In AWH Fund Ltd (In Compulsory Liquidation) v ZCM Asset Holding Company (Bermuda) Ltd, the Privy Council considered an appeal from the Court of Appeal of the Bahamas decision to permit service out of the jurisdiction of a liquidator’s claim on a Bermudan company (ZCM).
AMEX incorporated AWH in The Bahamas as an investment vehicle to deal in shares listed on Asian markets. AMEX transferred a number of redeemable shares in AWH to ZCM as sub-custodian. If AMEX wanted to redeem any shares, it had to request ZCM to give notice to AWH to redeem the shares. ZCM gave notice in respect of all of AMEX’s shares in April 2002 and AWH completed the process on 30 July 2002 paying the redemption monies to ZCM out of the jurisdiction. The total redemption proceeds were US$13,148,013.01 calculated on the basis of NAV on 30 June 2002. On 17 October 2002, a winding up petition was presented by a number of investors alleging that AWH was insolvent.
The liquidator sought to claw back the funds from ZCM by issuing a summons within the liquidation proceedings on the basis that the transaction may have been an undue or fraudulent preference under s160 of the International Business Companies Act (IBCA). S160 incorporates s70 of the Bankruptcy Act 1870 which provides for a 3 month claw back period.
The IBCA does not contain a regime for the winding-up of an international company. ZCM argued that the Bahamian Courts had no jurisdiction to order service out of the liquidator’s summons on it because in the absence of an express provision there was a presumption against extraterritoriality. The Board rejected this and found that it would make no sense to restrict s160 to Bahamian companies. It was necessary to consider s160 in its wider context including the Bankruptcy Act, the scheme of the IBCA and the companies legislation which mirrors it. The Board noted that IBCA was established to create a vehicle for international investors and confirmed that it is now settled law that insolvency provisions can have extraterritorial effect. Given that it already found that s160 was not territorially limited, the Board confirmed that one would a priori expect procedural rules to exist to enable the court to exercise these powers. The RSC provided the necessary jurisdiction.
This Judgment is significant because it confirms that insolvency legislation can have extraterritorial effect and that a liquidator can pursue a foreign respondent for a fraudulent preference claim.
Bermuda law advice is provided through Zuill & Co., an independent Bermudian law firm in exclusive association with Harneys.