The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Cayman bank’s liquidators cannot collect on almost $17 million in Bahamas-based assets because this nation’s regime for assisting international cross-border insolvencies is incomplete.

Acting Justice Brian Moree, in a February 9 ruling, found that the Supreme Court was unable to recognise the liquidators for Caledonian Bank due to the fact that the Bahamas has yet to determine which countries can receive such assistance.

Although the Companies Act Winding-Up Amendment Act 2011 was passed into law, the Liquidation Rules Committee has yet to designate which nations are to be listed as ‘relevant foreign countries’ and qualify for assistance from the Bahamian courts.

As a result, Acting Justice Moree ruled that Caledonian Bank’s two liquidators, Keiran Hutchison and Claire Loebell, could not be recognised under the 2011 Act.

And he found that the other avenue for recognising and assisting the Ernst & Young (Cayman) duo, common law, was blocked off by Parliament’s passage of the same Act.

The implications of Acting Justice Moree’s ruling are that the Bahamas needs to quickly complete, and give full effect to, its new insolvency regime.

Perception is everything in financial services, and the Bahamas could get ‘a name’ for seemingly being uncooperative in assisting international cross-border insolvency cases - especially if courts in other countries have been more amenable.

Acting Justice Moree’s judgment noted that Caledonian Bank’s Cayman proceedings have already been recognised by courts in the UK, Australia, the US and Ireland.

The Caledonian Bank liquidation is also a high-profile case that has attracted much media scrutiny, given that its route to insolvency was sparked by a Securities & Exchange Commission (SEC) lawsuit.

Acting Justice Moree said the SEC’s February 6, 2015, lawsuit against Caledonian Bank sparked a ‘run’ by depositors who, having lost confidence in the institution, sought to quickly withdraw their funds.

The bank was placed into court-supervised liquidation in the Cayman Islands, and the liquidators’ attention was subsequently drawn to the Bahamas by the loans it had made within this jurisdiction.

As an example, Acting Justice Moree said Caledonian Bank had made loan in December 2012 to Tower Coral Investment Ltd, a Bahamian company, which was secured by a mortgage over Apartment P.23 in The Towers of Cable Beach complex.

Tower Coral’s shares were pledged to Caledonian Bank as further security but, by March 2015, the company had sold the mortgaged property and sought to pay off the loan.

Some $240,215 was due to Caledonian Bank as of February 24, 2015, but it had been placed into liquidation one month before Tower Coral sought to pay off the mortgage.

As a result, Lennox Paton, the Bahamian law firm acting for the Caledonian Bank liquidators, filed a petition with the Supreme Court on June 9, 2015, seeking recognition for them in the Bahamas under the 2011 Act.

“According to the amended petition, the company [Caledonian Bank] has other outstanding loans within the jurisdiction of the Commonwealth of the Bahamas with other borrowers valued at approximately $16.437 million,” Acting Justice Moree wrote.

“The clear purpose of these proceedings is to facilitate actions by the Cayman liquidators in this jurisdiction to collect monies and/or to take possession of property belonging to the company as part of the liquidation process taking place in the Cayman Islands.”

Turning to the law, Acting Justice Moree said co-operation on international insolvency cases could only be given to ‘judicial or administrative proceedings in a relevant foreign country’ under the 2011 Act.

In turn, a ‘relevant foreign country’ has to be designated as such by rules set by the Liquidation Rules Committee.

Referring to Sophia Rolle-Kapousouzoglou, the attorney for the Caledonian Bank liquidators, Acting Justice Moree said: “Counsel for Caledonian Bank accepts that, to-date, no country, territory or jurisdiction has been so designated.

“This raises the immediate question as to whether the Cayman proceedings can properly be regarded as ‘a foreign proceeding’ under section 254(1) of the Bahamian Act in view of the fact that the Cayman Islands (and, for that matter, no other country), has been designated a ‘relevant foreign country’.”

Acting Justice Moree concluded that the 2011 Act’s provisions for statutory recognition, and assistance, were unavailable to the Caledonian Bank liquidators for that very reason.

However, Mrs Rolle-Kapousouzoglou argued that even if this was correct, the Supreme Court still had the “general common law power to assist a liquidator in foreign liquidation proceedings”.

She based this on the principle of ‘modified universalism’, which recognises that all creditors should be treated fairly and equally, and not gain an advantage because they - or the assets in question - are located in a particular jurisdiction.

Acting Justice Moree, in accepting this principle, also acknowledged that it was not restricted to a particular country or territory - as the Bahamas’ 2011 Act attempts to do.

“However, the critical question in this case is did the common law power to grant recognition and assistance to foreign office-holders (whether or not they are foreign representatives as defined in section 253 of the Bahamian Act) in insolvencies with an international element survive the enactment of the statutory scheme in Part VIIA?” he asked.

“Put another way, does the court in the Bahamas have the power under the common law to grant the petitioners the relief sought in the amended petition (or similar relief) in circumstances where such relief is not available under section 254 of the Bahamian Act?”

Mrs Rolle-Kapousouzoglou argued that there had “been no express or implied repeal” of common law principles by the 2011 Act.

“She contends that Parliament could not have intended to wholly prevent access to the Bahamian court by a foreign liquidator for international co-operation in the absence of the Liquidation Rules Committee designating any country or jurisdiction a ‘relevant foreign country’,” Acting Justice Moree said.

“She submits that the common law principle relating to international co-operation in insolvency matters has been ‘... available for at least 100 years ... ‘ and its repeal would have required either express language in Part VIIA or a clear and unqualified intention to do so.”

Acting Justice Moree said the real issue was whether ‘the open gate’ of access to recognition and assistance under common law had survived the 2011 Act’s passage, and its ‘relevant foreign country’ restrictions.

Praising Mrs Rolle-Kapousouzoglou’s arguments, Acting Justice Moree concluded: “I am not persuaded that there exists today in this jurisdiction a parallel common law route” for foreign liquidators to obtain recognition and assistance from the Supreme Court outside the 2011 Act’s process.

He explained that the 2011 Act overrode common law, limiting its application to liquidators who were not from designated ‘relevant foreign countries’.

Ignoring this, Acting Justice Moree added, would be “tantamount to ignoring the legislative intervention of Parliament” and defeat its policy, which was to restrict the provision of assistance in cross-border insolvency cases.

“I have concluded that since the coming into force of Part VIIA, it is no longer open to the court to recognise and grant assistance to foreign insolvency proceedings on the basis of the common law principle of modified universalism in cases which fall outside the provisions of sections 25 3- 255 of the Bahamian Act,” he ruled.

Acting Justice Moree described the Liquidation Rules Committee as the “new gatekeeper” to the provision of court assistance for foreign liquidators, and found that the Supreme Court was not able to “usurp” its functions.