The Grand Court has ordered Abraaj Holdings founder Arif Naqvi to pay his own costs for a recent hearing in Cayman regarding his troubled company’s ongoing attempts to restructure.
Abraaj Holdings is a major part of the Abraaj Group, which was once the largest private equity firm in the Middle East. However, the firm allegedly owes creditors some US$1 billion and has been accused of misusing hundreds of millions of dollars, including funds from the Bill & Melinda Gates Foundation and the World Bank’s International Finance Corporation.
Abraaj has been under provisional liquidation since June, which the firm says allows it to restructure its debt, protect the rights of all stakeholders, and continue its day-to-day operations with minimum impact. However, a hearing took place in November at the Grand Court, where Abraaj’s largest creditor, Kuwait’s Public Institution for Social Security, argued that the company should be wound up and liquidated.
At the hearing, the Public Institution for Social Security argued that Abraaj Holdings is insolvent and that there are no prospects for restructuring the company.
Representatives for Abraaj’s provisional liquidator, PricewaterhouseCoopers, responded that they “have sympathy” for the Kuwaiti creditor’s position, but that the best approach for the company is to extend the restructuring process.
Mr. Naqvi also thought that the restructuring should continue, and later argued that the Public Institution for Social Security presented a distorted view of how the restructuring was proceeding, based on out-of-date quotations from cases that have since been superseded.
Grand Court Justice Robin McMillan sided with the provisional liquidator and Mr. Naqvi, ruling that the restructuring should continue for at least another three months and that Abraaj should have more time to sell its assets in an attempt to continue operations.
Justice McMillan ruled that the Public Institution for Social Security “failed to establish or even identify any immediate tangible benefit to be derived from an official liquidation, as distinct from the very wide ranging scope of the provisional arrangements already in place.”
After Justice McMillan made his decision, Mr. Naqvi and Abraaj creditor and liquidation-committee member Abudulhameed Jafar applied to have their costs paid for.
Mr. Naqvi argued that the Public Institution for Social Security’s petition to wind up Abraaj was unreasonable for multiple reasons, including that it was made against the wishes of other creditors. Mr. Jafar also argued that the court hearing would not have been necessary if the Kuwaiti creditor had not opposed continuing the restructuring.
The Public Institution for Social Security opposed Mr. Naqvi and Mr. Jafar’s application for costs.
“The position of [the Public Institution for Social Security] was not unreasonable. The question whether the provisional liquidation should be continued was one on which different creditors could reasonably take different views,” the Kuwaiti creditor argued. “In saying that the Company should be placed into official liquidation, PIFSS was advocating the course that it considered would benefit the body of the Company’s creditor as a whole: it was not seeking to gain for itself some illegitimate sectional advantage.”
PricewaterhouseCoopers sided with the Public Institution for Social Security, submitting that the court should not order the creditor to pay the costs of the hearing. The provisional liquidator said it did not find the creditor’s opposition to continuing the restructuring to be unreasonable, and that the court hearing was necessary regardless of whether there was any opposition by creditors.
The Grand Court sided with the creditor and the provisional liquidator.
“In matters of so complex a nature the Court must be fully receptive to weighing such arguments as a relevant party may wish to put forward. To impose upon an unsuccessful creditor a costs order where its arguments have failed in these circumstances could be perceived as limiting or discouraging the expression of entirely legitimate differences of opinion,” Justice McMillan stated. “Accordingly, Mr. Naqvi and Mr. Jafar must bear their own costs of the hearing.”
Mr. McMillan also stated that he was not satisfied that Mr. Naqvi was even a party to the case, as he was not a creditor and has no interest in the economic outcome of the liquidation.