Commencing Proceedings Against A Cayman Islands Company In Liquidation: Having A Case Worth Entertaining

• Published date: 22 February 2021
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, Corporate and Company Law, Arbitration & Dispute Resolution, Trials & Appeals & Compensation
• Law Firm: Ogier
• Author: William Jones Esq and Sam Keogh

The Grand Court of the Cayman Islands (the "Grand Court") recently considered the statutory moratorium against commencing proceedings against a Cayman Islands company which has been placed into liquidation. In the case of BDO Cayman Ltd. and BDO Trinity Ltd. v Ardent Harmony Fund Inc. (in Official Liquidation)¹ the Grand Court held that a plaintiff which launches originating proceedings against a company in liquidation, seeking adverse orders against that company, "patently requires leave" of the Court to bring the proceedings. The Grand Court also held that the plaintiffs in that case did not have "a case worth entertaining" in respect of either basis on which they had brought the applications in question.

Background

Ardent Harmony Fund Inc. (in Official Liquidation) ("Ardent") is a Cayman Islands fund which invested in receivables financing by way of contractually engaged Credit Advisors. One of those Credit Advisors defrauded Ardent of approximately 90% of its assets under management, with the result that Ardent was placed into official liquidation in 2016.

In November 2019, Michael Pearson and Andrew Childe of FFP Limited, the Joint Official Liquidators ("JOLs") of Ardent, commenced proceedings on Ardent's behalf against BDO Trinity Ltd ("BDO Trinity"), in the Supreme Court of the State of New York, Nassau County (the "New York proceedings").

In April 2020, BDO Trinity and Ardent's statutory auditor, BDO Cayman Ltd ("BDO Cayman", and together with BDO Trinity, "BDO"), took out an Originating Summons against Ardent, seeking anti-suit injunctions to restrain the New York proceedings and damages, on the basis the New York proceedings had been brought in breach of:

1. the engagement letters entered between Ardent and BDO Cayman in respect of BDO's audits of Ardent; and
2. a tolling agreement in place between Ardent, BDO Cayman, BDO Trinity and other BDO affiliates, which suspended Ardent's claims against BDO pending the resolution of claims brought against BDO by another Cayman fund called Argyle Fund SPC ("Argyle"), which was defrauded by the same Credit Advisors.

Unusually, BDO did not seek leave of the Grand Court to commence the proceedings, as required by section 97 of the Companies Act (2020 Revision)² ("section 97"), before taking out the Originating Summons. Instead, BDO sought section 97 leave as the first item of relief in its Originating Summons. In response to a Summons taken out by Ardent, the Grand Court considered whether BDO required leave under section 97, and whether it would grant such leave, as preliminary issues in BDO's application for an anti-suit injunction.

Section 97 principles

Section 97 provides that:

1. When a winding up order is made or a provisional liquidator is appointed, no suit, action or other proceedings, including criminal proceedings, shall be proceeded with or commenced against the company except with the leave of the Court and subject to such terms as the Court may impose.
2. When a winding up order has been made, any attachment, distress or execution put in force against the...