The Cayman Islands Grand Court has rejected an application that two wound-up companies be restored to the public register because the declarations of solvency that were necessary for their voluntary liquidation had been fraudulent.
In 2017, Harvey Boulter, the director of Porton Capital Inc and Porton Capital Limited, signed declarations that the companies would be able to pay their debt in full. He added in two letters to the voluntary liquidators that the companies had no assets and liabilities and no contingent liabilities or unrecognised claims.
The petitioner, Enigma Diagnostics Ltd, claimed that Boulter had made fraudulent misrepresentations and breached his fiduciary duties to the companies in the process that led to their dissolution.
Boulter admitted signing the documents but denied fraud, stating that the representations amounted to an expression of his opinion.
Porton Capital was a Cayman Islands-based venture capital company with offices in Dubai. It invested in, among other things, a smartphone voice call encryption app, nanotechnology and a company developing medical home testing devices.
Enigma last year filed a suit in the UK High Court against Boulter and his lawyers DLA Piper over the disappearance of GBP64 million of investor money. The liquidators of the medical technology company allege that Boulter used the funds for his own benefit after they were transferred through the law firm’s bank accounts.
In the Cayman proceedings, the petitioner Enigma wanted to restore the Porton companies to the register and have official liquidators appointed so that the companies’ affairs could be fully investigated.
The Cayman case did not focus on investment fraud allegations but on whether Enigma could prove that the declaration of solvency was false and that Boulter had signed it knowing that the representations were untrue.
In his judgment, Grand Court Justice David Boyle wrote that he is not satisfied, based on the evidence presented to the court, that Boulter knew that any of the representations he made in the solvency declaration and letters were false or that he was reckless in determining whether they were true or false.
The court sided with the former venture capitalist’s evidence that he had fully investigated any potential claims.
Porton Capital has attracted other investor criticism in the past over poor returns. For instance, in 2015, a report by the South China Morning Post noted that Porton clients suffered large losses from hidden fees. The newspaper stated these were the result of a spread between what Porton paid for shares of start-up tech companies it promoted and the issue price that was recorded in the companies’ annual accounts.
Boulter told the court that investors in Porton’s technology fund had suffered losses and were, unsurprisingly, unhappy about that. But they had also engaged in high-risk investments in start-up companies that can fail.
He argued that only a “tiny number” of the 2,638 investors had ever complained and even fewer had expressed any intention to bring a claim. The few complaints that were made had not articulated a legitimate claim. And even though some investors had threatened to bring claims against Porton Capital, none had ever done so. By May 2017, when the solvency declaration was signed, enough time had passed that the complaints were effectively historic, Boulter told the court.
No proofs of debt were ever lodged by anyone during the liquidation, including the petitioner Enigma, who was aware of the liquidation proceedings.
Doyle wrote in his judgment: “I have received no satisfactory explanation as to why the Petitioner took no effective action until after the dissolutions of PCI and PCL. The Petitioner lodged the petition on 29 July 2021, three years and nine months after the 3 November 2017 deadline provided by the Porton JVLs and approximately three and a half years after the deemed dissolutions.”
The judge decided that “each piece of evidence whether taken individually or collectively does not establish, on a balance of probabilities, a case of fraud against Mr Boulter”.
The judge noted that the decision only concerned the “narrow issue” of the alleged fraud in relation to the liquidation and dissolution of the Porton companies.
The English court would have to decide on any alleged wrongdoing in connection with the Enigma investment scheme.
“This court sitting in the Cayman Islands must confine itself to the evidence filed in these proceedings and determine the allegations of fraud on the basis of the pleadings, the evidence and submissions advanced in this jurisdiction,” the judgment said.
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