How should liquidators deal with the administrative burden of adjudicating thousands of low-value proof of debts in a liquidation estate, without exhausting the limited assets available in the liquidation estate? The Grand Court of the Cayman Islands recently approved a pragmatic solution.
Premier Assurance Group SPC Ltd (in official liquidation) (the company), an exempted segregated portfolio company, was placed into controllership on 29 September 2020,(1) and then subsequently into liquidation on 27 October 2020 with Jeffrey Stower and Jason Robinson of KPMG appointed as joint liquidators (JOLs). One of the segregated portfolios of the company, the premier assurance segregated portfolio, had offered life assurance portfolios to 11,160 participants (the participants), all of whom had a claim in the liquidation. In circumstances where it was not practical to manually adjudicate 11,160 proofs of debt, an application was brought to approve an alternative means of adjudicating the debts in a cost-effective manner.(2)
Information concerning the status of the insurance policies issued to the participants was derived from the company's database and was sufficient to determine the account value of each policy held by a participant.
Accordingly, the JOLs proposed to:
- admit to proof the claims of the participants in respect of the amounts recorded as due to them in the SVRs and without requiring them to lodge proofs of debt;
- to send to each participant a notice of admission informing the participant that their proof had been admitted (the draft notices); and
- afford each participant the opportunity to dispute the amount admitted to proof within 21 days.
The JOLs estimated that the streamlined method proposed would achieve a cost saving to the insolvent estate in the region of $2.6 million and allow the adjudication process to be completed within a much shorter period.
In order to obtain the order to approve the alternative process proposed by the liquidators, the JOLs applied to the Grand Court of the Cayman Islands for authorisation to do so under section 110(2)(a) of the Companies Act (2021 Revision). Under that provision, the Court has wide powers to determine questions referred to it by a liquidator "in any way relating to or affecting the assets or the winding up of the company".
The Court considered previous cases, such as in Re Centaur Litigation SPC in which the Court:
- had approved an alternative form of proofs in circumstances where it was cost-effective to do so; and
- confirmed that it is within its jurisdiction to allow the JOLs' dispensation of the requirement for formal proofs of debt.(3)
In the circumstances of this case, the Court was satisfied that the alternative method proposed was cost-effective and valid, and that the decision to dispense with formal proofs of debt was within the liquidators' powers and capable of approval.
The Court summarised the principles to be applied to the extent of a liquidator's powers as follows:
the Court should ordinarily respect the commercial judgment of the liquidator and grant sanction, unless the course of action proposed by the liquidator is regarded by the Court as so unreasonable or untenable that no reasonable liquidator would take it.
The Court deemed it appropriate to allow the alternative format for proofs of debt for the following reasons:
- the JOLs were satisfied that it was both cost-effective and quicker than the conventional approach;
- the JOLs were satisfied as to the accuracy of the relevant database;
- the proposal was reasonable in circumstances where the significant majority of claims were likely to be below $20,000;
- most of the participants spoke only Spanish and there was a risk that some could undervalue their claims, submit a proof in an incorrect form or not submit one at all; and
- there was little to no risk of prejudice to the participants because they retained the right to dispute the value of the claim and submit a further proof of debt (which, if rejected by the liquidators, could be appealed to the Court within 21 days in the normal way).
The judgment is noteworthy because it shows the flexibility of the application of section 110(2)(a) of the Act and the willingness of the Court to adopt a pragmatic approach to practical difficulties faced by, and to lend assistance to, liquidators in achieving an orderly winding-up of a Cayman company.
For further information on this topic please contact Max Galt at Ogier by telephone (+1 345 949 9876) or email ([email protected]). The Ogier website can be accessed at www.ogier.com.
Endnotes
(1) In the Matter of Premier Assurance Group SPC Ltd (in Controllership) (FSD Cause No. 210 of 2020).
(2) In the Matter of Premier Assurance Group SPC Ltd (in Official Liquidation) (FSD Cause No. 264 of 2020).
(3) Following Kawaley J in Re Herald Fund SPC (in Official Liquidation) [2018] (2) CILR 162].