Paradigm Holdings Limited, the parent company of a conglomerate that sold wine and wine futures, was put into official liquidation in Grand Court last Tuesday.
Chris Johnson and Russell Smith were appointed joint official liquidators by Justice Alexander Henderson after he dismissed a cross summons that sought to prevent the liquidation.
Justice Henderson also authorised the joint official liquidators to sell the wine the company had in inventory in Switzerland.
Paradigm’ sole shareholder is Robert Middlemiss, an Australian national.
The company had two subsidiaries here, Architects of Wine and A.V.E. International Ltd., as well as several other related companies in other jurisdictions.
Mr. Johnson said many of the buyers of the wine contracts were physicians in the United States, and that some had experienced extreme hardships as a result of their investments with Paradigm’s subsidiaries.
One of the key issues raised at the hearing was whether the Paradigm was selling a commodity or securities.
Paradigm was put into provisional liquidation on 12 October 2004.
Attorney Peter Broadhurst, represented Mr. Johnson in the petition to liquidate, which was supported by three other creditors.
He argued that Paradigm sold, through its subsidiaries, wine as an investment.
‘Yes, they sold commodities, but they were selling them in a way that makes them securities,’ he said.
Mr. Broadhurst noted in his closing submissions on 20 July that Mr. Middlemiss was not licensed to sell securities.
‘The problem with the Middlemiss scenario is that he is selling investment contracts to American citizens, resident in the United States, from the Cayman Islands without a licence,’ Mr. Broadhurst asserted. ‘He is in violation of the Securities Investment Business Law of the Cayman Islands.’
Mr. Middlemiss had argued that his customers were buying physical commodities, a claim Mr. Broadhurst rejected.
‘The statement that the customer is buying wine for his own consumption is simply not credible,’ he said. ‘The customer is unsophisticated; he has no control over his investment, which enables him to sell wine in quantity, and he cannot consume in his lifetime the wine he has committed to purchase.
‘To suggest that the customer is entering into this programme as a wine aficionado, as opposed to an investor, is not supported by the facts, the documentation, or the communications from these people.’
Mr. Broadhurst pointed out that purchasers of the wine were never intended to actually take possession of the product.
‘Middlemiss is not dealing in goods,’ Mr. Broadhurst said, ‘he is dealing with investment contracts.
‘His wording is carefully contrived in the contractual instruments produced to suggest that it is simply a purchase of commodities, but in fact the only purpose for a purchaser to buy a wine futures contract is to realise a profit on investment.’
Mr. Broadhurst asserted that because Mr. Middlemiss was selling securities without a licence, he was in violation of the Securities Investment Business Law of the Cayman Islands.
He pointed out that several U.S. states had already ruled Architects of Wine were selling unregistered securities.
Mr. Johnson said the wine would be sold to help fund the liquidation process.
Some of the wine inventory which is stored in Switzerland is reported to be oxidizing.
It was also suggested by Mr. Broadhurst that the some of the wine sold may have been of only average or below average quality in the first place.