In the Matter of Adenium Energy Capital, Ltd - Judgment

¶ ___________________________________________________________________________________ 220426 - FSD 54 of 2020. In the Matter of Adenium Energy Capital, Ltd. Coram: Richards J. - Judgment Page 1 of 44 IN THE GRAND COURT OF THE CAYMAN ISLANDS 1 FINANCIAL SERVICES DIVISION 2 CAUSE NO. FSD 54 of 2020 (CRJ) 3 4 IN THE MATTER OF THE COMPANIES ACT (2020 REVISION) 5 6 AND IN THE MATTER OF ADENIUM ENERGY CAPITAL, LTD. (IN OFFICIAL 7 LIQUIDATION) 8 9 10 11 Appearances: Mr. Brett Basdeo and Ms. Annalisa Shibli of Walkers on behalf 12 of the Joint Official Liquidators 13 14 Mr. Robert Levy QC instructed by Mr. Christopher Harlowe 15 and Mr. Laurence Aiolfi of Mourant 16 17 18 Before: The Hon. Justice Cheryll Richards Q.C. 19 20 Heard: 8th April 2021 21 22 Draft Judgment: 15th September 2021 23 24 Further Submissions: 4th January 2022, 1st February 2022 25 26 27 28 HEADNOTE 29 30 The Companies Act (2020 Revision), section 97 (1), test to be applied, whether leave required 31 to continue proceedings against company in liquidation. 32 33 34 35 36 37 JUDGMENT 38 39 40 ___________________________________________________________________________________ 220426 - FSD 54 of 2020. In the Matter of Adenium Energy Capital, Ltd. Coram: Richards J. - Judgment Page 2 of 44 1

¶ [1] Adenium Energy Capital, Ltd. (in Official Liquidation) (the “Company”), is registered in the 2 Cayman Islands as an exempt company limited by shares. In August 2019, the Grand Court 3 granted leave for the enforcement of an Arbitral Award made in Dubai on the 8th March 2019, 4 (the “Arbitral Award”). The Arbitral Award was made against the Company in favour of 5 Bareeq Capital in the amount of some US $2.25 million together with interest and costs. 6 Judgment was entered by the Court in terms of the Arbitral Award. 7 8

¶ [2] By petition presented on the 25th March 2020, Bareeq Capital sought the winding up of the 9 Company following its non-payment of the said Arbitral Award, (the “Petition”). By Winding 10 Up Order made on the 27th July 2020, Mr. Christopher Kennedy and Mr. Alexander Lawson 11 were appointed as Joint Official Liquidators (“JOLs”) of the Company. By virtue of s.100 (2) 12 of the Companies Act (2020 Revision), (the “Companies Act”) the winding up of a company 13 by the Court is deemed to commence at the time of the presentation of the Petition for winding 14 up (“the Commencement Date”). 15 16

¶ [3] There are three Summonses before the Court. 17 18

¶ [4] The first is a Summons dated 15th October 2020, (the “October Summons”). By the October 19 Summons the JOLs seek declaratory orders that three transfers of the Company’s property to 20 KSB Capital (Offshore) SAL (“KSB”) which were made after the Commencement Date are 21 void pursuant to s.99 of the Companies Act and for consequential rectification and declaratory 22 orders, damages and costs. 23 24

¶ [5] The three transfers are shares held in three entities as follows: 25 26 i. 1000 Class A Shares in Yasmeen Solar Jordan Limited (Yasmeen) on or around 27 the 26th May 2020 or 2nd June 2020. 28 ii. 330 Class A Shares and 63,350 Class B Shares in Adenium Solar Jordan Limited 29 (“ASJ”) on or around the 2nd June 2020. 30 iii. 1,000 shares Class B Shares in Zeini Limited (“Zeini”) on or around the 15th June 31

¶ [2020] 32 33 ___________________________________________________________________________________ 220426 - FSD 54 of 2020. In the Matter of Adenium Energy Capital, Ltd. Coram: Richards J. - Judgment Page 3 of 44 1

¶ [6] The first two entities Yasmeen and ASJ are exempted companies incorporated in the Cayman 2 Islands. Zeini is a company incorporated in the British Virgin Islands. 3 4

¶ [7] The second Summons is dated 20th November 2020 (the “November Summons”). By this 5 Summons KSB seeks to be added as a Respondent to the October Summons and for 6 declarations that the three transfers were not dispositions of the Company’s property pursuant 7 to s.99 of the Companies Act and are not void by virtue of that provision. Alternatively, an 8 order is sought that the dispositions of property by way of these transfers shall not be void by 9 virtue of the said provision. The costs of the application are sought to be paid out of the assets 10 of the Company as an expense of the liquidation. 11 12

¶ [8] The third Summons is dated 15th January 2021 and is filed by KSB, (the “January Summons”). 13 It seeks in summary the following: 14 15 i. That the JOLs’ Summons of 15th October 20020 be entirely struck out on the 16 ground that it is frivolous and/or vexatious and/or is otherwise an abuse of the 17 process of the Court. 18 19 ii. Alternatively that KSB is granted leave retrospectively pursuant to s.97 (1) of the 20 Companies Act to commence and proceed with the November Summons. 21 22 iii. Costs 23 24

¶ [9] The JOLs take the preliminary point that leave is required by KSB in respect of both the 25 November and January Summonses and that leave ought not to be granted in the circumstances 26 of this case. KSB argues that it ought to have been joined by the JOLs to the October Summons 27 and that its actions are defensive in nature. Alternatively, KSB says that it ought to be granted 28 leave as a matter of course as it is a secured creditor seeking to enforce proprietary rights 29 obtained by way of a Debenture Agreement dated 30th May 2019. 30 31 32 33 ___________________________________________________________________________________ 220426 - FSD 54 of 2020. In the Matter of Adenium Energy Capital, Ltd. Coram: Richards J. - Judgment Page 4 of 44 1 THE EVIDENCE 2 3

¶ [10] The October Summons filed on behalf of the JOLs is supported by the Third Affidavit of Mr. 4 Kennedy1. He attests that the books and records of the Company include certain resolutions 5 made on the 26th May 2020, (the “May Resolution”) and the 2nd June 2020, (the “June 6 Resolution”). By the May Resolution, the Company purported to transfer the shares held in 7 the above named three entities to KSB for a cash consideration of $1.00.2 8 9

¶ [11] By the June Resolution, the Company purported to cancel and replace the May Resolution. The 10 June Resolution described the Company as a borrower, (the “Borrower”) from four creditors 11 under certain facility agreements dated 9th March 2017, 18th October 2017, 22nd and 26th 12 February 2018, 1st March 2018 and 24th September 2018. The June Resolution further states 13 that as a condition for the funding, the four creditors and the Company entered into and 14 executed a Debenture Agreement dated 30th May 2019, (the “Debenture”). The amount 15 outstanding as at 19th November 2019 was approximately US$6 million.3 16 17

¶ [12] KSB is described in each of the May Resolution and the June Resolution as a company owned 18 by affiliates of the creditors. Transfers of shares held by the Company in the three entities were 19 made on the said 19th November 2019 in partial enforcement of the rights under the Debenture. 20 The value of the shares transferred was approximately US$5.1 million. This left a loan balance 21 of approximately US$1.7 million. The three questioned transfers to include shares in ASJ of 22 an agreed asset value of US$1.5 million were transferred in respect of this outstanding amount. 23 24

¶ [13] Mr. Kennedy states his belief that as these transfers were effected after the date of the filing of 25 the Petition without Court approval, they are automatically void pursuant to s.99 of the 26 Companies Act. 27 28

¶ [14] On the 24th September 2020, the JOLs issued a cease and desist notice to the registered offices 29 of ASJ, Yasmeen and Zeini with respect to the transfers. The responses to this notice included 30 31 32 1 Dated 15th October 2020 2 Exhibit CK-3, page 1, paragraph 2 3 US $6,699,833.95 ___________________________________________________________________________________ 220426 - FSD 54 of 2020. In the Matter of Adenium Energy Capital, Ltd. Coram: Richards J. - Judgment Page 5 of 44 1 that the Registers of Members of ASJ, Yasmeen and Zeini Limited are not maintained by the 2 registered offices but by the entities themselves. 3 4

