Jul 1, 2021
Key Takeaways:
A recent judgment of the Grand Court of the Cayman Islands (the "Grand Court") has confirmed that section 48 of the Trusts Act (2021 Revision) (the "Trusts Act") provides former liquidators, in their capacity as statutory trustees of the undistributed assets of a dissolved company, with a statutory gateway to seek directions from the Grand Court for the approval of their fees and expenses of administering the trust assets.
In his written ruling in the matters of Re F & C Warrior Fund Limited (Dissolved) and F & C Warrior II Fund Limited (Dissolved) (Cause Numbers FSD 105 of 2021 (ASCJ) and FSD 107 of 2021 (ASCJ)), the Honourable Chief Justice Smellie Q.C. provided welcome guidance on the appropriate procedure to be followed by a former liquidator when seeking the approval of fees and expenses incurred in their capacity as a statutory trustee pursuant to section 153 of the Companies Act (2021 Revision) (the "Companies Act") and Order 23 of the Companies Winding Up Rules, 2018 (as amended) (the "CWR").
Prior to the applications, F&C Warrior Fund Limited and F&C Warrior II Fund Limited (the "Companies") had been placed into voluntary liquidation, following which, the Companies' former joint voluntary liquidators (the "Former JVLs") sought to distribute redemption proceeds to the Companies' former investors. At the time of the Companies' dissolutions, a proportion of the Companies' remaining cash assets (the "Outstanding Redemptions") had yet to be distributed to the Companies' former investors, the practical effect of which was that the Outstanding Redemptions were held by the Former JVLs as statutory trustees on behalf of the Companies' former investors pursuant to section 153 of the Companies Act and in accordance with Order 23 of the CWR.
Following the expiry of the 12 month statutory trust period prescribed by Order 23 of the CWR, the Former JVLs issued ex parte originating applications under section 48 of the Trusts Act seeking directions that their fees incurred as statutory trustees of the Outstanding Redemptions be paid out of the Companies' residual cash assets, with the net remaining amounts to vest bona vacantia in the Financial Secretary of the Cayman Islands in accordance with section 153 of the Companies Act and Order 23, rule 6 of the CWR.
In delivering his ruling, the Honourable Chief Justice accepted that Order 23, rule 5 of the CWR provides that a former liquidator is entitled to be paid a reasonable fee for advertising, administering claims and preparing their accounts pursuant to section 153 of the Companies Act and in accordance with Order 23 of the CWR and that the basis and amount of that fee must be fixed by the Grand Court.
In addition, the Honourable Chief Justice accepted the submission that section 48 of the Trusts Act provided the Former JVLs, in their capacity as statutory trustees of the Outstanding Redemptions, with a statutory gateway to seek an order for directions that their fees be capped in accordance with Order 23, rule 5 of the CWR.
Having regard to the above principles, the Honourable Chief Justice was satisfied that the Former JVLs' fees and expenses of administering the Outstanding Redemptions as statutory trustees had been reasonably and proportionately incurred and that the Former JVLs' times costs referable to the management and distribution of the Outstanding Redemptions were therefore recoverable as against the trust assets.
From a practical perspective, the principal advantage of issuing an application under section 48 of the Trusts Act is that a filing fee of CI$200 will be payable by a former liquidator, as opposed to the CI$5,000 filing fee payable in respect of an originating application filed in the Financial Services Division of the Grand Court. Furthermore, the Honourable Chief Justice confirmed the suitability of applications of this nature to be disposed of "on the papers" on the basis that they fall squarely within the provisions of Order 85, rule 8(1) of the Grand Court Rules (1995 Revision) (as revised), thereby avoiding the cost of a formal hearing before the Grand Court.
The Chief Justice's ruling provides welcome clarification to insolvency practitioners tasked with administering undistributed assets following the dissolution of a Cayman Islands entity and confirms the availability of an efficient and economical mechanism by which a former liquidator may seek directions for the approval of their fees reasonably incurred in administering such trust assets.
Peter Kendall and Blake Egelton of Walkers acted on behalf of the Former JVLs, Simon Conway and Jess Shakespeare of PWC Corporate Finance & Recovery (Cayman) Limited.
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