Sanction Applications: Balancing The Views Of Office Holders And Creditors

• Published date: 22 June 2020
• Author: Ms Gemma Lardner and Nour Khaleq
• Subject Matter: Finance and Banking, Wealth Management, Financial Services, Fund Management/ REITs, Wealth & Asset Management
• Law Firm: Ogier

In an application by Joint Official Liquidators for sanction of an agreement to sell the assets of a Company over the objections of creditors, the Court has confirmed the importance of establishing a clear and transparent sale process, which enjoys the confidence of the interested parties, in order to establish that the sale agreement is in the best interests of creditors.

Background

The joint official liquidators (the "JOLs") of Pacific Harbor Asia Fund I, Ltd (In Official Liquidation) (the "Company") sought the sanction of the Court to cause the Company to enter into a Purchase and Sale Deed in respect of the sale of all of the Company's non-cash assets to Muldoon Associates Limited, an affiliate of Stonehill Capital Management, LLC (referred to in the judgment as "Stonehill").

The Company was a feeder fund to Pacific Harbor Asia Master Fund (Cayman) L.P. (the "Master Fund"), a closed-ended investment vehicle for its two limited partners, the Company and Pacific Harbor LP. The Company's main asset is its 77% partnership interest in the Master Fund.

The JOLs' application for sanction was opposed by the majority of the Company's creditors on the grounds that, in their view, the proposed sale agreement was not in the best interests of the creditors. The creditors further argued that Stonehill had been selected as the successful bidder following a flawed sale process where, among other things:

• there was no clear start date for the bidding process, such that the Liquidation Committee and at least one of the bidders did not know that a bidding process was underway before 31 January 2020;
  
• the JOLs requested best and final bids 3 working days after the parties were informed of the existence of the bidding process on 31 January 2020; and
  
• there was a dispute as to whether parties were provided with the same information in the course of the bidding process.

The Court had to balance these concerns against the fact that the proceeds of the proposed sale could have provided a means by which the JOLs and their advisers could be remunerated, in circumstances where the official liquidation had been unfunded since 2017 and thus the JOLs and their external advisers remained unpaid. As at 31 March 2020, the unpaid liquidation expenses amounted to in excess of US$4 million.

The Issues

In making its decision, the Court reviewed the well-established authorities on the Court's jurisdiction to sanction the conduct of liquidators' powers and asked whether, independently of...