Re Founding Partners Global Fund Ltd ((in Liquidation))

JurisdictionBermuda
Judgment Date08 April 2011
Date08 April 2011
Docket NumberCommercial Jurisdiction 2009 No. 190
CourtSupreme Court (Bermuda)

In The Supreme Court of Bermuda

Commercial Jurisdiction 2009 No. 190

In the Matter of the Liquidation of Founding Partners Global Fund Ltd

And in the Matter of a Letter of Request of the Grand Court of Cayman dated 16 June 2009

Mr J Elkinson and Mr B Adamson for the Caymanian Joint Official Liquidators and Hibistar Pte Ltd

Mr J Wolonieki and Ms K George for the Receiver

The following cases were referred to in the judgment:

In re Bear Stearns High-Grade Structured Credit Strategies Master Fund Ltd 374 BR 122

In re Fairfield Sentry Ltd 440 BR 60; 2010 Bankr Lexis 3789

In re ICO Global Communications (Holding) LtdBDLR [1999] Bda LR 69

In re Stanford International Bank LtdUNK [2010] EWCA Civ 137

Schemmer v Property Resources LtdELR [1975] 1 Ch 273

Ex parte James (1874) 9 LR Ch App 609

Re Wyvern Developments LtdWLR [1974] 1 WLR 1097

In re HIH Casualty and General Insurance LtdWLR [2008] 1 WLR 852

Cambridge Gas Transportation Corpn v Official Committee of Unsecured Creditors of Navigator Holdings plcELR [2007] 1 AC 508

Re Eurofinance SAUNK [2010] EWCA Civ 895

In re Condor Insurance Limited 601 F3d 319; 2010 US App Lexis 5635

Abstract:

Insolvency - Cayman company - US proceedings -Funds in Bermuda - Distribution of assets - Centre of main interests - Competing claims - Recognition of foreign insolvency proceedings

JUDGMENT of Kawaley, J

Introductory

1. The present proceedings were commenced by an Originating Summons dated June 23, 2009 pursuant to a Letter of Request issued by the Grand Court of the Cayman Islands to this Court. The Letter of Request dated June 11, 2009 asked this Court to (a) recognise the appointment on June 11, 2009 by the Caymanian Court of David Walker and Ian Stokoe of PricewaterhouseCoopers as provisional liquidators of the Company, and (b) to direct that the provisional liquidators would have such powers as if they had been appointed by this Court. This relief was granted ex parte on June 29, 2009. Reasons were given on July 29, 20091.

2. On July 10, 2009, the joint provisional liquidators ("the JPLs") issued a Summons returnable for July 16, 2009 seeking primarily to compel the Bank of Bermuda to pay over funds standing the account of the Company to the JPLs. However, on July 16, 2009, Mr. Daniel Newman, the Receiver appointed by Order of the US District Court for Florida ("the Receiver") issued a Summons for the same date seeking leave to intervene with a view to determining "whether or not the Applicant or the JPLs are entitled to control and take possession of the assets of the Company in Bermuda". By consent, The Chief Justice gave leave to intervene for the purposes of determining this question on July, 16, 2009. By Summons dated September 15, 2009, the Receiver issued a Summons seeking to set aside the June 29, 2009 Order and to obtain assistance pursuant to a contemplated Letter of Request from the US District Court. This application was never heard because on January 6, 2010, the Chief Justice by consent (a) set aside the June 29, 2009 recognition Order, and (b) adjourned the Receiver's application for relief pursuant to an anticipated letter of request sine die.

3. The present applications arose in a somewhat convoluted way, although they were set down for hearing in open Court as if the Court was in effect hearing the Originating Summons which commenced the present action on a final or "trial" basis. By an undated Summons filed on or about January 4, 2010, Hibistar Pte Ltd. ("Hibistar") sought directions in respect of its proprietary claim to monies in the Company's accounts in Bermuda. Although this was a dispute between Hibistar and the Company, the Receiver appeared on the first return date of this Summons. Directions were ordered for the exchange of pleadings by the Company and Hibistar, but this application was effectively aborted when the two parties agreed to refer this dispute to the Caymanian Court for adjudication. On September 21, 2010, Justice Angus Foster of the Caymanian Court ordered in salient part as follows:

"1. That the Class E assets of Founding Partners Global Fund Ltd. (the 'Master Fund') are solely attributable to and only available to the Class E shareholder of the Master Fund, namely Founding Partners Global Fund Inc. (the 'Feeder Fund').

2. That the Class E Shareholding in the Master Fund which is held by the Feeder Fund is solely attributable to and only available to the sole Class E shareholder of the Feeder Fund, namely Hibistar.

