The Court of Appeal set aside the Grand Court order putting Indies Suites Ltd. into liquidation Friday, in a landmark decision that will affect the way provisional liquidations are pursued hereafter in the Cayman Islands.
Court president Justice Edward Zacca said a written ruling would be delivered in the future, but he made some comments on the Court’s reasoning.
‘We have held that where there is a claim for unliquidated damages, there must be a judgement of the Court that turns the claim into a debt before you can petition,’ he said.
Ronnie Foster, an owner of Brac Construction Ltd., the sole shareholder of Indies Suites Ltd., said afterwards the decision will allow for a reasonable settlement with Indies Suites club members.
‘This thing could have been resolved already,’ he said. ‘The only way liquidators can make money is by stretching the thing out. I really feel like this was a victory for the club members.’
The appeal swung on the authority of the 1877 Pen Y Van case in the UK.
QC Ramon Alberga, representing Brac Construction Ltd. on the instructions of attorney Waide DaCosta, argued that the current Cayman law with regard to who can petition for a company’s liquidation is as it was in England in 1862. The Pen Y Van case proved to be the most recent case on point.
Mr. Alberga argued that the petitioners, who were club members of Indies Suites, had no standing to bring the petition because they were not yet creditors until they actually made a demand on the company and obtained a judgement.
Attorney Alan Turner, who represented the petitioners, argued the Pen Y Van case should not be binding on the Court of Appeal, and that it should not be followed.
He noted that the Grand Court had taken a more practical approach when presented with the Pen Y Van case.
He also stated that many provisional liquidations are made in Cayman based on unliquidated claims, but he did not provide the Court with any authorities on point to back the assertion.
Mr. Alberga pointed out that Cayman had many opportunities to move away from the 1862 English law, and that the English law itself was amended in 1907 to broaden the scope of who could bring a liquidation petition, but that Cayman never followed suit.
Mr. Alberga argued Cayman legislators must have wanted it that way.
‘One has to assume it was an active decision not to alter that section of the Companies Law,’ he said afterwards.
Mr. Turner thinks the law was unintentionally kept that way.
That question proved moot to the Court of Appeal.
‘The Legislation is the law of the land, and it is our duty to apply that law,’ said Justice Martin Taylor during the proceedings.
The Court of Appeal refused a request by Mr. Turner to amend the petition to seek restitution for breech of contract instead of damages, but left the door open for club members to bring a new petition after gaining standing.
The Court ordered the $1.538 million it held to remain with the court to await the outcome of any new petition brought within 30 days.
The issue of who would pay the approximately $147,000 in liquidator’s costs and petitioner’s attorney’s fees was also argued.
Mr. Turner maintained the liquidator’s fees should be paid by Indies Suites Ltd. because the Grand Court appointed the provisional liquidator as an officer of that company.
Mr. Alberga said that since Court of Appeal had decided that the company had been put into provisional liquidation in error, the petitioners should pay the liquidation costs along with the 177 parties that had supported the petition.
The Court left the ruling of the Grand Court stand, but Mr. DaCosta indicated that decision would be appealed.
‘This isn’t over by any stretch of the imagination,’ he said.
Mr. Alberga accused the Mr. Turner of ‘stubbornness’ in pursuing the petitioner’s case, even though a letter had been written to Mr. Turner in June citing the Pen Y Van case and warning him the petitioner had no standing.
‘The action by the creditors was a knee-jerk reaction,’ he said. ‘It was misconceived and wholly unacceptable.’
Mr. Alberga maintained liquidators need not have been involved, and that they only diminished the assets available for distribution to the club members.
Mr. DaCosta said he believed provisional liquidators were appointed too easily in the Cayman Islands.
‘The winding of a company should be a remedy of last resort,’ he said. ‘There are other avenues that are available for prospective creditors.’
Mr. DaCosta praised the ruling of the Court of Appeal
‘That’s why I admire this Court of Appeal,’ he said. ‘They’re not afraid to make the hard decisions.’
Mr. Turner said afterwards he expected to receive further instructions from the petitioners within days and made a prediction:
‘The timeshare owners will accept the invitation of the Court of Appeal to proceed anew, and they will pursue their claims vigorously despite opposition from Indies/Brac.’
Ronnie Foster, however, predicted a different outcome.
‘I think now the response (of the club members) will be different with the results of this case,’ he said, adding that he wanted to set up a proper creditors’ scheme for the club members.