¶ [15] A similar letter was sent to KSB on the 2nd October 2020. The letter stated in part:- 5 6 “…However, based on information provided to us by the Company’s directors, we 7 understand the Debenture was entered into to provide fixed and floating security over all 8 of the Company’s assets, estimated at approximately US$58,887,000 as of 31 December 9 2018, for certain loan facilities provided to the Company totaling US$6,483,924.42 (the 10 “Loan Facilities”). 11 12 With respect to the 2019 securities, the value attributed to these assets was substantially 13 lower in some cases than the value that was attributed to them in the Company’s previous 14 financial year, with no disclosure of the method of valuation used, and which were 15 transferred without reference to outstanding debts owed to the Company’s creditors. In the 16 circumstances, we believe these transfers were therefore invalid, pursuant to section 145 17 of the Companies Law of the Cayman Islands (the “Companies Law”), such that the 18 Company maintains a proprietary interest in the 2019 Securities. Accordingly, any further 19 dealings with the 2019 Securities, or any realisation thereof, should immediately cease. 20 21 With respect to the 2020 Securities, the impropriety of these transfers is clear. … 22 Nevertheless, pursuant to section 99 of the Companies Law, any disposition of the 23 Companies property after 25 March 2020 (the date on which the winding up of the 24 Company was deemed to commence) without the approval of the Grand Court is 25 automatically void, i.e. null and of no effect. Accordingly, the 2020 Securities remain the 26 property of the Company and the recipients of such property, or any realisation thereof, 27 would be considered constructive trustees of such property for the benefit of the Company. 28 29 Overall, the transfers of both the 2019 Securities and the 2020 Securities appear to have 30 been effected in breach of the several laws of the Cayman Islands and we believe would 31 likely be declared fraudulent by the Grand Court. Pending the Grand Court’s 32 determination of the same, any party subsequently found to have knowingly assisted with 33 illegitimate or unlawful actions or conduct may also be subject to civil and /or criminal 34 liability. As a potential unlawful recipient of the Company’s assets, you are hereby on 35 notice of actions that may require your assistance or may otherwise be taken against you.” 36 37

¶ [16] KSB’s response included the suggestion that the JOLs await substantive responses from the 38 Lenders and a denial of the matters outlined in the letter. 39 40

¶ [17] The JOLs have filed two additional Affidavits. The First Affidavit of Ms. Annalisa Peccarino4 41 provides evidence of service of the October Summons and supporting Affidavit on the three 42 43 4 Dated 18th November 2020 ___________________________________________________________________________________ 220426 - FSD 54 of 2020. In the Matter of Adenium Energy Capital, Ltd. Coram: Richards J. - Judgment Page 6 of 44 1 entities and on KSB on or about the 16th October 2020. The First Affidavit of Ms. Benicha 2 Tyndale5 in part produces two legal advices provided to the Company on the 2nd October 2019 3 and 29th May 2020. 4 5

¶ [18] The November Summons is supported by the First Affirmation of Mr. Wassef Sawaf dated 30th 6 November 2020. He attests that he is duly authorised to make the Affirmation on behalf of 7 KSB. In summary he states therein that the Company was provided by certain creditors6 with 8 loan facilities amounting to US$6 million towards its ongoing operational expenditure. He 9 exhibits requests from two of the lenders dated 1st and 5th May 2019 for a charge over the assets 10 of the Company as security.7 In response to these requests, the Company which was then in 11 default of its obligations under the facility agreements entered into the Debenture8 with the 12 Lenders. He states that the Debenture was executed as a deed and that it granted a fixed and 13 floating charge over all of the Company’s property including the shares which were 14 subsequently transferred. Thereafter a further US$6 million was advanced to the Company. 15 16

¶ [19] Mr. Sawaf further states that in October 2019, the creditors sought to enforce the Debenture 17 when the Company failed to repay amounts under the loan facility agreements. He describes 18 KSB as a company owned by affiliates of the creditors and states that the creditors enforced 19 the Debenture by requiring the Company to transfer certain shares to KSB. 20 21

¶ [20] Transfers were made on two occasions, the first of which took place in 2019. The value of the 22 shares then transferred was later found to be only US$5.1 million which was less than the 23 amount owed to the creditors. As a result of this shortfall, the amount owed under the facility 24 agreements was approximately US$1.7 million as at 31st May 2020. In response to a second 25 enforcement notice from the creditors, on 26th May 2020, the Company’s Board approved the 26 transfer of further shares in the three entities named above. The ascribed value of the ASJ shares 27 is US$1.5 million. The shares in Zeini and Yasmeen are said to be management shares which 28 have no ascertainable value. Both entities are investment vehicles for other investors. The 29 shares in these entities were transferred to KSB to facilitate the continuation of management 30 by the same management team. 31 5 Dated 17th March 2021 6 Infinity World Investments S.A. Viscom investments Limited, Maymouna Holding SAL and Wassef Sawaf, (the “Lenders”) 7 Exhibit WS-1 pages 90 -91 8 Exhibit WS- 1 page 50 ___________________________________________________________________________________ 220426 - FSD 54 of 2020. In the Matter of Adenium Energy Capital, Ltd. Coram: Richards J. - Judgment Page 7 of 44 1

¶ [21] Mr. Sawaf also asserts that as the Debenture was entered into prior to the Commencement Date, 2 the shares were not the property of the Company as at that date and that alternatively s.99 does 3 not apply to the transfer of property effected pursuant to the enforcement of a valid security 4 interest. He says that even if the Court were to find that the 2020 transfers are void pursuant 5 to s.99, the shares would remain subject to the security interest arising under the Debenture. 6 7

¶ [22] As to the financial issues raised by the JOLs, Mr. Sawaf states that the reference to the 8 Company having assets of some $58 million, refers to the position as at December 2018 and is 9 outdated information. The Company’s financial position as at December 2019 was significantly 10 worse having regard to the Company’s liabilities and the deteriorating financial position as a 11 result of market turbulence in the renewable energy sector. 12 13 THE DEBENTURE 14 15

¶ [23] The Debenture is stated to be governed by English Law. It is signed between Viscom 16 Investments Limited, Infinity World Investments SA, Maymouna Holding SAL and Wassef 17 Sawaf as Lenders and the Company as Borrower. It is expressed by way of background to be 18 a deed by which the Borrower provides security to the Lenders in respect of the loan facilities 19 extended. There is a covenant by the Borrower to pay to the Lenders on demand the Secured 20 Liabilities, (as defined therein), when they become due. 21 22

¶ [24] By Clause 3.1, the Company charges to the Lenders by way of a first fixed charge a number of 23 items. These include investments which are defined as: “All certificates, shares, stocks, 24 debentures, bonds or other securities or investments (whether or not marketable) from time to 25 time legally or beneficially owned by or on behalf of the Borrower.” 26 27

¶ [25] Clause 3.3 provides for a floating charge on all the Borrower’s undertakings, property, assets 28 and rights not otherwise effectively charged or assigned. 29 30

¶ [26] By Clause 3.5 the charge becomes fixed in a number of circumstances including that a 31 resolution or “order is made for the winding-up, dissolution, administration or re-organisation 32 of the Borrower”. The charge may also become fixed by written notice of the Lenders acting 33 jointly. 34 ___________________________________________________________________________________ 220426 - FSD 54 of 2020. In the Matter of Adenium Energy Capital, Ltd. Coram: Richards J. - Judgment Page 8 of 44 1

¶ [27] The Secured Assets are defined as all the assets, property and undertaking of the Borrower 2 which are or expressed to be subject of the security created by the Debenture. 3 4

¶ [28] By Clause 12.1, the security becomes enforceable if an event of default occurs under any of 5 the loan facility agreements. 6 7

