With the recent judgment of Justice Kawaley, In the Matter of Harlequin Hotels and Resorts Limited (Harlequin Cayman), parties are reminded that there is no entitlement to an adjournment of a winding-up petition as of right in the Cayman Islands, particularly at the eleventh hour, and facilitation of the investigation of the collective affairs of an insolvent group may constitute grounds for a just and equitable winding-up order.
The Harlequin Group troubles have been well publicized, leading to a Serious Fraud Office enquiry in the UK and civil proceedings in England, Ireland, St. Lucia, and Saint Vincent and the Grenadines (SVG), as efforts are taken to recoup funds for those who invested in a business model which one judge has described as bearing the “hallmarks of a serious and significant scam.”
Against this backdrop, the SVG member of the Harlequin Group, acting by its trustee in bankruptcy, issued a statutory demand against Harlequin Cayman seeking repayment of an inter-company debt. Harlequin Cayman’s management while admitting the debt in inter partes correspondence asserted a right of ‘netting-off’, though “without providing a credible legal or factual basis” for this exercise. SVG Harlequin presented the petition which was duly listed and which, to all intents and purposes, appeared to be unopposed, up until the last minute when counsel for Harlequin Cayman appeared and sought an adjournment to file evidence. In the exercise of its discretion, the Court refused the adjournment, despite counsel’s brave “Custer’s last stand”, and ordered that Harlequin Cayman be wound up.
In rejecting the contention that the petition was disputed in good faith and on substantial grounds, the Court focused on Harlequin Cayman’s failure to file evidence in opposition; raising an implausible dispute in correspondence was insufficient. Even if the disputed debt ‘defence’ had merit (which it did not), the Court is not obliged to resolve that dispute at the hearing or direct that it be resolved in separate proceedings. The Court may make a winding-up order once the petitioner has established a prima facie case that it is a creditor. On the facts, Harlequin Cayman would have been wound up on this basis in the alternative.
Finally, Harlequin SVG advanced a case for a just and equitable winding up on “clear and compelling” grounds. In considering the broader Harlequin Group’s history and earlier Cayman authority (Parmalat Capital Finance Limited and GFN Corporation), the Court found that facilitating the investigation of the collective affairs of an insolvent group, such as the Harlequin Group, constituted grounds for a just and equitable winding-up order against Harlequin Cayman. Such a winding-up order may be made even where the Court is not satisfied that the company, as distinct from the group, is itself insolvent.