Awh Fund Ltd (in Compulsory Liquidation) v Zcm Asset Holding Company (Bermuda) Ltd

• Jurisdiction: Bahamas
• Judge: Allen, P.,Isaacs, J.A.,Crane-Scott, J.A.
• Judgment Date: 16 February 2017
• Neutral Citation: BS 2017 CA 20
• Docket Number: SCCivApp. No. 256 of 2014
• Court: Court of Appeal (Bahamas)
• Date: 16 February 2017

Court of Appeal

Allen, P.; Isaacs, J.A.; Crane-Scott, J.A.

SCCivApp. No. 256 of 2014

Awh Fund Limited (In Compulsory Liquidation)

and

Zcm Asset Holding Company (Bermuda) Limited

Appearances:

Ms. Travette Pyfrom, Counsel for the appellant.

Mr. Brian Simms, QC with Ms. Sophia RolleKapousouzoglou, Counsel for the respondent.

Cobham v. Frett [2001] 1 W.L.R. 1775 considered

Jervis and another v. Skinner [2011] U.K.P.C. 2 (Transcript) considered

In re Morant [1924] 1 Ch. 79 considered

In Re Tucker (a bankrupt) (No. 2) , ex parte the trustee v. Langton Investment SA and Another [1988] 2 All E.R. 339

Re Ultra Motorhomes International Ltd., Oakley v. Ultra Vehicle Design Ltd. (In liq) [2005] E.W.H.C. 872 considered

Civil Practice and Procedure - Delay — Whether the trial judge rendered an inordinate and unjust decision where it took three years to render a decision after the arguments were made but there was nothing disclosed by the appellant to show that the judgment was unsafe — Consideration of Cobham v. Frett [2001] 1 W.L.R. 1775; Jervis and another v. Skinner [2011] U.K.P.C. 2 — Whether the trial judge erred in holding that Order 11, rule 8 (4) of the Rules of the Supreme Court did not apply to the proceedings commenced by petition as the trial judge did not permit service out of jurisdiction of proceedings where the service of the proceedings of persons abroad were permitted with leave of the Court as the proceedings were commenced by originating motion or petition — Appeal allowed.

Company Law - Winding up proceedings — Whether the liquidator's application in Chambers was incorrect where the application should have been a summons where there was nothing from section 160 of the International Business Companies Act specified what procedure should be employed — Whether there was a substantive injustice done — Whether the trial judge erred in holding that the bankruptcy rules applied to the winding-up of companies — Whether the trial judge erred in holding that the liquidator did not disclose an arguable case where the evidence of the liquidator revealed that the payments made constituted a fraudulent preference within the meaning of section 160 of the International Business Companies Act — Consideration of Re Ultra Motorhomes International Ltd., Oakley v. Ultra Vehicle Design Ltd. (in liq.) [2005] E.W.H.C. 872 — Whether the trial judge erred in holding that leave should not have been granted to serve a summons on persons who were not parties to the action — Cross appeal — Whether the trial judge should have provided a test for fraudulent preference under section 72 of the Bankruptcy Act as adopted by section 160 of the International Business Companies Act where this was not an issue with which the judge was concerned given the application before the trial judge — Consideration of In re Morant [1924] 1 Ch 79 — Whether the trial judge should have ruled the Bankruptcy Act was assimilated wholesale into the winding up regime of an international business company — Appeal allowed — Finding that an application by a liquidator of an International Business Company in liquidation for declarations under sections 160 and 161 of the International Business Companies Act is an integral part of winding up proceedings and may be properly be made on an interlocutory application by summons — Finding that the winding up of the company was being conducted under court supervision in accordance with the International Business Companies Act and the applicable rules, and nothing in the International Business Companies Act or the rules which precluded or presented the liquidation from seeking the orders sought from the winding up court — Cross appeal dismissed — Finding that the test for fraudulent preference was not before the Court — Finding that the trial judge was not obliged to rule the Bankruptcy Act was assimilated wholesale into the winding up regime of an international business company — Finding that the International Business Companies Act did not expressly apply the Bankruptcy Act and Rules to any other aspect of the winding up companies than those matters to which section 154 related — Finding that nothing in the International Business Companies Act which expressly precluded the liquidator seeking to carry out his duties under the International Business Companies Act from approaching the winding up court for assistance in identifying, taking into his custody or under his control, all the property, effects and things in action to which the company is or appears to be entitled — Rules 100 and 101 of the Companies Winding-up Rules — Section 6 (2) of the Companies Winding Up Rules — Section 72 of the Bankruptcy Act