¶ [29] Clause 13.4 provides: 8 9 “13.4. Redemption of prior Security 10 (a) At any time after the security constituted by this deed has become enforceable, the 11 Lenders may: 12 (i) redeem any prior Security over any Secured Asset; 13 (ii) procure the transfer of that Security to itself; and 14 (iii) settle and pass the accounts of the holder of any prior Security (and any 15 accounts so settled and passed shall, in the absence of any manifest error, 16 be conclusive and binding on the Borrow). 17 (b) The Borrower shall pay to the Lenders immediately on demand all principal, 18 interest, costs, charges, and expenses of, and incidental to, any such redemption 19 or transfer, and such amounts shall be secured by this deed as part of the Secured 20 Liabilities.” 21 22

¶ [30] By Clause 19.1, the Borrower agrees to take any action required to facilitate the realisation of 23 the security and by Clause 22.1, the Lenders may assign or transfer all their rights under the 24 Debenture. 25 26 THE COMPANIES ACT 27 28

¶ [31] Section 97 of the Companies Act provides for a moratorium on the institution of proceedings 29 against companies in liquidation subject to the leave of the Court. It states: 30 31 “ (1) When a winding up order is made or a provisional liquidator is appointed, no suit, 32 action or other proceedings, including criminal proceedings, shall be proceeded 33 with or commenced against the company except with the leave of the Court and 34 subject to such terms as the Court may impose. 35 ___________________________________________________________________________________ 220426 - FSD 54 of 2020. In the Matter of Adenium Energy Capital, Ltd. Coram: Richards J. - Judgment Page 9 of 44 1 (2) When a winding up order has been made, any attachment, distress or execution 2 put in force against the estate or effects of the company after the commencement 3 of the winding up is void.” 4 5

¶ [32] Section 99 of the Companies Act provides that: 6 7 “When a winding up order has been made, any disposition of the company’s property and 8 any transfer of shares or alteration in the status of the company’s members made after the 9 commencement of the winding up is, unless the Court otherwise orders, void.” 10 11

¶ [33] Section 142 of the Companies Act preserves the position of secured creditors. It states: 12 13 “Notwithstanding that a winding up order has been made, a creditor who has security over 14 the whole or part of the assets of a company is entitled to enforce that person’s security 15 without the leave of the Court and without reference to the liquidator.” 16 17

¶ [34] The Companies Winding Up Rules, O.17 r.1 (“CWR”) provides that a creditor who has security 18 over the assets of a company is entitled to enforce his security without the leave of the Court 19 and without reference to the liquidator. By CWR O.19 r.4, an application for an order validating 20 the transfer of any shares in a company in liquidation may be made by its liquidator or by the 21 transferor or transferee of the shares. 22 23 THE APPLICABLE PRINCIPLES 24 25

¶ [35] The JOLs rely on three cases in particular. The first, Tianrui (International) Holding 26 Company Ltd. v. China Shanshui Cement Group Ltd.9, sets out the nature of a validation 27 application. In that case the Cayman Islands Court of Appeal (“CICA”) considered an appeal 28 against a validation order made by the Grand Court in respect of certain transfers of shares held 29 by Tianrui (International) Holding Company Ltd. (“Tianrui”) in China Shanshui Cement Group 30 Limited to the Hong Kong Securities Clearing Company Nominees Limited. Tianrui contended 31 that the Grand Court had failed to identify the correct approach to validation which was 32 applicable to s.99 of the Companies Act. 33 34 35 9 2020 1 CILR 417 ___________________________________________________________________________________ 220426 - FSD 54 of 2020. In the Matter of Adenium Energy Capital, Ltd. Coram: Richards J. - Judgment Page 10 of 44 1

¶ [36] The CICA noted that the purpose of s.99 is to preserve the status quo once a petition has been 2 presented. Thus any transactions thereafter will be avoided if a winding up order is made unless 3 the court exercises its discretion to validate such transactions. The Court stated: 4 “The avoidance effect of s.99 enabled the liquidator to unwind any transactions which 5 might have taken place during this period and return the assets and circumstances of the 6 company and its contributors to those which were in place at the time the winding up 7 commenced.”10 8 9

¶ [37] The Court also noted the importance of validation during the “twilight period” particularly with 10 respect to trading companies which may be enabled to continue to operate in the ordinary 11 course of business prior to a winding up application being heard. It was emphasized that the 12 power to make a validation order ought not to be exercised in such a way that it undermines 13 the essential purpose of s.99. The Court by reference to case law identified a number of relevant 14 principles. These may be summarised as follows: 15 16 i. Section 99 applies to all companies whether solvent or insolvent irrespective of the 17 nature of the grounds for winding up. 18 19 ii. A court in every case must satisfy itself that an order which is being made under 20 s.99 of the Companies Act is made in furtherance of the objective not to undermine 21 or frustrate the maintenance of the status quo. 22 23 iii. The court’s assessment as to whether or not the proposed validation would 24 undermine or frustrate the maintenance of the status quo will vary according to the 25 circumstance of the company and the nature of the transaction in respect of which 26 validation is sought i.e. whether it is one which is in the ordinary course of the 27 company’s business. 28 29

¶ [38] Section 97 of the Companies Act was considered in the case of BDO Cayman Ltd. v. Ardent 30 Harmony Fund Inc. (In Official Liquidation)11. Counsel on behalf of the JOLs places 31 significant reliance on this judgment and drew the Court’s attention to the exposition of the 32 rationale for requiring that leave be obtained. In that case, Ramsey Hale J. stated: 33 10 Ibid, paragraph 15 11 Grand Court, FSD 74 of 2020 (MRH) unreported 19th November 2020 ___________________________________________________________________________________ 220426 - FSD 54 of 2020. In the Matter of Adenium Energy Capital, Ltd. Coram: Richards J. - Judgment Page 11 of 44 1 “The rationale for requiring leave to bring proceedings is succinctly set out in Vagrand v 2 Fielding a decision of the Full Court of the Federal Court of Australia on which 3 BDO relied in this application, where the Court said this: 4 5 “The reason for imposing a requirement of leave, in the case of litigation against 6 companies in liquidation, was explained a century ago by Manning J, of the New South 7 Wales Supreme Court, in Thompson v Mulgoa Irrigation Co Ltd. (1893) 4 BC (NSW) 33: 8 9 “All that s.140 means is that a company in liquidation is not to be harassed and 10 its assets wasted by unnecessary litigation, and the leave of the Court is therefore 11 required as a safeguard. Before any action can be brought or continued against a 12 company, the court must investigate the intended litigation.”12 13 14

¶ [39] The discretion of the court under the section is to be exercised with a view to doing what is 15 right and fair according to the circumstances of each case. The threshold question which a court 16 must first consider before granting leave was stated to be whether the applicant has a claim 17 which is worth entertaining or put another way, that there is a genuine arguable claim. In 18 considering this question, and satisfying itself that there is such a claim a court is not required 19 to investigate the merits of the dispute. 20 21

¶ [40] The learned Judge referred to the case of Gardner v. Lemma Europe Insurance13 and the 22 observation of Patten LJ therein that leave is unlikely to be granted where the issue in the action 23 could conveniently be dealt with in the liquidation. The applicable principles governing s.97 24 extracted from the case law were identified as follows: 25 26 “(1) The applicant for leave must first establish an arguable case to be litigated; 27 28 (2) If it establishes an arguable case, the Court then has to consider whether it would 29 be fair, in the context of the liquidation as a whole, for the JOLs to have to deal 30 with the burden of that litigation. The Court’s discretion is wide and unfettered 31 - there is no presumption in favour of or against giving leave - and each case 32 turns on its own facts; 33 34 (3) In deciding what would be fair, the Court can give s.97 leave subject to conditions 35 12 Ibid, paragraph 13 13 2016 EWCA Civ. 484 ___________________________________________________________________________________ 220426 - FSD 54 of 2020. In the Matter of Adenium Energy Capital, Ltd. Coram: Richards J. - Judgment Page 12 of 44 1 subject to a consideration of what would be fair, in the context of the liquidation 2 as a whole.”14 3 4

