Re PAC Limited (In Official Liquidation): How To Empower Cayman Liquidation Committees

It is sometimes assumed that the liquidation committee of an insolvent Cayman company can do little when it disagrees with decisions by liquidators. A Cayman Islands Grand Court ruling on 11 December 2015 serves as a reminder that this is incorrect. The battle was over whether or not the liquidators should settle claims on terms that the committee considered were inadequate. The committee appointed counsel to make their points to the court and their view prevailed over the liquidators'. The court refused to allow the liquidators to enter into the proposed agreement. Appleby acted for the committee.

The Application

The joint official liquidators of PAC Limited had negotiated a settlement agreement with potential defendants to a claim for US$44 million. The deal needed court approval to become binding under Cayman rules ("sanction" in the language of the Cayman rules). The liquidators were proposing to settle the claim in exchange for a cash payment of US$2.5m, coupled with the waiver of a creditor claim against the company and an agreement that the defendants pursue and finance a separate US$17.49m claim of the company against a third party. The liquidators lacked significant funding and the cash payment barely covered the existing liquidation fees and expenses.

The liquidation committee strongly opposed the settlement agreement and argued that the liquidators should join other proceedings in Lebanon that related to the same US$44 million claim. Initially the committee did not engage Cayman counsel, instead making their objections directly to the court. At that stage the liquidators were able to persuade the court to grant a conditional sanction, but the court suspended the operation of the sanction to give the committee a last chance to make its objections through Cayman counsel.

Appleby were then engaged by the committee and successfully opposed the sanction application on the basis that it would be of no benefit to the stakeholders of the company. A member of the committee also put forward a funding proposal for the liquidators to commence proceedings in Lebanon against the potential defendants.

The liquidators argued that at the time of reaching the settlement agreement, no practical alternative was available to them and that, whilst there was little left for the stakeholders of the company from the cash payment after satisfaction of the liquidation fees and expenses, the principal rationale for the settlement agreement derived from the...