There is, perhaps surprisingly given the breadth of its potential application, very little authority in the Cayman Islands concerning fraudulent trading claims under Section 147 of the Cayman Islands Companies Act.

This two-part series considers two recent decisions from the Cayman Islands Grand Court concerning Section 147 and the UK Supreme Court concerning the corresponding English provision (Section 213 of the UK Insolvency Act 1986), being Conway & Ors v Air Arabia [2025] CIGC (FSD) 41 (20 May 2025) and Bilta & Ors v Tradition Finance Services [2025] UKSC 18 (7 May 2025).

The proceedings arose out of the collapse of the Abraaj group of companies in early 2018.

The defendant company, UAE airline Air Arabia, had submitted two proofs of debt in the liquidation of Abraaj Holdings (AH) in connection with loans it had made to AH. The airline had also been appointed to AH’s liquidation committee.

The liquidators commenced proceedings against Air Arabia for a declaration pursuant to Section 147 that the airline had knowingly been a party to AH’s business being carried out with intent to defraud creditors and/or for a fraudulent purpose, and was accordingly liable to contribute to AH’s assets.

The Cayman court addressed several novel points relating to Section 147 claims against persons outside of the jurisdiction.

The court first considered whether Air Arabia lodging a proof of debt in AH’s Cayman Islands’ liquidation amounted to submission to the offshore jurisdiction.

It was not in dispute that submitting to the jurisdiction is separate from establishing the jurisdiction of the court over a person by service of process. Where the court’s jurisdiction over a defendant is based on voluntary submission, the rules relating to service out are irrelevant because the court’s jurisdiction is not founded on service.

Air Arabia and AH also agreed that lodging a proof of debt in a winding up process amounted to a submission to the jurisdiction of the court with conduct of the winding up, even if the proof of debt has not been adjudicated or is ultimately rejected.

However, the parties disagreed as to the scope of the submission to the jurisdiction which results from lodging a proof of debt. The liquidators argued that lodging a proof of debt amounts to a submission to the jurisdiction of the court for all purposes connected with the winding up of the company. Air Arabia argued that the submission was narrow and did not extend to submission for the purposes of claims that liquidators might bring under Section 147 of the Companies Act.

The presiding judge, Justice Asif KC, held that submission to the jurisdiction by lodging a proof of debt is effective for all purposes connected with the winding up of the company (including any claims brought under Section 147 of the Companies Act).

The principles expressed in English and BVI authorities favoured this approach. The judge held they are general common law principles that apply with equal force in the Cayman Islands.

Those common law principles include the UK Supreme Court’s decision in Rubin v Eurofinance SA  [2012] UKSC 46. There, the court held that there is no doubt that orders may be made against a foreign creditor who proves in an English liquidation or bankruptcy, on the basis that by proving, the foreign creditor submits to the jurisdiction of the English court. A creditor should not be allowed to benefit from the insolvency proceeding without the burden of complying with the orders made in that proceeding.

The Privy Council came to a similar conclusion in the 2015 case Stichting Shell v Krys  [2015] AC 616, where it held that where a defendant has lodged a proof of debt, it makes no difference whether the proof is subsequently admitted or a dividend paid.

By submitting a proof of debt, a creditor obtains an immediate benefit consisting in the right to have his or her claim considered by the liquidator and ultimately by the court if necessary. The Board rejected the contention that lodging a proof of debt amounted to submission only for the purposes of claims under the Insolvency Act and not the general law.

In the same year the English Court of Appeal summarised the impact of submitting a proof of debt in Erste Group v VMZ  [2015] EWCA Civ 379. Lady Justice Gloster said that under principles of English law, a foreign creditor submits to the jurisdiction of the court supervising the company’s insolvency by proving in that insolvency. That is sufficient to require the creditor to have all questions against the debtor resolved within the insolvency as administered by the court of the jurisdiction of that insolvency.

It is not a valid argument that the separate claims are of a different character from the claim to which the proof of debt relates, or brought under the general law, or are subject to the exclusive jurisdiction of a foreign court.

Justice Asif KC accordingly held in Conway v Air Arabia  that proving in the liquidation constitutes submission to the jurisdiction for the purposes of a Section 147 claim.

A declaration under Section 147 that a person should contribute to the company’s assets must properly be characterised as an order within the winding up proceedings. It is the fact of the winding up that gives rise to the liquidators’ statutory cause of action under Section 147 to apply for relief and the court’s power to grant that relief.

Claims under Section 147 should not be treated differently from claims under Section 145 and 146, which deal with voidable transactions and dispositions of property at an undervalue. The defendant had accepted that such claims would fall within the scope of submission to the jurisdiction.

There are more similarities than differences between these types of statutory claims, vesting in the liquidator (as opposed to the company itself) and which arise only in the context of insolvent liquidations. The claims each give the liquidator a power or remedy to achieve a proper distribution of estate assets by remedying some deficiency resulting from pre-liquidation conduct.

In each case, the remedy is for the purpose of bringing additional assets into the estate for the general body of unsecured creditors. It is also against someone whose conduct has caused the value of the estate to be diminished in some way, whether that is due to a preference, a void payment or assistance in fraudulent trading causing or facilitating the deficiency in the estate to increase.

In addition, Justice Asif KC held that it would generate unfair and absurd results if Section 147 claims were excluded from any submission to the jurisdiction following the lodging of a proof of debt. For example, a liquidator could potentially be obliged to pay a dividend to a creditor based outside of the Cayman Islands without the possibility of any recourse to Section 147. This would be the case even in the clearest case of the involvement of that creditor in blatant fraudulent trading before the collapse of the company.