Facts

The appellant is a mutual fund company, incorporated in The Bahamas, pursuant to the International Business Company Act (IBC). The respondent is a company, incorporated under the laws of Bermuda. Occasionally, the respondent acted in the capacity of sub-custodian on behalf of Zurich Bank (Zurich) with respect to certain custody agreements entered into between Zurich and various counterparties. Zurich entered into a Custody Agreement with American Express Offshore Alternative Investment Fund (AMEX) whereby AMEX transferred shares in the appellant company previously purchased and held by AMEX to Zurich as custodian or to the respondent as sub-custodian. Thereafter, additional shares in the appellant company were acquired. In the early part of 2002 the respondent requested a redemption of all shares in the appellant company; the request was approved and in July 2002 the sum of $13,148,013.01 (the payment) was paid to the respondent. However, in October 2002 two of the appellant's creditors petitioned the court to have it wound up. As a result the appellant company was put in compulsory liquidation. Following the Order to wind up the company the liquidator sought, and was granted, leave to serve a Summons, out of the jurisdiction, on the respondent. The Summons sought: 1. a declaration that the payment was an undue or fraudulent preference, and invalid and 2. a declaration that the former directors of the company are guilty of misfeasance and/or breach of trust in relation to the company in making or permitting the payment. The Registrar granted leave for the Summons to be served out of the jurisdiction, however, the Registrar's order was set aside by a judge of the Supreme Court. It is as a result of that setting aside that the present appeal was filed.

Held:

Appeal allowed; respondent's Notice dismissed. Costs of the appeal and in the court below are the appellant's, to be taxed if not otherwise agreed.

Pursuant to section 107 of the IBC Act, a liquidator of a company in liquidation is obliged to assist the court in the winding up of the company by taking into custody, or under his control, all the property, effects and things in action to which the company is or appears to be entitled, and shall perform such duties in reference to the winding up as may be imposed by the court.

In the present case, the Liquidator, during the course of his performance of the aforementioned functions, discovered the payment. The winding up of the appellant company was being conducted under court supervision in accordance with the IBC Act and the applicable rules. There is, in our view, nothing in the Act or the rules which precluded or prevented the Liquidator from seeking the orders he sought from the winding up court. Further, on its face, the Summons was filed within the winding-up proceedings and is, therefore, ostensibly interlocutory in nature. The Summons clearly does not commence, or purport to commence, a separate cause of action.

As such, the Court was satisfied that the effort by the Liquidator was integral to his statutory duty under section 107, aforementioned. In the premises, as the winding-up proceedings could have been served out of the jurisdiction it would be permissible, with leave of the court, for the Summons to be served out of the jurisdiction.

This a judgment to which all members of the panel have contributed:

INTRODUCTION:

1 This is an appeal from the written judgment of Bain, J. (the Judge), handed down on 14 November, 2013 setting aside an ex parte Order made by the Registrar of the Supreme Court on 27 June, 2008 granting leave to the Liquidator of the appellant company to serve the respondent out of the jurisdiction with an Amended Summons (“the Summons”).

2 The Summons sought a declaration that a payment of US$13,148,013.01 made to ZCM Asset Holding Company (Bermuda) Limited (the respondent) by the appellant company approximately 2 months prior to the winding-up proceedings in October 2002 was an undue or fraudulent preference, and invalid within the meaning of section 160 of the International Business Companies Act, 2000 (“the IBC Act”).

3 The Summons also sought a declaration that the former directors of the company are guilty of misfeasance and/or breach of trust in relation to the company in making or permitting the said payment in breach of section 161 of the IBC Act; and orders that the respondent, and former directors, do jointly and severally pay the said sum to the company together with costs.

4 At paragraphs 5 and 6 of the affidavit of Alan Bates filed 26 June 2008 in support of the ex parte application for leave to serve the Summons on the respondent out of the jurisdiction, the Liquidator stated:

• “5. I have discovered that on 24 July 2002, approximately 2 months before the commencement of its liquidation, the company made a redemption payment in the amount of US$13,148,013.01 to one of its investors, ZCM Asset Holding Company (Bermuda) Limited (“ZCM”).

• 6. I am advised by my Attorneys and verily believe that pursuant to section 160 of the IBC Act, the payment to ZCM is deemed to have been an undue and/or fraudulent preference payment and therefore invalid. I am further advised and verily believe...