Bermuda: Cross-Border Insolvency: Privy Council Slam The Door On Bermuda’s Modified Universalism Approach

Last Updated: 11 November 2014
Article by Paul Smith and Scott Pearman
Most Read Contributor in Bermuda, August 2019

The Judicial Committee of the Privy Council (Lords Neuberger, Mance, Clarke, Collins and Sumption) has delivered an important judgment (1) about the jurisdiction of the Bermuda court to assist foreign liquidators by ordering the production of documents and information by persons in Bermuda and (2) defining the common law powers of assistance to foreign liquidators.

The interplay (or conflict) between the decisions of the Privy Council and the UK Supreme Court in the following cases has been a source of great debate and litigation in the world of cross-border insolvency: Cambridge Gas v Navigator [2007] 1 AC 508, Rubin v Eurofinance [2012] UKSC 46 and Al Sabah v Grupo Torras [2005] 2 AC 333. The Privy Council has now provided some clarity to this area of the law.

In summary:

1. The Bermuda court has no general jurisdiction under the Companies Act or at common law to wind up foreign companies that do not conduct business in Bermuda. To this end, holding shares in Bermuda is not "conducting business";

2. "Modified Universalism" is part of the common law and there is a common law power to assist foreign liquidators, inter alia, by ordering the production of documents and information. However, this power has the following limits:

a. Firstly, it is available only to assist the officers of a foreign court of the relevant insolvency jurisdiction or equivalent public officers. It is not available to assist a members' voluntary winding up that is not conducted by or on behalf of an officer of the court.

b. Secondly, it is a power of assistance. It exists for the purpose of enabling courts to surmount the problems posed for a world-wide winding up of the company's affairs by the territorial limits of each court's powers. It is not available to enable office-holders to do something which they could not do even under the law by which they were appointed.

c. Thirdly, it is available only when it is necessary for the performance of the office-holder's functions.

d. Fourthly, the power is subject to the limitation set out in Re African Farms Ltd, HIH and Rubin, namely that such an order must be consistent with the substantive law and public policy of the assisting court, in this case that of Bermuda.

The Facts

PricewaterhouseCoopers ("PwC") is a Bermuda exempted partnership with its registered office in Bermuda. It is a different legal entity to the PricewaterhouseCoopers Bermuda auditing firm. Through its Dubai branch, PwC audited two Cayman companies, Saad Investments Company Limited ("SICL") and Singularis Holdings Ltd. ("SHL"). PwC did not have any office or other physical presence in Cayman. The Cayman court ordered the compulsory winding up of SICL and SHL, and Joint Provisional Liquidators ("JPLs") were appointed in Cayman in 2009. Production orders were made against PwC as former auditors in Cayman, that were complied with. The Cayman orders did not and could not require PwC to produce its own working papers, but rather were limited to ordering the production of documents that were the property of SICL and SHL.

Some three years after the Cayman winding up orders, in 2012 the JPLs obtained an ancillary winding up order in Bermuda against SICL. They subsequently obtained ex-parte orders against PwC (1) under Section195 of the Companies Act, 1981 requiring the production of extensive documentation relating to SICL, including the auditor's working papers and the response to interrogatories; and (2) at common law against both SICL and SHL requiring the production of substantially the same extensive documentation and interrogatories. PwC challenged the making of these orders, and was unsuccessful at first instance before Kawaley CJ.

PwC appealed to the Bermuda Court of Appeal and was partially successful. Both sides appealed to the Privy Council in two separate appeals. The question of whether the Bermuda Court has power at common law and under Bermuda statute to grant assistance in cross-border insolvencies arose for determination. The position was complicated by the fact that Bermuda has no statutory regime similar to that contained in Section 426 of the (English) Insolvency Act, 1985, expressly permitting assistance to foreign liquidators.

In the Saad decision, the Privy Council held that the statutory company law regime in Bermuda did not empower the Bermuda courts to wind up foreign companies not doing business in Bermuda. This judgment overturns Bermuda case-law to the contrary going back some 10 years.

In the Singularis decision, the legal position is more complex and the Privy Council decision was split. The majority (Lords Sumption, Clarke and Collins) found that "modified universalism" means that while there is indeed a common law power in Bermuda to assist a foreign liquidator by making document and information production orders, that power is not unlimited. The limits on the power are as set out above. Of particular significance for the present case was the fact that under the Cayman legislation governing their functions, the Cayman liquidators could only obtain production orders in Cayman for documents and records that were the property of the company. It was not in dispute that an auditor's working papers are not the property of the company and therefore cannot be obtained in Cayman. The common law power cannot be used to extend the powers of the liquidator to enable him to obtain the auditor's working papers in Bermuda.

The minority judgments (Lords Neuberger and Mance) held that there was no general common law power in Bermuda to order the production of documents or information in aid of a foreign liquidation.

Conyers Dill & Pearman Bermuda acted for PwC in this litigation.

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.

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