¶ [41] The factual circumstances in the case before the Grand Court included two BDO entities 5 seeking leave to commence proceedings against the defendant company to restrain it from 6 continuing proceedings which it had commenced in New York against one of the two entities. 7 The argument was that the seeking of the restraint was essentially a defensive measure. 8 9

¶ [42] The Court noted that one of the BDO entities was not a party to the New York proceedings, 10 was not appealing a judgment in favour of the liquidators, was not seeking security for costs, 11 was not a defendant in proceedings brought by the company, neither was it bringing a counter 12 claim against the company nor seeking costs against the company.15 The Court concluded that 13 the entity had initiated proceedings against the company by which it sought adverse orders 14 against it and required leave. In respect of that entity the Court found that it did not have an 15 arguable case noting that the case turned on a question of New York Law. The Court concluded 16 that it would not be right or fair to burden the liquidation estate by lifting the statutory stay 17 against proceedings. 18 19

¶ [43] Counsel on behalf of the JOLs also drew the Court’s attention to the case of In the matter of 20 Abraaj Investment Management Limited (In Official Liquidation)16. In that case, the 21 applicant sought leave by way of two summonses to commence proceedings against a company 22 in liquidation in order to seek disclosure of certain financial information. This in circumstances 23 where the applicant asserted that the liquidators’ confidentiality review of certain materials, 24 which was undertaken in order to protect to third party rights, prevented it from having full 25 access to information. The first summons sought leave to commence proceedings outside of 26 the winding up of the company. The second summons sought orders and directions within the 27 winding up. 28 29

¶ [44] In applying the relevant legal principles, McMillan J. stated that while demonstration of an 30 arguable case to be litigated may be the beginning of the matter, it is far from being the end of 31 14Grand Court, FSD 74 of 2020 (MRH) unreported 19th November 2020, paragraph 24 15 Ibid, paragraph 25 16 Grand Court - Unreported FSD 111 of 2018 (RMJ) 25th February 2021 ___________________________________________________________________________________ 220426 - FSD 54 of 2020. In the Matter of Adenium Energy Capital, Ltd. Coram: Richards J. - Judgment Page 13 of 44 1 it. The learned Judge highlighted the need when considering an application for leave for 2 consideration to be given to fairness in the context of the liquidation as a whole. It was stated:- 3 4 “In Ogilvie-Grant and Anor v. Est (1983) I ACLC 742 McPherson J states at page 744 5 that the purpose of such a restriction is that, without the relevant restriction, a company in 6 liquidation would be subjected to a multiplicity of actions “which would be both expensive 7 and time consuming as well as in some cases unnecessary.” 8 In addition, this Court notes with approval the salutary observation of Patten LJ in In the 9 matter of Lemma Europe Insurance Company Limited (in liquidation) [2006] EWCA Civ. 10 484 at paragraph 2: 11 “The imposition of an automatic stay is designed to avoid the unnecessary 12 expenditure of assets otherwise available for distribution amongst creditors and 13 to support the replacement of a creditor’s right to establish a claim by judgment 14 in an action with a right to lodge a proof of debt. This process is inherently less 15 expensive and carries with it a right of access to the Companies Court in the event 16 that the proof is rejected: see Rule 4.83 of the IR 1986. Consistently with this, 17 leave to commence proceedings will only be granted by the court when it is right 18 and fair to do so in all the circumstances and is unlikely to be granted where the 19 issue in the action could be dealt with as conveniently in the liquidation as in other 20 proceedings: see Re Exchange Securities & Commodities Limited [1983] BCLC 21 186 at 196.” 22 These propositions provide strong reinforcement for the learned dicta of Smellie CJ in the 23 AHAB case, adopting an observation by Pumfrey J, that fairness in this context is fairness 24 in the context of the liquidation as a whole. In particular, where do the interests of the 25 creditors as a whole lie and what is the capacity of the liquidators to deal with the burden 26 of the proposed litigation? 27 In practical terms these are questions which will almost necessarily answer themselves in 28 examining the factual circumstances of a winding up.”17 29 30

¶ [45] The learned Judge found the submission of the liquidator to be persuasive, that the starting 31 premise is that generally proceedings should not be permitted against a company in liquidation 32 and that “proper consideration needs to be given to the interest of the creditors as a whole and 33 the capacity of the liquidators to deal with the burden of proposed litigation.”18 Having 34 considered what would be fair to the liquidation as a whole, the learned Judge concluded that 35 leave should not be granted to commence proceedings even though the case of the applicant 36 17 Ibid, paragraphs 36 -39 18 Ibid, paragraph 77 ___________________________________________________________________________________ 220426 - FSD 54 of 2020. In the Matter of Adenium Energy Capital, Ltd. Coram: Richards J. - Judgment Page 14 of 44 1 was “arguable and sufficiently solidly founded”19. This was against the factual background 2 which included that the company was deeply insolvent, the nature of the contractual 3 arrangements which had been in place, the risk of a multiplicity of actions as well as the fact 4 that avenues for obtaining disclosure in the liquidation were available by means of s.110 and 5 s.114 of the Companies Act. 6

¶ [46] Counsel for KSB points to the distinction between the factual circumstances of the cases of 7 BDO Cayman Ltd. v. Ardent Harmony Fund Inc and In the matter of Abraaj Investment 8 Management Limited on the one hand and the present case on the other. It is argued that the 9 existence of the facility agreements and of the Debenture which was entered into as a result of 10 those long existing facility agreements provides a distinctly different set of circumstances for 11 the consideration of this Court. BDO Cayman Ltd. v. Ardent Harmony Fund Inc. is said to 12 have been a hostile action against the company as distinct from the instant case in which the 13 Applicant is seeking to assert a proprietary interest. 14 15

¶ [47] The cases cited by Counsel on behalf of KSB include In Re Wanzer Limited.20 In that case, 16 the landlord of premises leased to a company in liquidation, brought proceedings to sequester 17 the stock, furniture and effects of the company as security towards the payment of its rent. The 18 English Court was satisfied that the action of the landlord was a proceeding under the provision 19 in Scottish Law which prohibited proceedings against a company in liquidation without the 20 leave of the Court. The Court said that while the liquidator was entitled to the order sought as 21 to the prohibition, that was not the end of the matter because “it would still be open to the 22 landlord to apply to the Court for leave to proceed under the 87th section.” 23 24

¶ [48] The Court having concluded that the landlord was a secured creditor and was entitled to the 25 security given to him for his rent gave the landlord leave to proceed on condition of payment 26 of the costs of the matter. 27 28

¶ [49] Reliance was also placed on the case of Thomas Evan Cook v. Mortgage Debenture Ltd21, 29 with respect to the nature of the application of KSB which is said to be essentially defensive in 30 nature. 31 19 Ibid, paragraph 89 20 1891 1 Ch 305 21 2016 EWCA Civ. 103 ___________________________________________________________________________________ 220426 - FSD 54 of 2020. In the Matter of Adenium Energy Capital, Ltd. Coram: Richards J. - Judgment Page 15 of 44 1

¶ [50] In that case the English Court of Appeal considered the construction of the moratorium 2 provision in respect of proceedings against an insolvent company as set out in paragraph 43 (6) 3 of Schedule B 1 to the Insolvency Act 1986. The Court said that there was no distinction in 4 the approach to the moratorium, between proceedings in respect of a compulsory liquidation 5 and proceedings on an administration. 6 7

¶ [51] In referring to the nature of the moratorium, the Court stated: 8 9 “The moratorium on legal process against the property of the company best preserves the 10 opportunity to save the company or its business by preventing the dismemberment of its 11 assets through execution or distress. The moratorium on legal proceedings serves the same 12 purpose by preventing the company from being distracted by unnecessary claims. As 13 Nicholls LJ put it in In re Atlantic Computer Systems plc [1992] Ch 505 at 528, the 14 moratorium provides “a breathing space”. Once again, however, the court will readily 15 give permission for proceedings to be commenced or continued where it is appropriate to 16 do so.”22 17 18

