Court rejects voluntary liquidation for Caledonian

The Grand Court of the Cayman Islands has rejected an attempt by the shareholder of Caledonian to put the bank into voluntary liquidation and upheld the appointment by the Cayman Islands Monetary Authority of a controller for Caledonian Bank Ltd. and Caledonian Securities Ltd.  

In a judgment handed down Thursday, Chief Justice Anthony Smellie confirmed the power of CIMA to appoint a controller under Section 18 of the Banks and Trust Companies Law. 

He found that the appointment of the joint voluntary liquidators was a “brutum fulmen” or a blank shot, having no effect in law over the affairs of the bank, CIMA said in a statement.  

Law firm Maples and Calder had brought an application on behalf of the joint voluntary liquidators appointed by the sole shareholder of Caledonian Bank to bring the voluntary liquidation under their supervision.  

The Grand Court ruling means that the appointment of the controller by CIMA vests immediate control of the bank’s affairs in the controller, CIMA said. The controller will report the initial findings on the status of the entities to both CIMA and the court, and the authority will then be in a position to determine what further action to take in the interest of the relevant stakeholders, the authority added. 

Last week, the SEC sued Caledonian Bank and Caledonian Securities and three offshore brokers in Belize and Panama for U.S. Securities Law violations in connection with the sale of unregistered, restricted shares to the public. The shares were part of a sham stock offering and penny stock pump and dump frauds, the SEC alleges.  

On Tuesday, CIMA placed Caledonian under the control of Keiran Hutchison and Claire Loebell of Ernst & Young. According to a statement released by EY on Thursday, until the Grand Court and CIMA determine what further action will be taken, “the operation of all services to the customers and clients of [Caledonian Bank] remains suspended.”  

The decision by the owners of Caledonian to put the company into voluntary liquidation was first revealed in a Wednesday court filing in the U.S. District Court for the Southern District of New York.  

A letter by Caledonian’s legal counsel to the U.S. court stated: “[F]ollowing actions by the bank’s regulator, the Cayman Islands Monetary Authority (“CIMA”), we were informed that the shareholder of the bank had voted to place the bank into voluntary liquidation.” 

Caledonian’s lawyers had originally planned to make an emergency application seeking a reduction in the amounts Caledonian is required to hold in its U.S. brokerage and other bank accounts following a restraining order.  

The modified restraining order granted on Feb. 9 effectively freezes $76.68 million of the bank’s assets in the U.S. The order requires Caledonian to maintain a minimum balance of $66.68 million in its brokerage account at Morgan Stanley in New York and a minimum $10 million in a segregated account with Northern Trust in New Jersey. 

U.S. District Court Judge William Pauley found that the SEC has supplied sufficient evidence to suggest that the Commission “is likely to prevail on the merits in proving” that the defendants have directly or indirectly engaged in violations of Section 5 of the Securities Act. 

There is good cause to believe that, unless restrained and enjoined by a court order, the defendants were likely to conceal or transfer assets from the U.S. which could later be subject to any disgorgement or civil penalties levied against the defendants, the order said. 

Following the decision to put Caledonian into liquidation, the bank’s lawyers halted their efforts to have the asset freeze eased. 

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