The judge held that Section 147 does have extraterritorial effect, following consideration of after previous cases from England and Wales and the Cayman Islands.

• In Re Paramount Airways, the English Court of Appeal held that “any person” in the provision dealing with transactions at an undervalue includes a foreigner resident abroad such that the provision has extraterritorial effect. This decision was subsequently affirmed by the UK Supreme Court in Bilta (UK) Ltd v Nazir (No 2).
• In ICP Strategic  Justice Jones reached similar conclusions to those in the English cases and held that if the remedy were available only against persons resident or domiciled in the Cayman Islands, it would be stripped of much of its utility.

Justice Asif KC held that the English cases addressing the interpretation of the English legislation comparable to Sections 145 to 147 also reflect the law of the Cayman Islands. It was likely that Parliament intended Section 147 to be interpreted in a similar way to the view expressed in Paramount  (without an implied limitation on its territorial scope along the lines of earlier English authorities).

Even before the 2007 amendments to the Companies Act (introducing Part V and Section 147), the Cayman Islands had become a major global financial services centre, providing the ability for businesses around the world to create corporate structures suitable for international business of all kinds. With this comes a significant likelihood that insolvency and fraud touching such corporate structures will have an international element.

Providing the environment for a successful financial services centre requires robust mechanisms for dealing with insolvency and fraud, on which international clients can depend. It is inevitable, in those circumstances, that most of the transactions that exempted companies enter into will be with parties operating outside of the Cayman Islands.

It was likely that Parliament intended Sections 145 to 147 to have extraterritorial effect so that liquidators have appropriate powers to pursue those involved in transactions or conduct with the effect of diminishing the value of an insolvent estate, wherever they are located. It would make absolutely no sense if those provisions were limited to persons and transactions within the Cayman Islands.

The old approach of limiting extraterritoriality because of the perception that the court would be overstepping the court’s geographical limits has become less of a concern due to the growth of international cross-border trade, the globalisation of the world economy and the speed with which digital transactions can be effected.

Under GCR O.11, r.1(2), service out of a writ out of the jurisdiction is permissible without the leave of the court if the action is one which the court has the power to hear and determine notwithstanding the defendant is not within the jurisdiction or the wrongful act did not take place within the jurisdiction.

Justice Asif KC adopted the position expressed in Orexim Trading Ltd  that given the extraterritorial nature of the statutory provisions being considered in that case, he would expect procedural rules to exist to enable the Court to exercise those powers. The judge held it would be surprising for Section 147 to be available in circumstances where a respondent has filed a proof of debt so that leave to serve out is not required, but not to be available where the respondent has not done so (whether that is because they are not a creditor at all or because they have made a strategic decision not to file a proof of debt because of the risk that a Section 147 claim might ensue).

If this were not the case then the liquidators would be required to pursue Section 147 claims in the respondent’s home jurisdiction. This would lead to a number of difficulties, including creating an inconsistency in application between different cases as the ability to pursue the claim would depend on whether or not the respondent’s home jurisdiction would recognise and apply Cayman Islands law.

Additionally, the term “Court” in Section 147 (specifically defined in the Companies Act to mean the Grand Court) would then necessarily have to be read as meaning the court in the respondent’s home jurisdiction.

Justice Asif KC disagreed with the view expressed by Justice Jones in ICP Strategic  that it was not possible for the liquidators to pursue a Section 147 claim against a foreign law firm in the Cayman Islands because the law firm did not have a presence here and that it was therefore necessary to stretch the meaning of “Court” to mean any court in the world. Rather, Justice Asif KC considered that service under rule 1(2) would have been possible on the basis that the provision has extraterritorial effect.

The judge also provided guidance on two practical issues related to the procedure to be adopted in connection with Section 147 claims (and under Part V of the Companies Act generally).

Air Arabia took issue with the fact that the Section 147 claim had been issued by way of writ, within a proceeding separate to the liquidation proceedings. Justice Asif KC held that where there are existing proceedings, an application under Part V of the Companies Act (including under Section 147) must be brought by summons within the liquidation proceedings.

However, given that the airline had submitted to the jurisdiction by lodging a proof of debt, the liquidators did not need to obtain leave to serve the defendant out of the jurisdiction. The liquidators had therefore not obtained any improper procedural advantage by wrongly commencing the proceedings by writ instead of by way of ordinary summons within the liquidation. It was appropriate that the proceedings should be treated as if commenced by way of summons within the liquidation proceedings, and that the cause number should be updated to reflect this.

The liquidators also sought a declaration that service of the writ had been validly effected by email and courier delivery to the defendants’ office using the addresses specified in the proof of debt. Asif J held it is well established that parties can agree their own mechanism for service: that is the purpose of a creditor providing contact details on a form for the proof of a debt.

Alternatively, the liquidators would have been entitled to rely on Order 65, rule 5 of the Grand Court Rules (which prescribes methods for ordinary service of proceedings) to serve a summons on the defendant. There was no need for the liquidators to obtain leave to serve Air Arabia out of the jurisdiction or for the proceedings to be served on the airline by way of personal service.

The Grand Court’s decision in Conway  addresses novel points concerning jurisdiction and service of claims under Section 147 and will be extremely useful on a practical level to insolvency practitioners and those dealing with Section 147 claims against foreign persons outside of the jurisdiction.

We examine the UK Supreme Court’s decision in Bilta  in Part 2 of this series.

This article was first published by the Global Restructuring Review on 12 September 2025.