¶ [52] Counsel highlighted the following statement of the Court: 19 20 “It follows, as a matter of basic fairness, that defendants to proceedings where the claimant 21 is a company in administration should be able to defend themselves without restriction. 22 This causes no difficulty in taking steps such as serving a defence or witness statements or 23 participating in a trial. However, an issue could be said to arise where defence takes the 24 form of an active step against the claimant company. It is established that essentially 25 defensive steps are not within the statutory moratorium.”23 26 27

¶ [53] The Court in the case of Thomas Evan Cook v. Mortgage Debenture Ltd referred to the case 28 of Humber and Co v. John Griffiths Cycle Co.24, in which the House of Lord stated that 29 “…when once an action by the company itself has been proceeded with, there is no necessity 30 for the defendants in the action to obtain leave for any defensive proceeding on their part.” 31 32

¶ [54] The Court drew the distinction between offensive and defensive proceedings in the following 33 way: 34 “The distinction between legal proceedings against a company and essentially defensive 35 steps is illustrated by the approach taken by the courts to the application of moratorium 36 provisions to counterclaims. If a counterclaim is pleaded solely to raise a defence by way 37 22 Ibid, paragraph 13 23 Ibid, paragraph 17 24 1901 85 LT 141 ___________________________________________________________________________________ 220426 - FSD 54 of 2020. In the Matter of Adenium Energy Capital, Ltd. Coram: Richards J. - Judgment Page 16 of 44 1 of set off, it is a defensive measure and no permission of the court is required. If, on the 2 other hand, the counterclaim seeks a net payment from the claimant to the defendant, it 3 does constitute a legal proceeding against the company for which the permission of the 4 court is required. See Langley Constructions (Brixham) Ltd v Wells [1969] 1 WLR 503 5 (CA).”25 6 7

¶ [55] The Court drew a contrast between circumstances whereby a summons would bring the 8 company in liquidation into proceedings where adverse orders could be made against it with 9 the circumstances in that case. 10 11 “In my view, the position in the Eastern Holdings case is clearly distinguishable from the 12 circumstances of the present case. By the interpleader summons, the applicant was, as Mr. 13 Clegg for the respondent submits, seeking to bring the company in liquidation into 14 proceedings in which it was not a party and in which orders adverse to its interests could 15 be made. It was essentially no different from the commencement of proceedings by one of 16 the possible beneficial owners against the company in liquidation seeking appropriate 17 declaratory relief. Such proceedings would clearly fall within the terms of the statuary 18 moratorium. 19 20 By contrast, in the present case, MDL is not only a party to the proceedings but is the 21 claimant. By making his application to be joined, Mr. Cook was not seeking any relief 22 against the company but was seeking to be heard on an issue which affected his firm's 23 interests in possible proceedings that might be brought by a third party, Nationwide. While 24 not a defensive proceeding, in the strict sense of a step taken to defend himself against a 25 claim brought by the company in administration, the application has none of the character 26 of legal proceedings against the company.”26 27 28

¶ [56] In Buchler v. Talbot27, the issue before the Court concerned the rights of a debenture holder 29 arising from a floating charge over the assets of a company which had been placed into 30 voluntary liquidation, specifically as to where the liquidation costs and expenses ranked in 31 relation to the claims of the debenture holder. 32 33

¶ [57] The House of Lords held that the relevant section of the Companies Act did not authorise 34 payments to the liquidators out of the assets which were subject to the floating charge. The 35 Court further held that a debenture holder has a proprietary interest in the debenture holder’s 36 fund. This was to be treated as a separate fund which would bear its own costs of administration. 37 38 25 Ibid, paragraph 24 26 Ibid, paragraphs 29 and 30 27 2004 2 A.C. 298 ___________________________________________________________________________________ 220426 - FSD 54 of 2020. In the Matter of Adenium Energy Capital, Ltd. Coram: Richards J. - Judgment Page 17 of 44 1 Assets subject to a floating charge are not required to bear the costs of winding up and 2 receivership. 3 4

¶ [58] In Scotia Bank (Cayman Islands) Limited v. Treasure Island Resort (Cayman) Limited28, the 5 Grand Court considered the applicability of s.98 and s.156 of the Companies Law (2004 6 Revision) in circumstances where a debenture and charge holder sought to dispose of assets of 7 a defendant company. The sections provided: 8 9 “98. A winding up of a company by the Court shall be deemed to commence at the time 10 of the presentation of the petition for the winding up.” 11 12 “156. Where any company is being wound up by the Court or subject to the supervision 13 of the Court all disposition of the property, effects and things in action of the 14 company, and every transfer of shares, or alteration in the status of the members 15 of the company made between the commencement of the winding up and the order 16 for winding up shall, unless the Court otherwise orders, be void” 17 18

¶ [59] Having been notified of the presentation of a winding up petition, the receiver in regard to the 19 rights of the debenture holder, applied for a declaration as to whether the assets of the company 20 (a hotel) could be sold. There was also a statutory charge under the Registered Land Law (2004 21 Revision) over the property. 22 23

¶ [60] The Court identified the primary issue as being: 24 25 “Whether a sale or other disposition of a company’s property, to be effected during 26 its winding up but in exercise of rights and powers vested by a debenture or charge 27 obtained prior to the company being put into winding up, is contemplated by s.156 28 of the Law.”29 29 30

¶ [61] The Court stated that the principle gleaned from a number of judicial pronouncements is that 31 provided that the receiver was expressly authorised by the debenture holder or chargee, any 32 disposition of assets executed would be valid even though the debtor company was in 33 liquidation: 34 35 28 2004-2005 CILR 423 29 Ibid paragraph 10 ___________________________________________________________________________________ 220426 - FSD 54 of 2020. In the Matter of Adenium Energy Capital, Ltd. Coram: Richards J. - Judgment Page 18 of 44 1 “24 In Sowman v. David Samuel Trust Ltd. (9), a case very much on point here, it was 2 held that a receiver could execute a contract to sell a freehold property comprised 3 in his debenture notwithstanding the making of a winding-up order. The winding 4 up did not affect the power of the receiver to hold and dispose of the company’s 5 property, including the power to use the company’s name for those purposes, 6 although the winding up had deprived the receiver of the power to bind the 7 company personally by acting as its agent. Goulding, J. ([1978] 1 W.L.R. at 30) 8 explained that the disposition by way of debenture was binding on the company 9 and those claiming through it (such as unsecured creditors) as well in liquidation 10 as before liquidation, except of course where the debenture is otherwise 11 susceptible of being set aside under some other provision of the Companies Act.” 12 13

¶ [62] The Court explained the principle of secured assets as assets falling outside the scope of the 14 liquidation estate, in the following way: 15 16 “30 The principle that secured assets do not fall within the scope of a liquidation estate 17 is even more generally explained in the following applicable terms by Lord Millett 18 ([2004] 2 A.C. 298, at paras. 51–52): 19 20 “Bankruptcy and companies liquidation are concerned with the realisation and 21 distribution of the insolvent’s free assets among the unsecured creditors. They are 22 not concerned with assets which have been charged to creditors as security, 23 whether by way of fixed or floating charge. Secured creditors can resort to their 24 security for the discharge of their debts outside the bankruptcy or winding up. 25 Assets subject to a charge belong to the charge holder to the extent of the amounts 26 secured by them; only the equity of redemption remains the property of the chargor 27 and falls within the scope of the chargor’s bankruptcy or winding up. As James 28 L.J. observed in In re Regent’s Canal Ironworks Co (1877) [sic.] 3 Ch. D. 411, 29 427 charge holders are creditors ‘to whom the [charged] property [belongs] . . . 30 with a specific right to the property for the purpose of paying their debts.’ Such a 31 creditor is a person who ‘is to be considered as entirely outside the company, who 32 is merely seeking to enforce a claim, not against the company, but to his own 33 property’ per James L.J. in In re David Lloyd & Co (1877) 6 Ch. D. 339, 344. 34 35 The 1883 and 1888 Acts [the early English Acts under which those Victorian cases 36 were decided and which were primogenitors to the Companies Law] were 37 concerned with the distribution of ‘the assets of any company being wound up.’ 38 They were not concerned with assets to the extent to which they belonged to 39 secured creditors, and accordingly did not affect assets over which the company 40 had given a charge whether fixed or floating. Preferential creditors were thus 41 given priority over other unsecured creditors in the distribution of the company’s 42 free assets, but like them were postponed to the expenses of the winding up and 43 had no right to be paid out of any charged assets.” 44 45 46 ___________________________________________________________________________________ 220426 - FSD 54 of 2020. In the Matter of Adenium Energy Capital, Ltd. Coram: Richards J. - Judgment Page 19 of 44 1 THE ARGUMENTS IN RESPECT OF LEAVE 2 3 PROCESS 4 5

