Re Kingate Global Fund Ltd ((in Liquidation)) and re Kingate Euro Fund Ltd ((in Liquidation))

• Jurisdiction: Bermuda
• Judgment Date: 20 August 2010
• Date: 20 August 2010
• Docket Number: Commercial Jurisdiction 2009 Nos. 270 and 271
• Court: Supreme Court (Bermuda)

In The Supreme Court of Bermuda

Commercial Jurisdiction 2009 Nos. 270 and 271

In the matter of Section 195 of the Companies Act 1981: Re Kingate Global Fund Ltd (in liquidation) and Re Kingate Euro Fund Ltd (in liquidation)

Mr C Hill and Mr C Foley for the Joint Liquidators

Mr J Riihiluoma for PricewaterhouseCoopers

Focus Insurance Co Ltd v HardyBDLR [1992] Bda LR 25

Intercontinental Natural Resources v Dill [1982] Bda LR 1

Informission Group Inc v Convertix CorpBDLR [2000] Bda LR 75

Re Electric Mutual Liability Insurance Co LtdBDLR [1996] Bda LR 62

Deloitte & Touche AG v JohnsonUNK [2000] 1 BCLC 485

Strachan v Gleaner & CoUNK [2005] UKPC 33

In re Dowling and Welby's ContractELR [1895] 1 Ch 663

In re Padstow Total Loss and Collision Assurance AssociationELR (1882) 20 ChD 137

D.E. Shaw Oculus Portfolios, LLC et al v Orient-Express Hotels Limited et alBDLR [2010] Bda LR 32

Roodal v The StateUNK [2003] UKPC 78

In re International Tin CouncilELR [1987] Ch 419

Re Impex Services Worldwide Ltd [2004] BPIR 564

Cambridge Gas Transport Corp v Official Committee of Unsecured Creditors of Navigator Holdings plcWLR [2006] 3 WLR 689

Re Founding PartnersBDLR [2009] Bda LR 35

Re First Virginia Reinsurance LtdBDLR [2003] Bda LR 47

Abstract:

BVI companies with assets and creditors in Bermuda - Jurisdiction of Court to order winding-up of overseas company - Madoff Ponzi fraud

RULING of Kawaley, J

A. Introductory

1. Kingate Global Fund Ltd. and Kingate Euro Fund Ltd ("the Companies") were incorporated in the British Virgin Islands ("BVI") on February 11, 1994 and April 19, 2000, respectively. The Companies' primary business activity entailed the investment of monies raised by share subscriptions with Bernard L. Madoff Investment Securities LLC ("BLMIS") in New York.

2. On June 4, 2009, the Companies were wound-up on their own petitions in BVI and William Tacon and Richard Fogerty, who had earlier (on May 8, 2008) been appointed as Joint Provisional Liquidators, were appointed as Joint Liquidators. On August 7, 2009, the Companies petitioned this Court to be wound-up under the Companies Act 1981. The petitions alleged that the only readily realizable assets of the Companies were located in Bermuda, as were service providers (who were actual or contingent creditors) and potentially significant documents and information (paragraphs 18, 20). The links with BVI were said to be "of a formal nature only" (paragraph 20). Paragraph 19 of the Petitions also averred as follows:

"By virtue of the Orders of 4 June and 31 July 2009 of the BVI Court, the Joint Liquidators (in the BVI) were given the power to seek the winding-up of the Company in Bermuda. A draft of this Petition has been placed before and sanctioned by the BVI Court…."

3. Prior to the filing of the Companies' Bermuda petitions, in correspondence which became germane in the context of the present application, PwC Bermuda had suggested (in a letter written by their Bermuda attorneys and dated June 19, 2009) that any application to the BVI Court to compel the production of documents under section 284 of the BVI Insolvency Act 2003 "would, inter alia, be subject to objection on jurisdictional grounds." It was against this back-drop that the Bermuda petitions justified their utility by reference to not just the location of assets but also information and documents here.

4. The Petitions were advertised in the Bermuda Sun dated August 21, 2009. As is customary, creditors and contributories were invited to appear at the hearing scheduled to take place on September 4, 2009 at 9.30am. One creditor of Kingate Global only is recorded as having formally appeared before Bell J. At the same hearing, Mr. Hill tendered written 'Submissions', six pages of which dealt with the jurisdiction of this Court to wind-up the Companies as overseas companies which were not permit companies. Bell J granted the winding-up orders sought and appointed John McKenna, William Tacon and Richard Fogerty as Joint Provisional Liquidators on September 4, 2009. On October 5, 2009, I appointed the same triumvirate as Joint Liquidators without a Committee of Inspection and dispensed with the need to convene the first meetings of creditors and contributories.

