Cayman Islands: A Comparison Of Mr Picard's Experiences In Cayman and the BVI

The decision earlier this year of Mr Justice Jones in the Financial Services Division of the Cayman Islands gave a broad interpretation of the assistance that may be available to a foreign insolvency representative at common law. This stands in rather stark contrast to the approach taken in the Commercial Court in the British Virgin Islands, where the common law basis for recognition was found to have little place in BVI law and where statutory assistance is available only to representatives from a limited number of jurisdictions.

In Irving H Picard and Bernard L Madoff Investment Securities LLC v Primeo Fund (14 January 2013, unreported) Mr Justice Jones ruled on a series of preliminary issues in an action brought by Mr Picard asserting a number of avoidance claims. Mr Picard is the trustee of Bernard L Madoff Investment Securities LLC (BLMIS). In a short judgment dated 5 February 2010 (2012 (1) CILR 231) Jones J had granted Mr Picard recognition under section 241(1) of the Companies Law (2009 Revision) as the sole person having the right to act on behalf of BLMIS in the Cayman Islands.

Thereafter, Mr Picard commenced the avoidance action (seeking to set aside payments made by BLMIS to Primeo Fund) claiming both under the Cayman Islands preference provision and under US insolvency law. The availability of these claims was considered (as preliminary issues) by Jones J in his 14 January 2013 judgment.

Ancillary Orders

Section 241 of the Law empowers the court to make orders ancillary to a foreign bankruptcy proceeding. These may be made for a number of purposes, including recognition, imposing a stay on proceedings or on the enforcement of judgments, allowing an examination or production of documents and ordering the turnover of any property belonging to a debtor. In his judgment Jones J stated that section 241 supplements and partially codifies the common law; it did not abolish the common law rules, which continue to exist alongside the new statutory provision.

Jones J decided that section 241 does not allow for assistance to be given by way of avoidance actions, even though the US courts had given such assistance under section 304 of the US Bankruptcy Code, on which section 241 was based. In particular, whilst section 304 allowed the US court to assist in the turnover of any property of "the estate", section 241 instead referred to property "belonging to a debtor", which Jones J held to mean the same as property of the company (and did not include the right to bring avoidance actions under the insolvency regime).

Avoidance Claims

Jones J went on to decide that if section 241 did allow the foreign trustee to bring avoidance claims (contrary to his decision on this point), the court could only apply Cayman Islands law to those claims. Claims under US law could not therefore be brought in any event. Jones J considered whether the assistance that could be provided at common law could extend to giving access to the Cayman avoidance provision and he concluded it did, albeit with some hesitation. There were three principal issues that caused his hesitation.

The first was the decision of the Supreme Court in Rubin v Eurofinance SA [2012] UKSC 46. Although Lord Collins in that judgment referred to cases of common law assistance, he did not consider whether avoidance powers could be made available to a foreign representative. Jones J decided that the scope of assistance available at common law includes the power to entertain a preference claim.

"On the face of it ... a foreign representative from a jurisdiction that is not a 'relevant' jurisdiction has no access to either recognition or assistance in BVI."

The second issue was whether this type of assistance depended on there being sufficient connection between the company and the jurisdiction; the sort of connection that would allow the company to apply to be wound up as a foreign company under Cayman law (found in section 91 of the Companies Law). Jones J decided that the scope of available assistance did not depend upon there being jurisdiction to make a winding up order.

The third issue was the principle that a court has no inherent jurisdiction to exercise a statutory power in circumstances not falling within the provisions of the statute in question. Jones J interpreted the principle to mean that the common law could not bring into play a statutory provision to achieve a purpose which is different from the object of the statute. He concluded that bringing the preference claim provisions of section 145 into play in respect of BLMIS did not depart from the statutory objective of the Companies Law.

In the British Virgin Islands the status of common law recognition and assistance was decided quite differently by Mr Justice Bannister QC (Ag) in Irving H Picard v Bernard L Madoff Investment Securities LLC (BVIHCV 0140 of 2010, judgment dated 12 November 2012), although he subsequently disapproved his judgment to a limited extent.

In the Picard v BLMIS case, Mr Picard sought recognition by the BVI court, together with a power to require any person to deliver up to him property of BLMIS. Bannister J refused to make the orders sought. Central to his reasoning was the codification of the concepts of recognition and assistance in the BVI Insolvency Act 2003, so that "the common law concept of recognition has no place under the British Virgin Islands legislation."

Unlike the Cayman Islands, BVI has enacted provisions based on the UNCITRAL Model Law on cross-border insolvency. Those provisions are found in Part XVIII of the Insolvency Act, not yet in force, and they would apply to proceedings in "designated" jurisdictions only.

Part XIX of the Insolvency Act allows the court to provide assistance to a foreign representative, but does not provide for recognition. It is in force but applies only to "relevant" jurisdictions (as identified by the Financial Services Commission). Nine jurisdictions have been so identified, including Hong Kong, the United Kingdom and the United States.

Section 466 of the Insolvency Act provides that once a jurisdiction is designated under Part XVIII it ceases to be a relevant jurisdiction under Part XIX. Bannister J therefore found that the two parts were mutually exclusive and that the legislature must have intended that a representative from a relevant jurisdiction must be confined to the relief under Part XIX and that the common law concept of recognition could not survive in tandem with the statutory regime.

Statutory Regime

In a recent decision, Bannister J has reconsidered that decision on an application by a Hong Kong bankruptcy trustees for recognition in BVI. He decided that the court can grant recognition at common law to proceedings in relevant jurisdictions. However, he did not accept that a foreign representative, even once recognized, could have access to the statutory powers available to a BVI appointee, such as the voidable transaction provisions.

On the face of it therefore, a foreign representative from a jurisdiction that is not a relevant jurisdiction has no access to either recognition or assistance in BVI. However, this is a developing area and one BVI law firm has reported that it successfully obtained recognition of an appointee from a non-relevant jurisdiction, although there has not (at the time of going to print) been a judgment handed down in that case.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.