¶ [63] The JOLs ask that each of KSB’s November Summons and January Summons be set aside and 6 that their application for retrospective leave be refused. Counsel on their behalf submits that 7 the conduct of KSB is an abuse of process and that its position is that of an unnecessarily 8 adversarial third party who ‘purports to be a former secured creditor’. It is said that had KSB 9 obtained leave as was required it could have then brought a validation application which might 10 not necessarily have been opposed by the JOLs. Instead the position is that no validation 11 application has been made in accordance with s.99 of the Companies Act. A third party ought 12 not to be seeking to intervene or be joined in the liquidation proceedings and that any 13 proceedings to be brought by a third party should be brought under a separate cause number. 14 15

¶ [64] As to standing, it is submitted that KSB is a recipient of the transfer of securities, it is neither 16 a transferee nor a creditor of the Company and that it does not fall within the list of qualified 17 persons permitted to make an application under CWR O. 19 r.4. It is a separate company which 18 is said to be an affiliate, or is made up of the affiliates of the creditors. Counsel said that 19 although the application is filed by KSB, the submissions are really being made on behalf of 20 the creditors and that if the secured creditors are using KSB as an agent or recipient for these 21 proceedings this is not explained in the evidence. 22 23

¶ [65] While there is some resonance to some aspects of this argument, the question as to KSB’s status 24 does not appear to be a particularly strong one. It is noted that Mr. Sawaf exhibits letters dated 25 2nd October 2019 and 21st January 2020 on behalf of the four lenders requesting the transfer of 26 shares to KSB, a “company collectively affiliated with the secured creditors.” Share transfers 27 are exhibited dated 19th November 2019 but there are also transfers dated 26th May 2020, 27th 28 May 2020 and 2nd June 2020. These latter purport to transfer shares to the “transferee KSB.” 29 30 31 32 33 ___________________________________________________________________________________ 220426 - FSD 54 of 2020. In the Matter of Adenium Energy Capital, Ltd. Coram: Richards J. - Judgment Page 20 of 44 1 DEFENSIVE POSITION 2 3

¶ [66] It is argued by Counsel on behalf of the JOLs that KSB’s position is not a defensive one. It is 4 a challenge to the JOL’s October Summons which requires leave. Counsel noted that the initial 5 application which had been contemplated by KSB was an application for validation and said 6 that “the defensive step would have been to seek validation of the Directors’ actions in the 7 context of s.99 and its requirements.” 8 9

¶ [67] Counsel submitted that instead of doing this, KSB has brought applications which are 10 adversarial to the Company which should have been brought by way of originating process. By 11 the November Summons and the January Summons filed, declaratory orders, strike out, and 12 adverse cost orders are all sought against the Company. KSB should be dismissed from 13 continuing in the liquidation proceedings. It would not be right or fair for it to do so. Counsel 14 submitted further that the effort appears to be to have the Court make a declaration as to the 15 validity of the Debenture and the circumstances surrounding it. 16 17

¶ [68] Counsel for KSB’s argument is a two-fold one. Leave is not required as both the November 18 Summons and the January Summons filed by KSB are essentially defensive in nature. If leave 19 is required it ought to be granted as a matter of course given the status of KSB as the transferee 20 of shares transferred by virtue of the Debenture. Counsel’s primary submission is that by virtue 21 of s.142 of the Companies Act, the secured creditors were entitled to enforce their security 22 without reference to the JOLs or to the Court. 23 24

¶ [69] Counsel drew the Court’s attention to an extract from Tolley’s Insolvency Law in which the 25 authors say: 26 “The secured creditor so described because in addition to the (personal) claim which 27 he has against the company for payment of his debt, he may also take possession of 28 some property belonging to the company for the purposes of selling it and recovering 29 the money owed to him from the proceeds of sale. 30 31 The supreme advantage for the secured creditor is the recovery of the debt outside the 32 liquidation process at least to the extent of the value of the company’s property which 33 constitutes the security. For any balance owing the creditor will claim as an ordinary 34 35 36 37 ___________________________________________________________________________________ 220426 - FSD 54 of 2020. In the Matter of Adenium Energy Capital, Ltd. Coram: Richards J. - Judgment Page 21 of 44 1 creditor... The effect on the company’s assets is clear. They are reduced to the extent 2 that they are applied, by sale or otherwise, in payment of the debts which they secure”30 3 4

¶ [70] Counsel also referred to an extract from McPherson & Keay, The Law of Company 5 Liquidation31, which states that: 6 7 “Liquidators must naturally satisfy themselves in the onset as to the validity of any 8 security interest, the creditors assert that they hold. Like bankruptcy, liquidation does 9 not interfere with the security rights of a secured creditor and so a secured creditor 10 may realise otherwise deal with the security. However, if a secured creditor needs, for 11 some reason, to take proceedings against the company in relation to the security, it is 12 necessary first to obtain the leave of the court under s.130(2). The Rules do provide 13 some procedures for those secured creditors who may want to claim in the liquidation. 14 In general terms they follow the provisions found in earlier bankruptcy legislation. 15 The effect of the bankruptcy legislation as far as secured creditors was concerned was 16 succinctly expressed by Sir George Jessel MR in Moor v Anglo-Italian Bank.” 17

¶ [71] Counsel said that while he is not aware that the JOLs have actually satisfied themselves as to 18 the validity of the Debenture, there is no challenge to it so it is assumed that it is accepted as 19 effective according to its terms. 20 21

¶ [72] Counsel submitted that in the absence of challenge to the Debenture, which there is not in this 22 case, the clear position is that the creditors are secured creditors. Detailed submissions were 23 made on the factual background in support of the argument. Counsel submitted that the loan 24 agreements between the creditors and the Company which led to the Debenture were entered 25 into between March 2017 and September 2018. Infinity World Investments SA lent some US$6 26 million, Maymouna Holding SAL lent US$1.5 million, Viscom Investments Ltd. lent US$1 27 million and Mr. Sawaf lent US$500,000.00. By May 2019 the Company was in default of its 28 obligations which led the entities to request additional security. Counsel submits that the 29 Debenture is a valid security document which serves to secure the rights of the creditors and 30 that given the factual circumstances, in light of the authoritative pronouncements in texts, the 31 statute and the common law including cases decided by the Grand Court, the secured creditors 32 are outside the liquidation process and may act in reliance on their security without regard to 33 the winding up. 34 35 30 Paragraph L5323 31 4th Edition paragraph 12-032 ___________________________________________________________________________________ 220426 - FSD 54 of 2020. In the Matter of Adenium Energy Capital, Ltd. Coram: Richards J. - Judgment Page 22 of 44 1

