More Schemes For SPhinX

A recent decision1 from the Grand Court of the Cayman Islands demonstrates a flexible use of the scheme of arrangement process to achieve a commercial resolution of an application to remove the SPhinX Group's joint official liquidators ("JOLs").

The SPhinX Group of Companies consists of 22 Cayman Islands investment funds that were placed into liquidation in the Cayman Islands in 2006 as a result of the collapse of Refco. The companies were solvent and the JOLs expected to have a large surplus available for distribution to investors. However, the liquidation raised complex issues caused by the intermingling of assets between the different funds and there were significant difficulties in determining the priority of stakeholder claims in respect of different companies and share classes.

These issues were resolved by way of a scheme of arrangement pursuant to section 86 of the Companies Law (2013 Revision), which was sanctioned by the Court in November 2013 ("First Scheme"). Pursuant to the terms of this scheme, the assets of the companies were pooled and procedures were put in place for quantifying claims.

The JOLs were appointed as scheme supervisors and charged with administering the terms of the First Scheme. Substantially all of the claims against the SPhinX Companies have now been quantified and investors have been paid out a first distribution under the First Scheme.

The relationship between the JOLs and stakeholders had unfortunately soured over the years - to the point where a stakeholders meeting concluded by an overwhelming majority that confidence in the JOLs had been lost. The JOLs refused to step aside and three key stakeholders ("the Removal Applicants") filed an application with the Court seeking to remove the JOLs and appoint new liquidators.

Ultimately, a commercial deal was struck without the need for the Court to decide whether or not to remove the JOLs from office. It was agreed that a further scheme ("Amendment Scheme") would be promoted that would have the effect of amending the First Scheme to provide for the following key points:

(a) Partners of KPMG would be appointed as scheme supervisors in place of the JOLs to administer the terms of the scheme ("New Scheme Supervisors").

(b) The New Scheme Supervisors would have carriage of all litigation by and against the SPhinX Companies in lieu of the JOLs without the need for further sanction of the Court.

(c) The New Scheme Supervisors would also be responsible for the...