5. The BVI Joint Liquidators passed the PwC document and information collection baton to John McKenna as Bermuda Joint Liquidator of the Companies. By letter dated November 13, 2009, McKenna sought further documents from PwC noting that the September 4, 2009 Order of this Court removed any objections pertaining to the BVI Joint Liquidators' power to carry out investigations in Bermuda. By chasing letter dated November 30, 2009, the Joint Liquidator foreshadowed an application to court if the requested documents were not supplied. By letter dated December 14, 2009, Appleby responded in salient part as follows:

"We are firmly of the opinion, and have so advised our client, that the Bermuda court has no jurisdiction to wind-up an Overseas Company or to appoint a liquidator in respect of an Overseas Company. We accept, however, that there are first instance decisions of the Bermuda court to the contrary. We believe these decisions are wrongly decided, and would, inevitably, be overturned on appeal if not distinguished or not followed at first instance.

If you follow through with the threat contained in your letter of 30 November 2009 to apply to the court to obtain the requested information by compulsion, our client shall apply to set aside any order that you might obtain on the grounds that your appointment as liquidator is invalid."

6. On January 29, 2010, a Protective Writ was filed by the Companies against PwC Bermuda to preserve a cause of action which may have expired on January 30, 2010. This Court retrospectively approved the joint Liquidators actions in this regard on March 4, 2010.

7. It was against this background that: (a) the Joint Liquidators applied by Summons dated April 12, 2010 for an Order compelling PwC Bermuda to produce copies of various documents relating to their audit work in respect of the Companies; and (b) PWC Bermuda opposed the application both on jurisdictional and merits grounds.

8. At the conclusion of the hearing, it seemed clear that the Joint Liquidators were substantially entitled to the relief they sought under section 195 of the Companies Act 1981 on straightforward grounds. However, in the face of Mr. Riihiluoma's full-blooded assault on the legal foundations of first instance un-opposed judgments and academic writings upon which the conventional wisdom on this Court's winding-up jurisdiction in respect of overseas companies is based, it was necessary to reserve judgment on the entirety of the application.

B. Legal findings: applications by liquidators to obtain evidence for the purposes of investigating an insolvent company's financial position and recovering any property belonging to the company

9. Section 195 of the Companies Act 1981 is derived from section 268 of the Companies Act 1948 (UK). The modern British version of this provision appears to be section 236 of the Insolvency Act 1986, which according to the contents index to the 1986 Act deals with "Getting in the company's property". Section 195, so far as is relevant to the present application, provides as follows:

"(1) The Court may, at any time after the appointment of a provisional liquidator or the making of a winding-up order, summon before it any officer of the company or person known or suspected to have in its possession any property of the company or supposed to be indebted to the company, or any person whom the Court deems capable of giving information concerning the promotion, formation, trade, dealings, affairs or property of the company.

…

(3) The Court may require such person to produce any books and papers in his custody or power relating to the company …"

10. The legal principles concerning the purpose of section 195 and its application were not in dispute. Controversy centred on whether the facts of the present case fell within or without the legally permitted sphere of inquiry. This controversy cannot be fairly resolved without directing one's attention to what the relevant legal principles are. As far as the purpose of section 195 is concerned, I can do no better than to reproduce the following submissions set out in the Applicants' Skeleton Argument:

"The purpose of section 195

53. The essential purpose of an order under section 195 (like section 236) is to assist the beneficial winding up of the company. There are no express limitations on the purpose of the section, and the only implicit limitation is that the power may be invoked only for the purpose of enabling the office holder to exercise his statutory functions in relation to the insolvent company.

54. In particular, cases on section 236 make clear that the purpose of an order under the section includes enabling the office holder to investigate and decide whether to pursue, and generally to facilitate, proceedings against the respondent or others. For example:

54.1 In In re Gold Co, Sir George Jessel MR stated that the object of (a predecessor to) section 236 was to '…enable [the office holder] to find out facts before they brought an action, so as to avoid incurring the expense of some hundreds of pounds in bringing an unsuccessful action, when they might, by examining a witness or two, have discovered at a trifling expense that an action could not succeed'.

54.2 In In re Rolls Razor, Buckley J said that the purpose of the section was to assist the office holder to: 'discover the truth of the circumstances in connection with the affairs of the company, information of trading, dealings, and so forth, in order that [the office holder] may be able, as effectively as possible, and, I think, with as little expense as possible … to complete his function as [office holder], to put the affairs of the company in order and to carry...