¶ [73] The further submission is that the JOLs were aware of the Debenture before the filing of the 2 October Summons. This is said to be evident from the Third Affidavit of Mr. Kennedy. Despite 3 that awareness, the October Summons did not reference the fact that the transfers took place 4 by way of enforcement of security and it was not served on KSB which was the transferee. The 5 argument is that both of these should have been done and that the JOLs fell into error in not 6 doing so and in attempting to proceed by way of an ex-parte summons. Had those errors not 7 been made, leave would not now be required. Counsel said that had the JOLs acted in the way 8 they should have, KSB would have been properly joined “as an obvious necessary and proper 9 party,” and that: 10 11 “It is surprising and virtually an abuse of process that the JOLs should have 12 considered it appropriate to seek declaratory relief without joining the interested 13 parties. This would have allowed for the court to have the benefit of arguments on 14 the real and actual issues.” 15 16

¶ [74] The argument is that having not been served and having an interest in the outcome of the 17 October Summons, the November Summons is no more than a defensive response. The terms 18 of the November Summons are the opposite of that sought by the JOLs, that is to say the 19 November Summons is for a declaration that the transfers are not void. Counsel said that in 20 this way, the November Summons is analogous to a counter claim. 21 22

¶ [75] Counsel referred to an extract from Zamir and Woolf’s, The Declaratory Judgment32 in which 23 the Authors state that “the general rule is that it is desirable that all persons who appear to have 24 a real interest in objecting to the grant of a declaration claimed in legal proceedings should be 25 made defendants.” The case cited in support is London Passenger Transport Board v 26 Moscrop33 in which it was stated that: 27 28 “The persons really interested were not before the court. It is true that in their 29 absence they were not strictly bound by the declaration but the Courts have always 30 recognised that persons interested are or may be indirectly prejudiced by a 31 declaration made by the Court in their absence, and that except in very special 32 circumstances, all persons interested should be made parties whether by 33 representation orders or otherwise before a declaration by its terms affecting their 34 rights is made.” 35 32 4th Edition Paras 6-01 to 6-03 33 1942 QC 332 ___________________________________________________________________________________ 220426 - FSD 54 of 2020. In the Matter of Adenium Energy Capital, Ltd. Coram: Richards J. - Judgment Page 23 of 44 1

¶ [76] The authors say that this is a sensible approach as it avoids the danger of having to bring fresh 2 proceedings and ensures that there is someone before the court who would be able to properly 3 contest the issue. By reference to Aldrich v. Attorney General34, the authors note the 4 application of the principle whereby a court would be reluctant to grant a declaration without 5 a trial unless it would be contrary to the interests of justice to do so. This is followed by the 6 following statement: 7 8 “So as to ensure that all relevant parties can participate, the court will generally 9 look with favour upon the joinder of all parties whose legal or equitable interests 10 may be affected by the grant of a declaration even if they are not immediately 11 involved in the act or transaction in issue. Prima facie, however, a claimant is 12 entitled to choose against whom he wishes to proceed and is not required to join 13 anyone against his will.” 14 15

¶ [77] With respect to the arguments as to non-service and non-inclusion of KSB as a respondent, I 16 record my view that the criticism of the actions of the JOLs appears to be unduly harsh and 17 unwarranted. The Affidavit of Ms. Peccarino provides evidence of service of notice of the 18 application on the Lender companies. These entities said Counsel for the JOLs are the proper 19 respondents to the October Summons and they were each notified of it. The evidence is that 20 notice was also given to KSB. KSB acknowledged the notice and indicated that it would bring 21 its own validation application which it has not done. 22 23

¶ [78] It is noted that Counsel for KSB throughout his arguments stressed that the Debenture is 24 unchallenged and only in reply to oral arguments appeared to accept that there was some 25 challenge. However, Counsel was critical of what he termed challenge by correspondence 26 rather than direct challenge. From the material provided and the submissions made by the JOLs, 27 it is plain that they have questions as to the validity of the Debenture, the status of KSB and 28 the creditors, the transfers and the entirety of the surrounding circumstances. It is also plain 29 that their inquiry is in the early stages where such questions remain unanswered. 30 31

¶ [79] I accept in part the submissions of Counsel for the JOLs on this aspect. In effect, KSB is by its 32 application and arguments seeking to establish the validity of the Debenture and the status of 33 the Lenders as secured creditors. It is only upon doing so that one could get to the stage of a 34 34 1968 P. 281, 285 ___________________________________________________________________________________ 220426 - FSD 54 of 2020. In the Matter of Adenium Energy Capital, Ltd. Coram: Richards J. - Judgment Page 24 of 44 1 determination as to whether as creditors they fall outside the liquidation or not. The fact of the 2 asserted existence of a Debenture is not one which prevents question and inquiry. Indeed, the 3 JOLs who act in the best interests of all creditors have a positive duty to inquire into all the 4 circumstances. 5 6

¶ [80] It is evident that the questioned transfers took place after the Commencement Date and in my 7 view the onus is on the creditors who purport to be secured creditors to respond to the questions 8 of the JOLs as to the legitimacy of the basis for the transfers. One would have expected 9 engagement with the process to the extent of demonstrating that they are in fact secured 10 creditors and provision of any and all supporting documents. It appears that the JOLs have 11 sought answers by way of their letters and detailed responses have not been forthcoming. 12 13

¶ [81] In considering whether the steps taken by KSB are purely defensive in nature, I bear in mind 14 Counsel’s argument that the November Summons is akin to a counter claim, being the obverse 15 of that sought by the October Summons. I do think however that there is a distinction between 16 an argument that the JOL’s application ought not to be granted and seeking declarations which 17 are wider in scope so as to establish the validity of documents and loan arrangements. This is 18 a particularly active step. Additionally, the November Summons seeks that the costs of KSB’s 19 application be paid out of the assets of the Company as an expense of the liquidation. The 20 January Summons seeks in part that: 21 22 “… The Joint Official Liquidator’s Summons of 15th October 20020 be struck out 23 on the ground that it is frivolous or vexatious and/or it is otherwise an abuse of the 24 process of the Court.” 25 26 27

¶ [82] In my view, KSB has gone beyond a defensive response in circumstances where it seeks costs 28 orders and orders of the nature outlined above against the Company. I conclude that leave is 29 required. 30 31

¶ [83] There is no dispute that leave can be granted retrospectively.35 I turn to consider the question 32 whether leave ought to be granted applying the principles outlined above. 33 34 35 See McPherson para 7.81 ___________________________________________________________________________________ 220426 - FSD 54 of 2020. In the Matter of Adenium Energy Capital, Ltd. Coram: Richards J. - Judgment Page 25 of 44 1 ARGUABLE CASE 2 3

¶ [84] In respect of factual matters, Counsel for the JOLs submitted that the JOL’s October Summons 4 cannot be characterised as frivolous or vexatious raising as it does serious questions such that 5 this aspect of the January Summons of KSB is bound to fail. 6 7

¶ [85] Secondly it is submitted by Counsel for the JOLs that leave should not be granted to KSB as it 8 does not have an arguable case as to the validity of the Debenture. This is said to be dubious 9 arising as it does in a factual matrix which gives rise to the need for investigation. It was 10 secured on assets of US$58 million which was 10 times the loan facilities provided. This is in 11 circumstances where a secured creditor would have a duty to account for any surplus amount 12 said to have been received which is in excess of the amount borrowed. 13 14

¶ [86] Counsel referred to the time line as beginning with the 6th May 2019 when certain enforcement 15 orders were made in favour of Bareeq Capital. The enforcement procedure commenced on 25th 16 August 2019. The Company filed a summons to set aside the enforcement order on the 9th 17 September 2019. October 2019 was a pivotal month and was also the month in which the 18 Company sought and obtained legal advice which identified the risks if dispositions were made 19 without reserving funds to make the Arbitral Award payment. The transfers were approved on 20 the 9th November 2019. 21 22

