Mind The Gap: Clarifying The Scope Of Sanction Applications

• Law Firm: Campbells
• Subject Matter: Corporate/Commercial Law, Corporate and Company Law
• Author: Mr Guy Cowan and Nienke Lillington
• Published date: 12 January 2023

A recent decision of Mr Justice Doyle has provided welcome guidance in relation to the scope and extent of sanction applications brought by official liquidators. In a judgment handed down on 3 November 2022 in the matter of Ascentra Holdings, Inc. (in Official Liquidation), the Grand Court has confirmed that it has jurisdiction pursuant to section 110 of the Companies Act (2022 Revision) (the "Act") to entertain sanction applications made by official liquidators for directions in relation to the exercise of their powers. Although the issue had been previously addressed by Segal J in first instance in Re Direct Lending Income Feeder Fund Inc (FSD unreported judgment of 9 May 2022) ("Re Direct Lending") that application was not the subject of argument before the Court. The Court's decision in Re Ascentra confirms, for the first time, that this is an appropriate route for official liquidators to take and, further, that the Court may, in appropriate circumstances, give directions to official liquidators within the context of a sanction application even where those directions may determine parties' substantive rights.

Background

The application in question had arisen as a result of a dispute between the joint official liquidators ("JOLs") of Ascentra Holdings, Inc. (in Official Liquidation) (the "Company") and a third party, Shang Peng Gao Ke, Inc. SEZC ("SPGK") regarding the ownership of approximately US$11 million in funds (the "Funds") which were, as at the commencement of the Company's liquidation, held by a third party in a US bank account. In the circumstances, it was agreed that the Funds would be transferred to a liquidation account, to be held in escrow pending the resolution of the dispute with SPGK.

When the dispute with SPGK could not be resolved through correspondence, the JOLs issued a summons (the "Summons") pursuant to Order 11 of the Companies Winding-up Rules, 2018 (the "CWR"). The Summons sought orders and directions that the JOLs be authorised to treat the Funds as unencumbered assets of the Company, pursuant to section 110(2) of the Act and paragraph 7 of Part I of Schedule 3 of the Act ("Schedule 3"), and/or that the JOLs be authorised to take possession, collect and/or get in the Funds, pursuant to paragraph 1 and/or paragraph 7 of Part II of Schedule 3.

Schedule 3 sets out the powers exercisable by official liquidators; the powers under Part 1 of Schedule 3 require the sanction of the Court, whilst the powers under Part II of Schedule 3...