The decision to issue a winding up order, and the prior appointment of provisional liquidators, give rise to two particularly interesting points:

  1. The petitioners lacked the financial means to offer a credible cross-undertaking in damages on their application for provisional liquidators. Rather than dismiss the otherwise meritorious application on that basis, the court undertook a purposive interpretation of the relevant Cayman procedural rules and decided that this was not necessary. This appears to be the first Cayman case considering this point.
  2. The petitioners were both retail investors in AAX and did not have a direct contractual relationship with the company itself, as the company conducted its business solely through a network of global subsidiaries. Nonetheless, they successfully brought the petition as contingent creditors. In the most recent hearing the judge commenting that this ‘may be uncommon but is not novel‘, there being at least one previous similar case.


Atom Holdings, a Hong Kong-headquartered (but Seychelles-registered) crypto exchange which once boasted two million users, is the holding company for a group of companies operating in multiple jurisdictions which collectively comprise Atom Asset Exchange (AAX).

In November 2022, AAX halted customer withdrawals for what it called “temporary scheduled maintenance”. However, exchange employees subsequently alleged that the outage was caused by liquidity problems. Users found themselves unable to access their money and employees were disconnected from company email, while Hong Kong regulators disclaimed responsibility and various executives and investors pleaded ignorance or even disappeared. The prejudiced investors affected by the company’s actions are located in various parts of the world and had had no redress.

The Cayman Islands action

Atom Holdings is a Cayman Islands company and accordingly two retail investors in AAX filed a winding-up petition in Cayman based on the company’s inability to pay its debts on the ‘just and equitable grounds’ due to the need for an investigation.

The application seeking to appoint provisional liquidators was made on an ex parte basis (i.e. without notice to the company). The court agreed that giving notice to the company would have risked defeating the purpose of the petition. At the time of filing, criminal complaints had also been filed in several jurisdictions, the Hong Kong Police had already arrested two company executives, and key personnel appeared to have gone into hiding with whatever remained of the company’s assets.

The judgments in these proceedings raise two points of particular interest:

  1. First, petitioners seeking to appoint provisional liquidators must normally[i] offer a cross-undertaking in damages. This is a promise made by a party to legal proceedings to compensate another party(here, AAX) for potential losses suffered if it is later determined that the application was wrongly granted. Here, it was argued that a cross-undertaking should not be required in certain circumstances, and that the prima facie mandatory requirement (in Order 4 Rule 3 of the Companies Winding Up Rules) should be relaxed with regard to these particular petitioners. In the judgment on the application, Kawaley J noted that ‘[w]hether this rule permits the requirement to be dispensed with is a point not seemingly addressed by any considered local authority’ and that the rule ‘on its face appears to impose a mandatory requirement for a cross-undertaking in damages to be given by an applicant seeking the appointment of a provisional liquidator’. The Judge went on to examine the the nature of the rule in detail and ultimately found in the petitioners’ favour. The Court’s rationale included: (i) the necessity to ensure that retail creditors of companies governed by the Cayman courts and conducting global business on a mass scale should have effective access to interim relief against corporate fraud and mismanagement; (ii) that denying relief based on the inability to provide a cross-undertaking would hinder access to justice; and (iii) that the risks of prejudice to the petitioners and the public interest outweighed the risks of damage to AAX.
  2. Second, the normal requirement for ‘standing’ to bring a petition such as this is that a party be ‘a creditor or contributory of the company’. The two petitioners here comprised one Singaporean and one German retail investor, each of whom relied on their standing as contingent creditors. They argued that they had potential claims against AAX for misappropriation of assets, breach of contract, breach of trust, dishonest assistance, and knowing receipt. The Court accepted their arguments and their evidence that AAX was a holding company, the subsidiaries of which were used to cause deliberate commercial harm to investors’ interests.

Following the appointment of provisional liquidators, the judgment on which was released in June 2023, there was a further hearing on 7 July 2023 to wind up the company. The former company directors instructed counsel to attend the hearing and to request an adjournment. However, the judge commented on the fact that the company’s application was made at the very last minute despite the former directors’ knowing of the proceedings since at least May 2023. He noted that it was ‘almost as if an attempt was being made to create delay without justification’ and refused the adjournment application. The recent case of Re MV Cayman Ltd, in which an adjournment was granted, was distinguished because, unlike in Re MV Cayman Ltd, AAX’s former directors were unable to articulate any credible reasons for granting an adjournment. The judge implicitly commended the former directors’ attorney’s efforts to do so nonetheless, but wryly commented that they were ‘like the charge of the Light Brigade’.

In conclusion the judge commented that ‘This is a compelling case for a winding-up order. It is a petitioner’s dream, and a company’s nightmare’, and issued the winding-up order on the bases both of: (i) the need for an investigation; and (ii) the loss of substratum ( i.e. purpose) of the company.


This decision is important because it demonstrates that: (i) retail investors with potential claims against Cayman Islands companies may have standing to bring actions as contingent creditors; and (ii) petitioners unable to offer a meaningful cross-undertaking in damages may still, where the justice of the situation demands, be able to access the provisional liquidation regime to secure interim relief against corporate fraud and mismanagement.

A wider point of importance for Cayman jurisprudence is that the judge in appointing the provisional liquidators construed ‘shall’ more widely than one might ordinarily have expected. Taking this approach allowed the Court to find that it had a discretion as to whether to require a cross-undertaking in damages, rather than this being a mandatory requirement for relief to be granted. This is a seemingly novel development, but: (i) there is common law precedent dating back centuries for distinguishing prima facie mandatory statutory provisions[ii]; and (ii) it is arguably unlikely that such an approach would be taken outside of the fairly unique circumstances of prima facie massive fraud of retail investors as in this case. That said, only time will tell if this seemingly novel development will have unintended consequences in factually different applications for provisional liquidators or even in other contexts in relation to rules that use ‘shall’.

[i] Companies Winding-up Rules, Order 4, Rule 3, includes that an applicant shall give an undertaking to the Court to pay (a) any damage suffered by the company by reason of the appointment of the provisional liquidator; and (b) the remuneration and expenses of the provisional liquidator, in the event that the winding up petition is ultimately withdrawn or dismissed.’ (emphasis added)

[ii] See Evans, Jim. “Mandatory and directory rules.” Legal Studies 1, no. 3 (1981): 227-256. Abstract: In dealing with rules of a procedural type lawyers often make a distinction which is referred to as that between ‘mandatory’, and ‘directory’ rules. (The terms ‘imperative’, ‘absolute’, ‘obligatory’, ‘compulsory’, and ‘peremptory’, have sometimes been used instead of ‘mandatory’.) The distinction has to do with the effect of breach of a rule on the process to which it relates. Very broadly, mandatory rules are those procedural rules the breach of which necessarily invalidates the process to which they relate, while directory rules are procedural rules the breach of which does not necessarily have this effect. This distinction has existed in the common law for about three hundred years…

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