Cross Border Comity In The Cayman Islands: The Picard V Primeo Decision

This article first appeared in Volume 11, Issue 5 of International Corporate Rescue, published by Chase Cambria Publishing.

On 16 April 2014, the Cayman Islands Court of Appeal handed down the much anticipated, albeit interim, decision in Irving H Picard and Bernard L Madoff Investment Securities LLC v Primeo Fund. In summary, 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'), to assist foreign representatives of non-Cayman Islands companies by way of applying Cayman Islands transaction avoidance provisions in aid of foreign proceedings (i.e. claw-back provisions based on fraudulent transfers or preference payments). The Court of Appeal has also confirmed (agreeing with the judge at first instance) that this jurisdiction does not extend to permitting the Court to apply transaction avoidance provisions under the relevant foreign law in the Cayman Islands. The Cayman Islands has not adopted the UNCITRAL Model Law on Cross Border Insolvency but the Cayman Islands courts are very familiar with dealing with cross border proceedings. Most companies incorporated in the Cayman Islands have their assets and operations abroad so there is almost no such thing as a purely domestic proceeding. As a result, and as can be seen from this decision, the Cayman Islands courts are very keen to promote comity in cross border insolvency proceedings regardless of whether the company in question is incorporated in the Cayman Islands or otherwise.

Applicable legislation

Mr Picard's application to the Cayman Islands courts for assistance was made pursuant to Part XVII of the Law which sets out express provisions dealing with international cooperation and the manner in which the Cayman Islands courts can give statutory assistance to 'foreign representatives'. These provisions are loosely based on the now-repealed section 304 of the US Bankruptcy Code and apply to overseas companies that are in bankruptcy proceedings outside of the Cayman Islands. They have no application to Cayman Islands incorporated companies even where those companies have been placed into insolvency proceedings in another jurisdiction.

Section 241 of the Law provides that the court may make orders ancillary to a foreign bankruptcy proceeding for the purposes of:

1. Recognising the right of a foreign representative to act in the Cayman Islands on behalf of a foreign debtor1 (s. 241(1)(a)).

2. Granting a stay on commencement or continuation of legal proceedings and the enforcement of judgments against a debtor (s.241(1)(b) and (c)).

3. 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 (s.241(1)(d)).

4. Ordering the turnover to a foreign representative of any property belonging to a debtor (s. 241(1) (e)).

   Section 242 provides that in deciding whether to make such an ancillary order, the court will be guided by matters which will best assure an economic and expeditious administration of the debtor's estate consistent with:

1. the just treatment of all claimants in a debtor's estate wherever they may be domiciled;

2. the protection of Cayman Islands incorporated claimants against prejudice and inconvenience in the processing of claims in the foreign bankruptcy proceeding;

3. the prevention of preferential or fraudulent dispositions of property comprised in the debtor's estate;

4. the distribution of the debtor's estate amongst creditors substantially in accordance with the priorities set out in the Law;

5. the recognition and enforcement of the interests of secured creditors;2

6. the non-enforcement of foreign taxes, fines and penalties;3 and

7. comity.

   Part XVII was incorporated into the Law in 2009 and the Primeo case is the first time the provisions of section have been considered in detail by the Cayman Islands courts.

   Proceedings in the Grand Court

   In February 2010, Mr Picard applied to the Grand Court of the Cayman Islands (the 'Grand Court')...