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Law Firm Urges 'Clarification' On $13m Judgment

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamian law requires further “clarification” following the Privy Council verdict that allowed a liquidator to serve a $13.148m “claw back” claim outside this nation, it was argued yesterday.

Attorneys for ZCM Asset Holding Company (Bermuda) Ltd, whose resistance to being served was finally defeated at the highest court in the judicial system, said the ruling’s effect is to enable the Bahamian courts to exercise “extraterritorial” authority over insolvency claims even though this is not provided for by statute law.

Lennox Paton, in a statement, said the Privy Council had “painstakingly wove a needle” through multiple different procedures to enable the liquidator of a Bahamas-based investment fund to serve legal proceedings on their client in a bid to “claw back” a “voidable or fraudulent preference” it had allegedly received.

The law firm, whose senior partner, Brian Simms QC, and Sophia Rolle-Kapousouzglou, represented ZCM, argued that one effect of the verdict was to provide International Business Company (IBC) liquidators with a “claw back” provision that their Companies Act counterparts do not have.

In a statement pointing out this discrepancy, Lennox Paton said the Companies Liquidation Rules 2012 do not allow claims to be served outside The Bahamas - something that was not addressed by the Privy Council.

Noting that the newly-appointed Chief Justice, Brian Moree QC, had appointed a committee to address the “long out-of-date Bahamian Court rules”, Lennox Paton voiced hope that the effort would also clarify the procedures dealing with insolvency/liquidation claims.

It added that the Privy Council’s verdict appeared to be based on a “universalism” approach, meaning that the same “claw back” procedures should apply throughout the world, with the ruling often referring to statute law in then UK.

“The judgment raises important issues of international cross-border jurisprudence as well as issues for the Bahamian legislature concerning the jurisdictional reach of claw back claims in winding up proceedings,” Lennox Paton said.

“The effect of the judgment is that although The Bahamas does not have express statutory provisions governing the jurisdictional scope of claw back claims, nonetheless a liquidator may (with leave of the court) serve an interlocutory summons within the Bahamian winding up proceedings under Order 11 Rule 8(4) of the Rules of the Supreme Court on a party outside the jurisdiction if the alleged fraudulent preference was paid within three months of the commencement of the company’s liquidation.”

This was despite the Supreme Court’s rules against the service of claims outside The Bahamas in the case of bankruptcies and company winding-ups. “In order to reach its determination the [Privy Council] painstakingly wove a needle through the difficult procedural landscape and determined that Order 11 rule 8 (4), which provides that an interlocutory summons can be served out of the jurisdiction, applied in existing winding-up proceedings,” Lennox Paton added.

“The Privy Council also held that the Companies (Winding Up Rules) (now repealed) did not apply to the winding up of an IBC Act company. The Companies Liquidation Rules 2012 do not provide for service of a claim out of the jurisdiction, and the [Privy Council] did not address this lacuna in the law relating to these Companies Act companies as the issue was not before them.

“As a consequence, on their Lordships’ reasoning it would appear that in so far as the Rules are disapplied in relation to Companies Act companies it might successfully be argued that a claw back claim in the liquidation of a Companies Act company cannot be served out of the jurisdiction, whereas a claw back claim in the liquidation of an IBC Act company can.”

By ruling that Bahamian courts can reach outside this jurisdiction on insolvency claims, even though this is not expressly provided for in statute law, Lennox Paton suggested that the Privy Council had effectively made “a policy choice... which has not been expressly endorsed by (and was not necessarily the intention of) the Bahamian” parliament.

It added: “The new Chief Justice of the Bahamas has recently appointed a committee tasked with updating the long out-of-date Bahamian Court rules. It is hoped that the committee’s recommendations will go a long way towards clarifying and, where appropriate, rectifying the procedural rules applicable to claims.

“If the committee recommends a universalist approach it will be for the Bahamian legislature to make it clear in any subsequent legislation whether it approves of universalism or not. Either way, clarification and rectification will be welcome in order to avoid further appeals to the Privy Council.”

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