Cayman court refuses adjournment application due to sanctions
In a recent case, in the matter of Energicon Holdings (Caymans) (in official liquidation), the Grand Court of the Cayman Islands granted sanction for the sale of company assets and approved remuneration pursuant to an application by the company’s liquidators. In what would usually be a straightforward application, the issue of a sanctioned individual and the fundamental right of access to the Court was explored by Justice Kawaley.
The liquidators sought the Court’s sanction in respect of two share sales. The application was opposed in writing by Tempest BVI (Tempest), a majority shareholder and minority creditor. The ultimate beneficial owner of Tempest was an individual sanctioned under the EU Consolidated Financial Sanctions List, which made it unlikely that local counsel could be retained, In those circumstances, Tempest sought an adjournment of the application in writing and permission for Tempest to appear remotely by its Russian attorney. Justice Kawaley considered the merits of the opposition and held that if there was a good arguable case, the Court may be empowered to grant procedural relief.
Four substantive objections were made to the share sales, the buyer in both transactions being the majority creditor and a minority shareholder. Firstly, it was asserted that the sale price was undervalued. The company sold shares it owned for US$50,000, its sole offer. Justice Kawaley dismissed the objection, noting that there was compelling evidence that the asset was distressed and needed to be sold quickly to retain any value. Secondly, it was argued that the asset sales benefitted the liquidators and the purchaser. Justice Kawaley disagreed, noting that the sale of principal assets to the largest creditor was a common scenario and was not grounds for refusing sanction. Thirdly, it was argued that insufficient financial information was given to make an offer or to effectively market to third parties. This was an "unsustainable complaint" due to sanction concerns and the inability of Tempest to make a bid or provide funding for a marketing strategy. Finally, it was argued that the sales should have been subject to a "complex and complete due diligence". This was effectively a challenge to the liquidators’ business judgment, to which Justice Kawaley applied the rationality test and dismissed – a further example of the high evidential bar required to persuade a court to second-guess the professionalism and judgment of professional liquidators.
Tempest was unable to prove that if afforded extra time it would have a realistic prospect of persuading the Court that the liquidators were irrational in making the decision to enter into the two share sales. As a result, the application for adjournment was dismissed.
In the context of the continuing sanctions regime, the consideration and guidance provided in respect of unrepresented parties wishing to make representations to the Cayman court will likely prove valuable to practitioners in the coming months.
This blog post was written by Partner Paul Smith, Senior Associate Niall Dodd, and Articled Clerk Kayla Prendergast.