Cayman Court clarifies basis for Court appointed receivers
In the long running litigation concerning The Port Fund (the Partnership), a Cayman Islands exempted limited partnership, the Cayman Grand Court recently clarified the principles concerning applications for approval of court appointed receivers’ remuneration and expenses in the absence of any formal rules or process.
Two of the Partnership’s limited partners (the LPs) applied for the appointment of receivers in respect of the Partnership’s own assets and those of its general partner (the GP) for the purpose of ensuring the GP defended other Cayman proceedings commenced by the LPs.
In summary, the appointment order provided that the Receivers shall be indemnified for their remuneration and expenses out of the assets of the GP and the Partnership, subject to periodic approval by the Court.
Post-appointment, the LPs agreed to fund the receivership, with the funding agreement limiting the LPs’ liability to pay the Receivers’ remuneration discounted by 10 per cent.
Subsequently, the Receivers sought the Court’s approval for their remuneration. The Court, in considering the application, approved the principles as laid down by Justice Segal in Perry v Lopag Trust Reg.
The Court summarised those principles as being:
- the rules and practice relating to approving liquidators’ remuneration should generally be followed in relation to receivers as they will generally serve as a useful guide;
- the approach to what is fair and reasonable should balance the need to attract competent persons to professional receivership work with the need to ensure efficiency and economy in receiverships;
- what is fair and reasonable remuneration will be informed by, inter alia, the level of complexity of the work performed, the appropriate assignment of tasks to staff of different seniority levels and the proportionality of the fees relative to the value of the assets under management; and
- it is appropriate to demonstrate an entitlement to the remuneration in relation to which approval is sought.
Whilst there was no obligation to consult with and seek approval from a committee (because one did not exist given the non-application of the Companies Winding Up Rules, unlike the usual position for a liquidation), the Court still expected the underlying information concerning the Receivers’ remuneration to be provided to the stakeholders and afforded an opportunity to “identify eyebrow-raising billing trends…”. This was done and no eyebrows were raised.
Ultimately, the Court held that the material provided by the Receivers demonstrated that the fees and expenses incurred were fair and reasonable and proportionate “viewed in light of the complexity and monetary scale of the Receivership overall” and approved the Receivers’ remuneration. This included a declaration that the Receivers could look to the GP’s assets to recover the discounted 10 per cent of its remuneration.
