Cayman Islands Court of Appeal confirms liquidation suspends limitation
It is an established principle of insolvency law that the passage of time does not prevent claims which were not statute-barred at the date of insolvency from being proved later during the insolvency, even though the limitation period has in the meantime expired. This principle derives from the English decision of General Rolling Stock.
In Ritchie Capital v Lancelot Investors Fund the Cayman Islands Court of Appeal recently clarified that this principle applies for the purposes of proceedings and the proof of debt process.
The plaintiff obtained leave, after a winding up order was made, to commence claims involving deceit and unlawful means conspiracy. At first instance, the defendants successfully applied to strike out the claim on the basis it was statute-barred. The judge held that it made no sense for the Limitation Act not to apply to actions brought by way of court proceedings simply because a defendant company had been wound up. Nothing in the Limitation Act or Companies Act provided for the suspension of the running of time for claims in tort upon the entry of a defendant company into liquidation.
The Court of Appeal overturned the decision. The rationale of the General Rolling Stock principle is that upon winding up a statutory trust arises under which the assets of the company are to be applied in satisfaction of all liabilities existing at the commencement of the liquidation. The position is the same as a matter of Cayman Islands law. There is no reason why the method of establishing liabilities should be relevant, it is the liabilities themselves which are important.
The apparent conflict between the policy of the Limitation Act and the policy of insolvency legislation should be resolved in favour of the insolvency legislation for the following reasons:
- The relevant provisions of the Limitation Act for actions in tort impose a procedural bar on the promotion of proceedings without affecting the underlying causes of action. However, the insolvency regime imposes a system of rateable distribution that has a practical effect on the substance of the underlying claim through limiting recovery.
- The policy of insolvency legislation already prevails in relation to proofs of debt and it is a small stretch to extent it to general actions. Allowing a proof after the expiry of a limitation period is no more or less consistent than allowing a conventional cause of action.
- It is necessary for the proper operation of the statutory trust resulting from the insolvency legislation that liabilities existing at the relevant date should be included in the statutory scheme whatever the method used to establish them.
This decision resolves the inconsistency that had arisen from the decision below as to how to reconcile the suspension of limitation periods for proofs of debt with the continuation of limitation periods for claims in tort (which could theoretically be included in a proof of debt). The Court of Appeal has confirmed that no such distinction is appropriate.
