Sanctioning Ownership: The Grand Court Of The Cayman Islands Confirms The Broad Scope Of Its Sanction Jurisdiction

• Law Firm: Ogier
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, Corporate and Company Law, Arbitration & Dispute Resolution, Shareholders
• Author: Ms Gemma Lardner, Jeremy Snead and Corey Byrne
• Published date: 06 January 2023

Introduction

In the recent decision of Re Ascentra Holdings Inc.(in Official Liquidation), the Grand Court of the Cayman Islands has once again confirmed the significant scope of its sanction jurisdiction in the context of official liquidations under section 110(2) of the Companies Act.

Re Ascentra Holdings Inc.(in Official Liquidation) (Ascentra) follows the decision in Re Polarcus Limited ¹ and a line of recent cases that illustrate the breadth of the Grand Court's jurisdiction to sanction the conduct of official liquidators. In Ascentra, Justice Doyle concluded that the liquidation sanction regime allows the Court to make orders that resolve contested questions relating to the ownership of company assets without requiring the official liquidator to commence separate proceedings to determine those rights.

Facts

The joint official liquidators (JOLs) of Ascentra Holdings Inc. (the Company) sought orders and directions under section 110(2) of the Companies Act (the Act) to authorise their ability to treat approximately US$11 million in funds held by a bank as an unencumbered asset of the Company (the Funds). A third party, Peng Gao Ke, Inc. SEZC (SPGK), resisted the application as, on the proper construction of a Deed of Mutual Release (the Deed), it argued it had a proprietary interest in the Funds.

SPGK asserted that the sanction jurisdiction was not the appropriate place to determine contested questions of beneficial ownership which would affect it as a third party to the liquidation. Instead, SPGK submitted that the JOLs' application should be dismissed and the dispute should progress as a separate inter partes proceeding involving pleadings, discovery and cross-examination.

Scope of the Cayman Islands' sanction jurisdiction

Although the Act is silent as to whether an official liquidator can make an application for directions, ² recent decisions of the Grand Court confirm that an application for sanction orders under section 110(2) is effectively treated as an application for directions in the Cayman Islands. ³

In the ordinary case, sanction applications are brought to provide a liquidator with approval or directions (either permissive or prescriptive) on the manner in which they should exercise certain reserved powers. Having the sanction of the Court generally protects the liquidator from a claim for breach of duty in relation to their use of those powers. However, in determining the proper exercise of powers, the Court may need to consider questions...