The Bermuda Commercial Court has provided guidance as to the considerations it will take into account when deciding the identity of the JPLs, further to our article on the Up Energy Group Ltd (the Company) restructuring and the circumstances in which Joint Provisional Liquidators (JPLs) will be appointed to monitor the proposed restructuring of a Bermuda company listed on the Hong Kong Stock Exchange.
When the case was last before the Court, Chief Justice Kawaley ordered that Bermuda JPLs be appointed to monitor the proposed restructuring but adjourned the issue as to the identity of the JPLs. At the hearing on the identity issue, the arguments revolved around whether or not RSM Corporate Advisory (Hong Kong) Limited (RSM), a firm of restructuring consultants which had been working with the Company for some time, could or should be appointed as JPLs. The petitioning creditor sought the appointment of wholly independent JPLs who, it was argued, were better qualified.
In a ruling handed down in November, Chief Justice Kawaley reiterated from his first ruling that the purpose of appointing JPLs in a ‘debtor in possession’ style restructuring is two-fold: it provides efficiency to the restructuring and it provides creditors and the Court with confidence in the process.
He further added that in a situation such as the present one, where there are genuine conflicts of interest between different creditor factions, the need to give confidence to creditors is particularly important but that it did not extinguish genuine concerns regarding the efficiency of the restructuring.
The Chief Justice noted that it is typically the case that when a company is pursuing an insolvent restructuring, it will seek the appointment of JPLs of its own choosing. He described the situation in which JPLs are forced upon a company’s management against its wishes as akin to a ‘shotgun marriage’, and held that it was important to appoint JPLs that could win the confidence of both the creditors and the Company.
On that basis and adopting a pragmatic approach, the Chief Justice prioritised the Company’s desire to work with RSM, and the cost and value of the work already undertaken by RSM, over any consideration that the JPLs nominated by the petitioning creditor were arguably more qualified – citing a ‘real risk of tension’.
The commercial approach of the Chief Justice strikes a balance between the company’s wishes, creditor protection, and driving cost efficiencies into the restructuring process. However, it cannot be ignored that such a pragmatic attitude is not in step with all other offshore jurisdictions.
In the Cayman Islands, unlike Bermuda, there is a statutory requirement that a liquidator must be regarded as independent as regards the company. This requirement of ‘independence’ has been construed strictly by the Grand Court of the Cayman Islands and it is not sufficient for a nominated liquidator to simply consider himself free from conflicts of interest. There must be an objective perception of independence (see In re Hadar Fund Ltd, Unreported, 13 August 2013, Jones J). In applying this principle, in In re Bay Capital Asia Fund Ltd, Unreported, 1 October 2015, Smellie CJ, it was held that a firm of accountants which had recently provided advisory services to the company including restructuring advice were not independent and therefore were unable to be appointed as liquidators to the company. It can fairly be surmised that if the Up Energy Group Ltd factual matrix had been presented to the Grand Court of the Cayman Islands, a different result would have ensued and RSM would not have been appointed.