Send in the Troops? Proportionality, notice and the appointment of joint provisional liquidators in the Cayman Islands
Background
Troops Inc (Troops, formerly SGOCO Group Ltd) – a Cayman Islands incorporated, NASDAQ-listed, Hong-Kong based money lender – is principally engaged in providing “mortgage loans to high quality target borrowers, property investment to generate additional rental income and the development, operation and management of an on line financial marketplace that provides one-stop financial technology solutions including API services by leveraging artificial intelligence, big data and blockchain, and cloud computing (SaaS)”. It generates revenue from borrowers in Hong Kong and Australia.
On 28 June 2025, Real Estate and Finance Fund (in Liquidation) (REFF) obtained a Judgment against Troops from the Hong Kong High Court (the HK Judgment), awarding HK$404,800,00 (approximately US$52 million) plus legal costs and interest. During the course of the Hong Kong proceedings, the Hong Kong Court purportedly found that REFF was controlled by various individuals who had perpetrated a fraud against it, stripping core assets by way of a ‘reverse takeover’ and using complex fraudulent transactions to obtain control of it and transfer assets to Troops. The HK Judgment was appealed.
On 24 July 2025, REFF filed a creditors’ winding up petition against Troops in the Grand Court of the Cayman Islands (Court). The petition centered on the alleged fraudulent scheme and the debts established by the HK Judgment. REFF also applied for the urgent appointment of joint provisional liquidators (JPLs) on an ex parte (without notice) basis, with a view to preserving and protecting Troops’ assets and ensuring that no (or no further) dissipation of assets occurred pending the enforcement and/or determination of the appeal against the HK Judgment.
The law
Where there has been a purported fraud requiring investigation into the affairs of a company, the appointment of JPLs over the company may be an available remedy. The question in the present case was whether it was appropriate to make such an appointment, particularly on an ex parte basis.
The case law on the appointment of JPLs is relatively well-settled. With reference to his prior judgment in Position Mobile Ltd SEZC (31 October 2023) (Position Mobile), Doyle J noted the ‘four hurdles’ that are required to be satisfied for such an appointment (presentation of a petition, standing to bring that petition, a prima facie case for winding up and necessity). In respect of the necessity hurdle, the Court will assess whether the appointment of JPLs is necessary to achieve one or more of the purposes set out in section 104(2)(b): to prevent dissipation/misuse of assets, oppression of minority shareholders, or mismanagement/misconduct on the part of the company’s directors.
The Court reiterated that the appointment of JPLs is one of the most “intrusive remedies in the court’s armoury sometimes referred to as the nuclear option”. Such an appointment requires strong justification and the Court will take considerable care before making such a “draconian order”. In its assessment, the Court will consider the principle of proportionality and, if a lesser remedy can protect the applicant[1], JPLs should not be appointed.
[1] Such as injunctive relief (as it was in Position Mobile).
The Court’s conclusions
Before turning to the merits, Doyle J noted that the appointment was sought on an ex parte basis, without notice to Troops itself. He reiterated that the Court should be especially cautious when asked to press the “nuclear JPL button” on an ex parte basis, and that it was a very serious step to appoint JPLs without notice over a Cayman Islands company with many subsidiaries in other jurisdictions.
Whilst the Court accepted that there was a prima facie case for making a winding up order against Troops and that REFF had standing to bring the petition (as a judgment creditor), the necessity hurdle had not been satisfied. In particular, REFF argued that the alternative remedy that it had sought and obtained before the Hong Kong Court – a freezing order – was too limited in its scope, stopping short of offering full protection. Doyle J suggested that REFF could apply to the Hong Kong High Court to vary/extend the scope of the existing freezing order, and seek similar relief in other jurisdictions (if necessary). He concluded that “rather than seeking to use a sledgehammer to crack a nut, the petitioner should have gone back to the Hong Kong court for further relief following delivery of the Hong Kong Judgment.” The Court did not have sufficient comfort to “press one of the law’s nuclear weapons”, and so declined to do so.
Doyle J also noted that the “main battle” between the parties appears to be in Hong Kong, and is continuing by way of the appeal against the HK Judgment. Accordingly, the Cayman Islands Court should not make any order which on the face of it restricts Troops in pursuing its appeal.
Key takeaways
The judgment serves as a useful reminder as to the caution with which the Court will approach ex parte applications generally, particularly those seeking the appointment of JPLs over a company which is part of a large international group and which is not on notice to the application. It also serves as a useful summary as to the principles applicable to the appointment of JPLs, including the balancing factors to be considered (particularly necessity) and the relevance of any alternative remedies which might be available.
