In the recent landmark Cayman Islands case of China Agrotech Holdings Limited, Justice Segal, citing with approval the Singapore decision of Re Opti-Medix Ltd (in liquidation) and the Cayman Islands decision of FU JI Food Catering Services Holdings Limited, held that the Grand Court could grant common law assistance to a liquidator who was not appointed in the place of incorporation of the company.
On its face, this is contrary to the well-established rule 179 of Dicey, Morris & Collins that “the authority of a liquidator appointed under the law of the place of incorporation is recognised in England”. However, the ratio decidendi in this decision is quite different to the decision in Re Opti-Medix Ltd. The decision is ultimately a boon for cross border restructuring and a victory for common sense.
The Cayman Court considered an application by the Hong Kong liquidators (the Liquidators) of a Cayman Islands company, China Agrotech Holdings Limited (the Company), together with a letter of request issued by the High Court of Hong Kong to seek powers and authorities, by way of common law assistance, to act on behalf of the Company to present a petition to promote a scheme of arrangement between the Company and its creditors in the Cayman Islands as part of a corporate rescue involving a parallel scheme of arrangement in Hong Kong.
In permitting the Liquidators to apply on behalf of the Company to present a petition under section 86(1) of the Companies Law (2016 Revision) (Companies Law) to promote the parallel scheme in the Cayman Islands, the Court held that:
- Since the Liquidators were appointed in a place other than the Company’s place of incorporation, they could not be empowered to act on behalf of the Company under Cayman Islands’ private international law;
- However, the Grand Court could and should exercise its discretion to recognise and assist the Liquidators in authorising them to make an application under section 86(1) of the Companies Law and to consent to the proposed scheme on the Company’s behalf. The question was essentially one of governance: whether the Liquidators should be permitted to act on behalf of the Company in promoting the scheme, in circumstances where the directors had shown no sign of wishing to take any action to either support or oppose the promotion of the scheme. There was no intention to wind up the Company in its home in the Cayman Islands. For over two years, creditors had submitted proof of debts to the Liquidator in Hong Kong;
- Stakeholders would be given an opportunity to object to this course, since the hearing as to the standing of the Liquidator was ex parte;
- In addition, case management powers, such as requiring any action against the Company in the Cayman Island to be listed before the same judge, would ensure that proceedings against the company could be stayed or adjourned pending the outcome of the sanctioning of the scheme (the s97 moratorium only being available to Cayman Islands appointed liquidators);
- The Court was unable to grant relief as provided in the letter of request to treat the Liquidators “in all respects in the same manner as if they had been appointed as joint and several provisional liquidators by [the Hong Kong] Court”.