Smellie J
IN THE GRAND COURT OF THE CAYMAN ISLANDS
FINANCIAL SERVICES DIVISION
CAUSE NO. FSD 27 of 2015 (ASCJ)
IN THE MATTER OF THE COMPANIES ACT (2022 REVISION)
AND IN THE MATTER OF CALEDONIAN BANK LIMITED (IN OFFICIAL LIQUIDATION)
HEARD ON THE PAPERS
Appearances:
Before:
Heard:
Judgment:
Mr. Rupert Bell of Walkers for the Liquidators
Hon. Justice Sir Anthony Smellie
18th September 2022
9th March 2023
HEADNOTE
Liquidators' application for redistribution of unclaimed funds in context of liquidation of banldng
company-whether the liquidators have power to redistribute funds related to deposits automatically
admitted to proof whether Court has jurisdiction to authorize liquidators to do so-unclaimed funds to be
disposed of in keeping with the Companies Act and Company Winding Up Rules.
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Digitally signed by Advance Performance Exponents
Inc
Date: 2023.03.13 15:57:51 -05:00
Reason: Apex Certified
Location: Apex
RULING
1.
The Joint Official Liquidators (" JO Ls") of Caledonian Banlc Limited ("CBL" or "the Bank")
seek relief relating to the calculation and determination of who is eligible to receive the final
dividend in the liquidation of CBL.
2.
This Application is prompted by the fact that a number of depositors of CBL have remained
disengaged from the liquidation process, although as depositors with the Banlc and as such have
automatically been admitted to proof as creditors to the extent of their deposits, they have failed
to respond to the JOLs' efforts to contact them. They are hereinafter referred to as "the
Disengaged Depositors".
3.
The result is that the JO Ls have identified a number of relevant claims, (the "Relevant
Claims") and an unclaimed fund of USD$1,776,816.16 related to the Relevant Claims for
which they now seek the approval of the Court to be released for distribution to other proven
creditors of depositors of CBL.
4.
The difficulty facing the JOLs' proposition is that by operation ofCWR Order 16, rules 7 (2)
and (3), there is no question but that the Disengaged Depositors are to be and have properly
been automatically admitted to proof as creditors of CBL by reference to the respective
amounts of their deposits.
5.
Order 16, rules (2) and (3) of the CWR provide uniquely for the admission of claims in the
liquidation of a bank without a creditor being required to submit a proof of debt, as follows:-
"(2)
All of its company's depositors to whom periodic statements qf
accounts were sent by the company shall be admitted to proof in respect
rf the amounts recorded due to them without requiring them to lodge
proofs of debt unless the official liquidator has reason to believe that the
company's deposit taking records are unreliable.
(3)
Where the of icial liquidator has admitted a depositor to proof without
requiring him to submit a proof of debt, he shall send notice in CWR Form
No. 27 informing the depositor of this fact."
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6.
The JO Ls have found no basis for regarding CBL's deposit taldng record as unreliable. On the
contrary, it is on the basis of their acceptance of their reliability that the liquidation has
proceeded by admitting depositors as creditors to proof without requiring them to submit proofs
of debt.
7.
Indeed, pursuant to Order 16, rule 7 (3), the JOLs issued notices in CWR Form No. 27 to all
depositors of CBL, admitting their claims in the liquidation after being satisfied that CBL's
deposit taking records were not unreliable.
8.
It follows, that in order to redistribute the Unclaimed Funds to other depositors or creditors, the
JOLs must identify a basis upon which the Disengaged Depositors may be treated as disentitled
to the Unclaimed Funds.
9.
The JOLs submit that it is open to this Court to allow the JOLs to reconsider their admission
of the Relevant Claims and rely in this regard on dicta from the case of In Re Parmalat Capital
Finance Limited, 2011 (1) CILR 113 to the effect that a liquidator has the power to reconsider
a decision. This was in the context of the liquidators in that case wanting to admit a proof of
debt that had previously been rejected for lack of evidence.
I 0.
In Re Parmalat, Henderson J noted in his judgment that:-
"In the absence of language in the CWR which makes such a reconsideration
impermissible, JOLs must be taken to have the same flexibility to reconsider
decisions, take into account new evidence and fresh arguments, and rectify
mistakes as is possessed by any other judicial, quasi-judicial or administrative
decision- maker. "
11.
While the general force and logic of that dictum is undeniable, there are obvious obstacles to
its application to the present case.
12.
First, there are here present none of the factors contemplated by Henderson J as possibly
justifying a reconsideration.