3. That the Joint Official Liquidators of the Master Fund and the Feeder Fund do distribute and transfer the entirety of the Class E assets to Hibistar, subject to the apportionment of the payment of monies due to third party creditors and the expenses of the liquidation being agreed, or, failing agreement, being determined by the court…"

4. Before turning to the applications which fall for consideration in this Ruling, two incidental matters must be mentioned. Firstly, on December 29, 2009, Justice Steel of the United States District Court for the Middle District of Florida, Fort Myers Division ("the US Court"), refused the Receiver's application for a letter of request to this Court on the grounds that the US Court only possessed the statutory jurisdiction to issue such requests in connection with the obtaining of evidence abroad. Secondly, the Receiver obtained permission from the US Court (on April 21, 2010) and the now permanent Joint Official Liquidators obtained permission from the Caymanian Court (on April 22, 2010) to enter into a protocol with the Receiver (apparently pursuant to the suggestion of the Chief Justice on behalf of this Court on January 6, 2010). Before the draft protocol approved by the respective courts could be signed, on August 4, 2010 the JOLs advised the Receiver by email that the Company's Committee of Inspection had withdrawn its support for the protocol. On February 10, 2010, the Caymanian Court directed that the JOLs need not enter into the protocol they were previously authorised to consummate.

5. The first application which falls for determination is Hibistar's undated Summons issued on or about January 5, 2011 seeking an Order that:

"1. The Class E monies held by the HSBC Bank Bermuda Limited be paid over to the Caymanian Joint Official Liquidators of the Company for distribution in accordance with the directions of the Cayman Courts.

2. The appointment of David Walker and Ian Stokoe as Joint Official Liquidators of the Company be recognised by this Court for this purpose and generally.

3. Further or other relief."

6. This application was supported by the JOLs, who instructed the same counsel as Hibistar. The second application which falls for determination is the Receiver's application for an Order that:

"1. Directions be given regarding the approval and enforcement of the protocol agreed between the Joint Official Liquidators of the Company (appointed by the Grand Court of the Cayman Islands) (the 'Liquidators') and

the Receiver in relation to their respective entitlements to funds of the Company held by HSBC Bank Bermuda Ltd in the Class A and B accounts and co-operation between the Liquidators and the Receiver.

2. Further and/or alternatively such directions be given as just and appropriate in relation to: (a) the application of all funds of the Company held by HSBC Bank Bermuda Limited in the Class A, Class B and Class E accounts, and (b) co-operation between the Liquidators and the Receiver."

Factual findings

The Company's business and its jurisdictional ties

7. The Company invested into a Master Fund based in the US, but its investors were all non-US residents for tax purposes. They invested in the Company through the Caymanian incorporated Feeder Fund. The Company has the following offshore managerial and operational links:

i. registered office in Cayman;

ii. administrator initially in Cayman and post-2004 in Bermuda;

iii. auditors in Cayman;

iv. Caymanian lawyers (as well as US lawyers);

v. one director in Bermuda and one in the US (the late Gordon Howard and Michael Gunlicks, respectively);

vi. a Caymanian exclusive jurisdiction clause was included in the subscription agreement;

vii. the Company is now in liquidation in the Cayman Islands with the JOLs resident in Cayman and a Liquidation Committee appointed by the Cayman Grand Court. The principal activity of the Company is now collecting assets and making distributions to third-party creditors and investors.

8. There are also significant US jurisdictional ties. The Investment Manager, whose principal was director Michael Gunlicks, is resident in Florida. The Investment Manager appointed a sub-advisor for the Class E share series which is resident in Illinois. The principal assets of the Company are located in the US and the important task of collecting assets due to the Company is being carried out by the Receiver there, albeit for the benefit of the Company and other members of the wider group of which it forms part. However, the Receiver does not appear to have been clothed with authority to act for the Company generally under US law; nor has the Company itself submitted to the jurisdiction of the US Court.

The US Receivership

9. The Receiver relied on the expert report Professor Jay Westbrook, an eminent and internationally renowned US bankruptcy law expert with a special interest in transnational or cross-border insolvency, to characterise the status of the Company's receivership under US law. His crucial conclusion, which I accept, was as follows:

"The Receivership is of a type in which receivers are regularly authorized to acquire and liquidate assets, to resolve claims, and to distribute assets much as they would be distributed in United States bankruptcy proceedings. The order is generally consistent with that course of action in this case."

10. Based on a review of the Securities and Exchange Commission ("SEC") Complaint and the May 20, 2009 Order appointing the...

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