In a recent important decision of the Grand Court of the Cayman Islands, the Court ruled on the test applicable for interim distribution of liquidation estate assets where a proprietary claim is being litigated against the estate. The ruling is the latest in a long line of decisions related to the Saad litigation which are shaping the legal landscape in the Cayman Islands.
An application was made on behalf of the Joint Official Liquidators (JOLs) of Saad Investments Company Limited (in official liquidation) (SICL) for an interim payment of dividends pursuant to the Companies Law (2018 Revision) and the Companies Winding Up Rules. The JOLs sought Court sanction to make the distributions to creditors, subject to indemnities provided by those creditors, and notwithstanding the fact that AHAB’s proprietary claims over SICL’s assets (and the assets of the other defendants in the matter at large) are yet to be determined.
The JOLs had been permitted to pay the costs of defending AHAB’s claim throughout the year long hearing in the Grand Court and up to the determination of the appeal (in which a decision is awaited) but were not permitted to make distributions to creditors. In this application, the JOLs proposed that any creditor who wished to receive a dividend would enter into an undertaking to secure the value of such payment by means of a bond from a financial institution with a credit rating of A- or greater.
The test applied by the Chief Justice was that set out in the English Court of Appeal decision in Re Edennote Ltd, that the Court should ordinarily respect the commercial decision of the liquidator, unless the course of action is “so utterly unreasonable and absurd that no reasonable person would have done it”. The Chief Justice accepted that this was not the case in this application.
The Court considered the practicalities of a scenario where AHAB’s claim may take years ultimately to be determined and where AHAB’s claims at first instance had failed – whatever the outcome in the Court of Appeal, the matter would likely include an outing in the Privy Council. These considerations led him to find that “in no sense then can it be said that the JOLs’ proposal is unreasonable, let alone so patently absurd such as to justify, in keeping with settled case law, refusal of the Court’s sanction.”