When will foreign court - appointed receivers be recognized?
Recognition of foreign Court-appointed receivers in the Cayman Islands: In the Matter of Silk Road Funds Ltd.
The Grand Court of the Cayman Islands has released an important judgment[1] examining the circumstances in which receivers appointed by a foreign court will be recognised in the Cayman Islands.
Receivers had been appointed by the Supreme Court of Bermuda in respect of a “segregated account”. Bermuda’s Segregated Accounts Companies Act 2000 allows companies to create accounts whose assets and liabilities are legally separated from those of other accounts and the company itself. The Act also provides that a segregated account is not a legal person distinct from the company itself.
The receivership arose following an unsuccessful attempt by a shareholder in the segregated account to redeem its shares. Having failed to redeem, the shareholder asked the Court to appoint receivers in order to “achieve the orderly management, sale, rehabilitation, run-off or termination of the business of or attributable to the [segregated account], or the distribution of the assets linked to the [segregated account], to those entitled to them.”
Shortly after their appointment, the receivers applied to the Grand Court for orders recognising the powers granted to them in Bermuda. The immediate purpose of that application was to obtain orders for the disclosure of documents by the liquidators of two Caymanian companies.
The Judge considered three possible paths to recognition. First, he looked at Part XVII of the Cayman Islands Companies Law, which allows recognition of “foreign representatives” ancillary to “foreign bankruptcy proceedings”. However, this was deemed not to apply to segregated accounts, as they were not separate legal entities, and therefore were not “debtors” for the purposes of Part XVII.
Next, he considered the common law principle of “modified universalism”, which allows a court to provide assistance (within certain limits) to a foreign court, so as to facilitate an orderly winding up of a company’s affairs on a world-wide basis. This did not apply either – the public policy underlying the principle applied only to liquidations, which by their nature offered a class remedy benefiting the entire body of creditors. Although parallels could be drawn between liquidation and a court-appointed receivership process, the analogy was not so complete as to allow the principle to be extended.
Ultimately, the Court did grant recognition, but on the basis of a different line of authority relating specifically to receivers. A foreign court-appointed receiver would be recognised by the Cayman Islands Court if there was a “sufficient connection” between the company, the subject of the receivership and the jurisdiction in which the receiver was appointed. Whether such a connection existed would be determined by reference to four questions:
- Has the company in respect of whose assets the receiver has been appointed been made a defendant in the action in the foreign court?
- Has the company in respect of whose assets the receiver has been appointed been incorporated in the country which appointed the receiver?
- Would the courts of the country of incorporation recognise a foreign-appointed receiver?
- Has the company carried on business in the jurisdiction of the appointment or is the seat of its central management and control located there?
As the answer to all four questions was ‘yes’, the Court held that it should exercise its inherent jurisdiction to recognise the receivers’ appointment. In doing so, it was careful to ensure that the powers and functions it recognised were consistent with the statutory regime for the appointment of receivers in the Cayman Islands, and therefore, would not offend Cayman Islands public policy.
[1] In the Matter of Silk Road Funds Ltd, 8 February 2018 (embargo from publication lifted on 30 May 2019), Smellie C.J.
