Paying The Costs Of Petitioning In The Cayman Islands

If a creditor successfully petitions for the winding up of a defaulting debtor in the Cayman Islands, it has the benefit of a priority recovery of those costs over the unsecured debts of the company and even the liquidators' own remuneration and expenses. The Cayman Islands Court of Appeal (CICA) has now, for the first time, considered and set out the principles that should be applied in the event a petition is withdrawn, where the opposing company is left with thrown away costs1. The judgment also provides a reminder of the importance of complying with procedural deadlines for key evidence and what may be taken into account in the ruling of the judge at first instance.

Summary

The CICA held that save under exceptional circumstances (which were absent in this case) a party which claims a debt that may be disputed bears the costs risk of pursuing such debt by way of statutory demand and winding up petition without first ensuring that any disputes are resolved. In this case, evidence that the petitioner had not known of the dispute before petitioning had been served out of time and only came to the judge's mind by a procedural irregularity; it should not have influenced his ruling that the Petitioner did not have to pay the Debtor's costs in defending the Petition.

Background to the Case

KBC Investments V Limited (the Petitioner) was the assignee of a redemption debt of $1,068,530.31 (the Debt) owed by Aramid Entertainment Fund Limited (the Debtor), a company incorporated in the Cayman Islands carrying on business as a mutual fund. The Debtor had withheld paying the Debt because of proceedings it had initiated in New York (the New York Proceedings). However, the New York Proceedings failed at first instance and on appeal and so the Petitioner issued a statutory demand for the Debt.

The Debtor sought to argue that a further appeal and motion for re-argument was pending in the New York Proceedings but the Petitioner contended that the proceedings were finally resolved and issued a winding up petition on 10 July 2013 (the Petition) prior to the resolution of these issues. On the same day, but following service of the Petition, the Debtor commenced further proceedings in the State Court of New York against the Petitioner and others, seeking an amount in excess of the Debt (the Further Proceedings).

The Debtor opposed the Petition on the basis of the Further Proceedings as a result of which, on 1 August 2013, the Petitioner sought leave to...