Cross-Border Comity At The Court Of Appeal – The Picard V Primeo Decision

On 16 April 2014, the Court of Appeal handed down the much-anticipated decision in Irving H Picard and Bernard L Madoff Investment Securities LLC v Primeo Fund. In short, the Court of Appeal (reversing the judge at first instance) has found that there is statutory jurisdiction, under the Cayman Islands Companies Law (the "Law"), for the Court to apply Cayman Islands transaction avoidance provisions (i.e. clawback provisions based on fraudulent transfers or preference payments) in aid of foreign proceedings. The Court of Appeal also found (confirming the decision of the judge at first instance) that this jurisdiction does not enable the Court to apply transaction avoidance provisions under foreign law in the Cayman Islands.1

Legislative provisions

Part XVII of the Law deals with international co-operation and is based on the now-repealed section 304 of the US Bankruptcy Code. Section 241 of the Law provides that the Court may make orders ancillary to a foreign bankruptcy proceeding for the purposes of:

(a) Recognising the right of a foreign representative to act in the Islands on behalf of a foreign debtor.

(b) Granting a stay on the commencement or continuation of legal proceedings and the enforcement of judgments against a debtor.

(c) Permitting the foreign representative to examine any person in possession of information relating to the debtor and requiring the production of documents to the foreign representative.

(d) Ordering the turnover to a foreign representative of any property belonging to a debtor.

Section 242 provides that in deciding whether to make such an order, the Court will be guided by matters which will best assure an economic and expeditious administration of the debtor's estate consistent with, among other things, the prevention of preferential or fraudulent dispositions of property contained in the debtor's estate.

Proceedings in the Grand Court

In February 2010, under section 241 of the Law, the Grand Court recognised Mr Picard's appointment as the bankruptcy trustee of Bernard L Madoff Investment Securities LLC ("BLMIS") by the US Bankruptcy Court for the Southern District of New York.2

Mr Picard/BLMIS then sought to bring clawback claims in respect of payments made by BLMIS to Primeo Fund, a Cayman Islands company. These claims were based on the transaction avoidance provisions of both the US Bankruptcy Code and the Law. While there are similarities between the legislative provisions in each jurisdiction, the...