13,
Here no new evidence or fresh arguments arise to bring into question the correctness of
Relevant Claims having been admitted to proof.
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14.
Along with all the depositors of CBL, Disengaged Depositors were automatically admitted to
proof for the respective amounts of the Relevant Claims once the JO Ls were satisfied that the
deposit taking records of CBL were not unreliable. There is no new evidence to suggest
otherwise and there are no mistakes which could give rise to any argument for rectification of
the records or otherwise of the process of admission of debts to proof.
15.
In other words, there simply is no factual basis for a reconsideration of the Relevant Claims by
the JOLs.
16.
Also worthy of note, in their written submissions the JO Ls admit that "the failure to engage or
engage meaningfully (in the liquidation process) does not appear to be an express exception
provided for in the CWR that would permit the adjudication of the Relevant Claims to be treated
differently".
17.
This concession is to my mind all the more telling in light of the importance to be ascribed to
the grounds recognised by the CWR upon which a liquidator can apply to the Court to expunge
a proof of debt which has been admitted. There are only two such grounds pursuant to Order
16, rule 20 (2) of the CWR as follows:-
"(a) that it ought not to have been admitted; or
(b) that it ought to have been admitted for a lesser amount."
18.
From this it must be recognized that a liquidator has no authority to expunge an admitted proof
of debt of his own volition acting on notions of "fairness" to other creditors, which is
tantamount to how the argument is presented here as a basis for the Court's approval of the
proposition. Nor is there any suggestion that the Court might itself so direct in exercise of any
unwritten inherent jurisdiction or discretion.
19.
Of course the circumstances under which the two grounds of sub-rule (a) and (b) may become
applicable are legion, but they must be identifiable. To my mind a mere wish to redistribute
entitlements of dividends attributable to proofs of debt which have been properly admitted
would not by such a circumstance. It simply cannot be said that that consideration would mean
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that the debts ought not to have been admitted or that they should have been admitted for a
lesser amount.
20.
At base it seems to me that the real concern underpinning the JOLs' application is that as the
Disengaged Depositors were not required specifically to prove their debts and have not sought
to recover them, the Unclaimed Funds should be available to meet the claims of the other
depositors who are to recover less than 100% (actually 91.2%), of their deposits in the context
of what has turned out to be an insolvent liquidation of CBL. That proposition would be put
forward by analogy with a non-bank insolvency in which creditors must prove their debts and
rank pari passu.
21.
Further, that Order 16 rule, 7 of the CWR although expressed in mandatory in terms, could not
have been intended to result in the continued provision for depositors who refuse or fail to
participate properly in the liquidation to the detriment of the creditors who do. That would be
contrary, say the JOLs, to how assets are distributed in any other liquidation.
22.
The JOLs argue that an analogy can be drawn with the case of In re Consistent Return Limited
2012 (I) CILR 445 which concerned an application seeking that the voluntary liquidation of
that company be brought under the supervision of the Court such that the liquidators could take
advantage of the statutory proving process prescribed for an official liquidation.
23.
There, is the context of what was to have been by all accounts, a solvent liquidation, a question
facing the liquidators, was what was to be done about creditors who were unwilling to submit
a proof of debt. Jones J did not see the need to bring the voluntary liquidation then more than
three years old, under the supervision of the Court in order that question but directed instead
that while they could not compel unwilling to submit proofs of debts, the liquidators could
protect themselves from possible adverse claims by putting any disputed creditor on notice and
they must issue a writ, failing which, the company's assets could be distributed without regard
to their interests.
24.
I do not regard that approach, taken no doubt appropriately in the context of In re Consistent
Return Limited, as properly by analogy to be taken here.
25.
The obvious reason is that here there are no "disputed debts". Unwillingly though the
Disengaged Depositors may be to pursue their claims, there is no doubt that the Unclaimed
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Fund belongs to them properly identified in the amounts related to Relevant Claims which have
been properly admitted in this, the context of the liquidation of a bank.
26.
Moreover, and as the JO Ls recognise in their written submissions, there are sound and historical
policy reasons behind Order 16, rule 7(2) of the CWR which, I repeat, in mandatory terms
provides that admission to proof without submission of proof of debt will occur unless the
official liquidator has reason to believe that the company's deposit taking records are
unreliable.
27.
