The Grand Court’s recent costs ruling in Re Global-IP Cayman serves as a word of warning to would-be "friendly creditors" (creditors who agree to bring a creditor’s winding-up petition at the instance of a party that lacks standing to petition as a creditor itself) that they may find themselves footing a hefty bill for legal costs.
The facts were somewhat unusual. The petition was presented by Global-IP Cayman’s (the Company) former Cayman attorneys on a debt of just US$175.84 for unpaid legal fees. However, by the petitioner’s own admission, the true purpose of bringing the petition was not to recover the unpaid fees, but rather to allow a minority shareholder (STM) to make an application for the appointment of provisional liquidators to consider whether the Company’s business should be restructured. The plan ultimately failed though, as the Company’s majority shareholder (Bronzelink) simply settled the unpaid fees.
Upon dismissal of the petition, a dispute arose as to whether the petitioner should be awarded its costs of and occasioned by the petition on the indemnity basis, as is the usual course when a petition debt is settled after presentation of a petition. The petitioner argued that as the debt was not disputed when the petition was brought, and has since been paid, it was successful and the usual costs order should follow. Bronzelink challenged this on the ground, amongst others, that the petition was not a normal creditor’s petition but was instead a contrived plan between the petitioner and STM to enable STM’s application for provisional liquidators to be heard, which had failed; in those circumstances, the petitioner should in fact pay its costs.
The Court did not find wholly in favour of either party; it did not order the petitioner to pay Bronzelink’s costs, however it also refused to award the petitioner its costs (some US$65,000). In reaching its decision, the Court held that the petitioner had not acted improperly in agreeing to be STM’s friendly creditor (as it genuinely considered a restructuring to be in the Company’s best interests), and thus there was no basis on which to make a finding of impropriety against the petitioner. However, the Court also held that since the true purpose for which the petition was brought had failed, the petitioner could not be said to have been successful and therefore, on the “exceptional circumstances” of this case, the usual costs order was not appropriate.