Grand Court Considers The Scope Of Liquidators' Statutory Powers To Collect In A Company's Documents

In a recent judgment in Primeo Fund (in official liquidation)1 that will be of concern to liquidators of Cayman Islands companies, and of interest to auditors and other persons from whom liquidators seek information, the Grand Court has clarified and arguably restricted the scope of liquidators' statutory powers to collect documents under sections 103 and 138 of the Companies Law.

In particular, the Court has:

reiterated that auditors are not a "relevant person" within the meaning of section 103, such that they cannot be ordered to produce documents belonging to the company under that section (nor, it would follow, are they subject to a statutory duty to cooperate with liquidators or capable of being ordered to be examined)2; and found, more controversially, that liquidators may not use their section 138 powers to collect documents to which the company appears to be entitled (or, by analogy, documents belonging to the company using their section 103 powers) from any person, if their purpose in doing so is to use those documents in litigation against another person. This conclusion appears to go beyond the existing line of authorities, in which liquidators have been prevented from using their statutory powers to collect documents for use in litigation, but only where the person in possession of the documents sought is itself the litigation defendant or potential target. Background

The statutory auditors of Primeo Fund ("Primeo") were Ernst & Young Ltd in the Cayman Islands ("EY Cayman"). Although EY Cayman was the statutory auditor, the audit fieldwork in respect of Primeo was carried out by a separate Ernst & Young entity in Luxembourg ("EY Luxembourg"), from which jurisdiction Primeo was administered.

The liquidators of Primeo sought an order, pursuant to sections 103 and/or 138 of the Companies Law, compelling EY Cayman to use its best endeavours to obtain from EY Luxembourg certain categories of documents and provide them to Primeo. There was no question in this application of Primeo seeking to obtain documents from EY Luxembourg directly, for example by way of a letter of request procedure (whether under section 103(7) of the Companies Law or otherwise). It was alleged, and found, that the documents were being sought by Primeo's liquidators for use in separate proceedings brought by the liquidators in the Cayman Islands against HSBC group entities.

EY Cayman resisted the application.

Statutory Provisions

Section 103(3) provides that...