Bermuda: The Privy Council Clarifies The Court's Jurisdiction At Common Law To Assist Foreign Liquidators

In 2009, the Cayman Court made winding-up orders in respect of two Cayman companies, Singularis Holdings Limited (Singularis) and Saad Investments Company Limited (Saad) and joint liquidators were appointed in the Cayman Islands. PricewaterhouseCoopers (PwC), a Bermuda exempted partnership, had acted as auditor of both companies. The liquidators obtained orders against PwC under the laws of the Cayman Islands for the production of documents, which laws provided for the production of only documents that were the property of the insolvent companies. PwC complied with these orders. The liquidators were not content with PwC's disclosure and sought disclosure of PwC's audit work papers, which PwC contended were not property of the companies, through proceedings in Bermuda.

SAAD

In 2012, the liquidators obtained an ancillary winding-up order in respect of Saad from the Bermuda Court, which appointed the Cayman liquidators as liquidators in the Bermuda ancillary liquidation. Subsequently, the Bermuda liquidators of Saad obtained an ex parte order from the Bermuda Court pursuant to section 195 of the Bermuda Companies Act requiring PwC to provide to the liquidators, among other things, Saad audit work papers.

PwC challenged the liquidators' ex parte disclosure order in the Bermuda Supreme Court and Bermuda Court of Appeal on the ground that the Bermuda Court does not have jurisdiction under the Companies Act to wind up overseas companies. The Bermuda Supreme Court rejected PwC's challenge on the grounds that it did have jurisdiction to wind up overseas companies and that PwC's challenge was an impermissible collateral attack on the winding-up order. The Bermuda Court of Appeal rejected PwC's appeal.

PwC did not oppose the making of the winding-up order in Court. PwC was not served with the winding-up petition, but it was advertised as required in a Bermuda newspaper. As a general rule, a winding-up order once made cannot be attacked in subsequent proceedings.

PwC was successful on its appeal to the Privy Council (PricewaterhouseCoopers v Saad Investments Company Limited [2014] UKPC 35). The Privy Council held that the Bermuda Court does not have jurisdiction to wind up overseas companies save for certain statutory exceptions which did not apply. PwC was entitled to challenge the making of the winding-up order in circumstances where the Bermuda Court had no jurisdiction to make the order and the winding-up petition was brought solely for the purpose of obtaining disclosure of documents from PwC. The Privy Council decision was heavily influenced by the fact the liquidators only brought winding-up proceedings in Bermuda to obtain information from PwC. The Privy Council permanently stayed the winding-up of Saad which had the effect of setting aside the disclosure order made against PwC.

SINGULARIS

The Cayman liquidators of Singularis did not obtain a Bermuda ancillary winding-up order. Instead, they obtained an order from the Bermuda Court against PwC for disclosure of its Singularis audit work papers. The Bermuda Supreme Court relied upon the Privy Council decision in Cambridge Gas Transportation Corporation v Official Committee of Unsecured Creditors of Navigator Holdings Plc [2007] 1 AC 508 in finding that it had jurisdiction to assist foreign liquidators by extending to them the statutory powers of Bermuda liquidators. The Bermuda Supreme Court granted the disclosure order by applying section 195 of the Bermuda Companies Act as if Singularis were a Bermuda company in liquidation.

The Bermuda Court of Appeal overturned the disclosure order on the ground that the Cayman Court has no jurisdiction to grant an order to the liquidator of a Cayman company for disclosure of documents belonging to a third party.

The Cayman liquidators' appeal to the Privy Council was unsuccessful (Singularis Holdings Limited v PricewaterhouseCoopers [2014] UKPC 36). The Privy Council acknowledged that the common law doctrine of modified universalism in cross-border insolvencies (much discussed in Cambridge Gas and subsequent cases) gives the Bermuda Court jurisdiction to assist foreign liquidators. The Privy Council held, however, that the Bermuda Court of Appeal was correct in finding that the disclosure order should be set aside on the ground that the Cayman Court had no jurisdiction to make a similar order. If the Bermuda Court is to make an order in aid of a foreign liquidator, it must be an order that the Court in the country where the liquidation is taking place is capable of making.

The Privy Council also ruled that the Bermuda Supreme Court was wrong to apply section 195 of the Bermuda Companies Act to the Cayman liquidators' disclosure application. The Bermuda Court does not have the power to impose a statutory regime in circumstances where the statute does not apply. Section 195 of the Companies Act only applies where a liquidation is being conducted under that Act and a liquidator is appointed by the Bermuda Court.

The Privy Council held by a majority of three to two that the doctrine of modified universalism in cross-border insolvencies gives the Bermuda Court jurisdiction to make orders on the application of foreign liquidators for the disclosure of documents and information from third parties in limited circumstances. Lord Sumption (supported by Lord Collins) stated that this power to make disclosure orders in aid of foreign liquidations should not be used as a means of obtaining material in aid of actual or contemplated litigation.

CONCLUSION

This decision changes the law in Bermuda and the Cayman Islands, overruling not only Cambridge Gas but also a Cayman Grand Court decision (Picard v Primeo Fund, 14 January 2013), and binds all Courts in the British Commonwealth. The position is now that a Court in these and comparable jurisdictions will assist foreign liquidators in cross-border insolvencies if the relief sought (a) could be granted under statutory powers by the foreign Court conducting or controlling the winding-up and (b) is available at common law in the assisting jurisdiction. This may be characterised as a lowest common denominator test.

Some commentators will describe the Privy Council's judgment as a major blow to the doctrine of modified universalism, but they risk overstating the scope of this decision, which was explicitly confined to the form of relief sought by the Singularis liquidators. The Privy Council was clearly concerned about forum shopping by liquidators, seeking relief in Bermuda which they could not obtain in the Cayman Islands. In a different case without such stark facts and such a narrow focus for relief against their intended target, Commonwealth courts might properly take a more generous view of the modified universalism doctrine in providing common law assistance to foreign liquidators.

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