In re Inca Bank and Trust Corporation 1994-95 CILR 99 at 104, this Court, before the
introduction of the CWR, faced with a situation where a creditor who had not been directly
contacted by the liquidators and had not submitted a formal proof of debt, would not be found
to be a creditor for the purposes of benefitting from funds held on trust by Inco Bank (In
Voluntary Liquidation) noted that "as a general principle of practice I would regard the strict
application of the 1949 (Insolvency) Rules, to the detriment qf a depositor of a bank who may
not be immediately aware of the liquidation and who may therefore not .file a claim, to be
wholly unsatisfactory and inappropriate. It seems necessary that any local. winding up or
insolvency rules should make special provisions for the protection of depositors in the case of
a voluntary liquidation of a banking company" ( emphasis added)
28.
Although introduced more than a decade later, it would appear therefore that the rationale
behind the implementation of Order 16 rule, 7 of the CWR, in the particular context of the
liquidation of a banking company in the Cayman Islands, is to ensure that bank depositors are
automatically admitted to proof because they may not, despite best efforts on the part of
liquidators, become aware immediately of the liquidation of the bank in which they hold a
deposit or deposits.
29.
There is also clearly a cost-saving benefit to the liquidation estate in the application of Order
16, rule 7, given the likely large numbers of depositors and the time and effort that would need
to be spent by the liquidator in reviewing and deciding upon proofs of debts, to be avoided
when the bank's records, in the usual course of business, will provide a clear and immediate
indication of the debts owed to depositors.
30.
The circumstances of the current liquidation of CBL are different from those of Inco Bank
which occurred more than two decades ago and before easy and direct communication by the
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internet became commonplace. Nowadays, depositors might be expected to monitor the affairs
of their bank over the internet so that notice of a major event such as a liquidation might be
obtained, as indeed has notice of this liquidation been given by the JOLs by publication on a
dedicated website. Nonetheless, the policy reasons behind Order 16, rule 7 in my view remain
quite valid such that its mandatory terms must be respected and the mere fact that the JOLs and
other depositors who would benefit are in favour of a redistribution of the Unclaimed Funds,
is no basis for disapplying the rule, as would in effect occur, ifI granted the Application.
31.
It is true, as the JOLs submit, that in the typical liquidation not involving a banking company,
creditor claims are only admitted upon submission of a proof of debt and those who disengage
from the process will not be regarded as creditors but will have their assets form part of the
assets of the liquidation to be distributed to admitted creditors on the pari passu basis. But that
does not change the fact that there are the good policy reasons for the existence of Order 16,
rule 7 and for its application to the liquidation of CBL.
32.
What then is to become of the Unclaimed Funds? The answer which is also prescribed by
sections 152 and 153 of the Act and Order23 of the CWR, is settled and well known as ama\ter
of Cayman Islands law and practice. Accordingly, it must be presumed to be understood by the
Disengaged Depositors who may have good reasons - such as tax implications - for wishing
not to claim in the liquidation and for remaining disengaged.
33.
It follows that if the liquidation were to conclude without dividends being paid to the
Disengaged Depositors, the sum ofUSD$ l, 776,816.16 plus the value of the final dividend will
remain in the liquidation estate and fall for treatment as follows:-
(a) The Unclaimed Funds would be held by the JOLs (as trustee) in a bank account
on trust for the benefit of the Disengaged Depositors. The JOLs would
advertise the existence of the Unclaimed Funds and administer payment to the
Disengaged Depositors to the extent they come forward; and
(b) At the end of one year after the dissolution of CBL, the JO Ls will transfer any
remaining Unclaimed Funds to the Minister of Finance who in keeping with
CWR Order 23, rule 6, would be responsible for administering the same
pursuant to Part VITI of the Public Management and Finance Act. A
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Disengaged Depositor would subsequently be able to make a claim to the
Minister of Finance for its, his or her share of the Unclaimed Funds. Any
amounts not so claimed and paid would ultimately go bona vacantia to the
Crown.
34.
See, for a recent example of a similar operation of the provisions of the Act and CWR: In the
matter of F & C Warrior Fund Limited (Dissolved) FSD 105 and 107 of 2021 (ASCJ), written
judgment delivered on 25th May 2021.
35.
For all the foregoing reasons, the JOLs' application seeking authority to take steps to
implement and perform the "Unclaimed Funds Procedure" as defined in the 20th Affidavit of
Keiran Hutchinson and by which the Unclaimed Funds would be distributed to the general
body of depositors of CBL so as to raise their rate of dividends from 91.2% to 91.6%, is refused.
36.
While this ruling was drafted as long ago as 18th September 2022, it was for administrative
reasons not finalized for publication until now. It is accordingly now made available with the
Honourable Sir nthony Smellie
Judge of the Grand Court (Pro Tern)
9th March 2023
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