In In the matter of Matrix Inc., the Grand Court of the Cayman Islands considered whether a debt owed under an arbitral award is disputed bona fide on substantial ground where a cross claim existed and deliberated on the proper exercise of its discretion in order to determine whether it should make a winding-up order.
Matrix Inc. (the Company) and Heathcliff Trading S.A., a Panamanian corporation (the Petitioner) referred a dispute over the sale of selenium-74 (a chemical most commonly used in glass production) to arbitration in Geneva, Switzerland. An arbitral award was made which ordered, among other things, that (i) the Petitioner return the selenium-74 to the Company within 30 days; and (ii) the Company pay the Petitioner liquidated sums in excess of CHF 7.4 million. Despite demands made by the Petitioner, the Company failed to make the payment and the Petitioner filed a petition to wind up the Company on the grounds that the Company is unable to pay its debts under section 94(1)(b) of the Companies Law (2018 Revision).
The Petitioner cited the incontrovertible proposition that a failure to pay an undisputed debt was in and of itself evidence of insolvency.
The Company argued that the Petition debt is disputed in good faith upon substantial grounds because the obligation to make payment under the arbitral award is “inextricably linked with the requirement for the Petitioner to transfer to [the Company] good title to 500.48 grams of selenium-74”. That said, before the Petition was issued, the Company did not dispute its obligation to pay under the arbitral award and made no demand to the Petitioner to return the selenium-74.
The Grand Court considered the wording of the arbitral award, noting that in MNC Media Investment Limited v ANG  (1) CILR it was held that “A foreign arbitral award is to be interpreted according to the plain and obvious meaning of its terms, thereby giving it an autonomous interpretation without recourse to national law.”
After considering the relevant factors, the Grand Court found that the Petition debt was not disputed on substantial grounds and made an order for the winding up of the Company on the basis that:
- Unlike other obligations in the arbitral award which were expressed to be conditional (e.g. the obligation to return the selenium-74 “within 30 days”), the payment obligation imposed on the Company was unconditional and was expressed in immediate terms.
- The wording of the arbitral award did not state that the payment obligation was connected with the Petitioner’s obligation to deliver the selenium-74.
- The Company cannot otherwise demonstrate that it is solvent or has the ability to pay the Petition debt. No value was put on the cross claim but in any event the court had a wider discretion than that in determining whether or not to make a winding up order.
- There was no discretionary basis upon which the court could refuse to make the winding up order sought.