
the strong tradition of co-operation in trans-national in-
solvency and bankruptcy matters at common law will
continue by the Cayman Islands Courts.
Considerations such as whether the foreign court pre-
sides at the “centre of main interests” of the debtor entity
or whether the foreign proceedings are “main” or “non-
main proceedings” or whether in that regard the debtor
entity had an “establishment” in the foreign jurisdiction
—all matters of import under the UNCITRAL Model
Law24—can all be accorded due if not exclusive weight
by the Cayman Courts in deciding whether or not to
grant recognition to foreign proceedings and foreign re-
presentatives. This ability to co-operate can, in large
measure, be attributed to the flexibility provided by the
wide discretion vested in the Court in exercise of the
jurisdiction under Cayman Islands law.
Accordingly, the Cayman Islands jurisprudence can be
expected to develop well in pace with the development of
the common law principles of comity, in keeping with
the principles of the UNCITRAL Model Law and in
keeping with the legitimate demands of the international
financial markets within the wider global economy.
24Cause As well as under U.K. Law by virtue of Insolvency Regula-
tions 2006 giving affect to the UNCITRAL Model Law; also in United
States Law under Chapter 15 of the U.S. Bankruptcy Code which also
gives effect to the UNCITRAL Model Law. The U.K. a nd the U.S. are
two of the 20 States now adhering to the Model Law. Similar consid-
erations will arise as a matter of E.U. Law by virtue of E.C. Regula-
tions No. 1346/2000 (29th May 2000) on Insolvency Proceedings and
the European Union Convention on Insolvency Proceedings.