¶ [87] Counsel points to the inconsistencies between the Company’s financial position, as stated in 23 the October 2019 legal advice provided to the Company, an internal document which the JOLs 24 identified, and that stated in the evidence of Mr. Sawaf. There are also inconsistencies in the 25 values of the shares in two of the subsidiaries (ASJ and Zeini) as stated in Mr. Sawaf’s First 26 Affirmation, and the values stated in the October 2019 legal advice to the Company. Counsel 27 identified these as follows. At paragraph 28 of the First Affirmation, Mr. Sawaf states: 28 29 “The total value ascribed to the 2020 Transfers by the company was 30 US$1,500,000. I set out the breakdown of the value of the shares as follows: 31 32 “The ASJL (Adenium Solar Jordan Limited) shares were determined as having a 33 value of US$1,500,000.” 34 35 ___________________________________________________________________________________ 220426 - FSD 54 of 2020. In the Matter of Adenium Energy Capital, Ltd. Coram: Richards J. - Judgment Page 26 of 44 1

¶ [88] In contrast on page 2 of the advice it is stated: 2 3 “The proceeds from the sale will be paid into the bank account in the name of 4 AEC. On Adenium Solar’s behalf, AEC will distribute the proceeds from the sale 5 to Adenium Solar’s shareholders. As one of the holders of Adenium Solar’s 6 participating shares, AEC will be entitled to retain US $2-3 million out of the 7 proceeds.” 8 9

¶ [89] With respect to Zeini, Mr. Wasaf stated that “The Zeini shares have no ascertainable value”. 10 11

¶ [90] With respect to Zeini, the advice, stated: 12 13 “However, AEC will receive a carried interest payment amounting to around US$5 14 million from the transaction.” 15 16

¶ [91] Counsel said that around May and June 2020 the transfers were effected by the specific actions 17 of the Company’s directors by way of resolutions. This was not a unilateral enforcement action. 18 These actions were taken between the presentation of the Petition and the winding up in the 19 context of an Arbitral Award which was due for payment and which was not paid. The transfers 20 of these securities each took place after the Commencement Date and were not validated by 21 order of the Court. The Company had received the advice of two sets of attorneys that the 22 transfers would be void unless approved by the Court. 23 24

¶ [92] Counsel submits further that the investigation of the JOLs has identified that assets valued at 25 US$59 million were dissipated on the purported basis of enforcement of security despite an 26 outstanding Arbitral Award. In summary the matters requiring investigation are said to include 27 that there is enforcement of the security after the winding up, the transfers took place despite 28 the risks as outlined in legal advice which the Company had received, the values were agreed 29 by the Company’s directors among themselves and there are questions as to whether the values 30 of the shares were considered and or determined to match the security granted. There are also 31 unanswered questions as to the circumstances behind the grant of security whether the loans in 32 respect of which the security was granted were actually paid to the Company following default 33 and the accuracy of the valuations ascribed to the shares transferred. Counsel said that the JOLs 34 sought answers by the letters sent and no answers were received. 35 36 ___________________________________________________________________________________ 220426 - FSD 54 of 2020. In the Matter of Adenium Energy Capital, Ltd. Coram: Richards J. - Judgment Page 27 of 44 1

¶ [93] Counsel’s main point is that had the application been brought by the creditors as it ought to 2 have been, the evidential burden would have fallen on those creditors to provide evidence. 3 4

¶ [94] Counsel for KSB submitted that KSB has a good and arguable case and that it would be right 5 and fair to all parties for leave to be granted. Counsel said that the approach of challenging 6 matters by way correspondence rather than directly is an attempt to avoid challenging the 7 resolutions and transfers directly and to short circuit the process by seeking an ex-parte 8 declaration. 9 10

¶ [95] It was submitted that the language of the application by the JOLs is that one does not have to 11 be concerned with s.142 which is not correct. Section 142 cannot be effective if the debenture 12 holder or security holder cannot rely on it to make an application. 13 14

¶ [96] It was further submitted that the reference to the Company’s legitimate assets fails to take 15 account of the debts owed and the security provided, and that the allegation of dissipation of 16 assets is unsupported by evidence. 17 18

¶ [97] Counsel submitted that KSB should not have to make a separate application as it should have 19 been included as a respondent from the start, it should now be joined and the JOLs be required 20 to plead a case against it. It is argued that no case has been set out against KSB and that :- 21 22 “There is nothing in these documents which could lead the Court properly advised 23 on evidence to conclude that there is any valid or worthy challenge to: 24 25 i. The existence of a debenture; 26 ii. The enforceability of a debenture; or 27 iii. The transactions which have taken place pursuant to the debenture.” 28 29

¶ [98] It is submitted that the transactions, having regard to the detailed history going back to March 30 2017 when the first financing and loan contract was entered into in May 2019 when the 31 Debenture was granted, have all the hallmarks of a valid and genuine enforcement of security 32 by secured creditors and thus they fall outside of the insolvency. 33 34 35 36 ___________________________________________________________________________________ 220426 - FSD 54 of 2020. In the Matter of Adenium Energy Capital, Ltd. Coram: Richards J. - Judgment Page 28 of 44 1

¶ [99] Counsel stated that any issue as to the valuations ascribed to the shares does not go to the 2 validity of the enforcement but would be an issue to be resolved separately and notes the 3 following: 4 5 i. The JOLs do not challenge the grant or effectiveness of the Debenture. 6 ii. They do not assert that the transactions were not by way of enforcement 7 of the Debenture. 8 iii. The transfers themselves are not challenged. 9 10

¶ [100] In respect of the argument of the JOLs that the conduct of KSB is an abuse of process in light 11 of the October legal advice referred to, it is submitted that the document does not undermine 12 KSB’s case. The proposed dispositions which were being considered therein were the sales of 13 assets and not the transactions which actually took place in respect of share transfers. Counsel 14 said that the advice notes that the security granted in May 2019 may operate as an impediment 15 to a successful challenge of the repayment of the shareholder loans and identifies the six month 16 limitation period for bringing a voidable preference claim. 17 18 FAIRNESS IN THE CONTEXT OF THE LIQUIDATION 19 20

¶ [101] Counsel for the JOLs argues that the relief sought by KSB can be obtained within the 21 liquidation. In response to criticism from KSB that the JOLs October Summons did not mention 22 the Debenture when they were aware of it, Counsel submitted that reference to the Debenture 23 is unnecessary because the JOLs’ October Summons is simply seeking a declaration. Should 24 the relief sought by the JOLs’ be granted, it would simply maintain the status quo and would 25 not prevent an action pursuant to s.99 of the Companies Act at any time in the future. The 26 application of the JOLs is doing no more than asking the Court to say that the transfers were 27 invalid as a matter of the strict application of the Companies Act. There is no prejudice suffered 28 or can be suffered by a secured creditor as a result. 29 30

¶ [102] Counsel submitted that: 31 “A secured creditor can make a subsequent application at any time, and we agree 32 it can be retrospective, although it shouldn’t be, for validation to enforce their 33 34 ___________________________________________________________________________________ 220426 - FSD 54 of 2020. In the Matter of Adenium Energy Capital, Ltd. Coram: Richards J. - Judgment Page 29 of 44 1 security. It simply shouldn’t be on the company’s dime. It should be in separate 2 proceedings, not within these liquidation proceedings. 3 4 In fact a secured creditor should have no concerns at all, ..the actions of the 5 Court’s appointed officers, in securing the assets of the company, the JOLs are 6 bound to recognize the rights of secured creditors over all other creditors and they 7 would be looking after legitimate secured creditor’s interests.” 8 9

¶ [103] Counsel also submitted that: 10 11 “A true secured creditor should take no issue with the JOLs’ Summons and their 12 effort to maintain the status quo as it could rest assured that any proprietary right 13 enjoyed against the securities will lie outside of the liquidation and would 14 therefore be protected by the JOLs. Instead KSB’s own submissions make the case 15 for the JOLs that further investigation is necessary and leave should therefore be 16 refused.” 17 18 19

¶ [104] On the implications of a grant of leave, Counsel submitted that this would stymie the efforts of 20 the JOLs to secure the legitimate assets of the Company and would be premature and an 21 unnecessary burden on the liquidation estate. Counsel asked the Court to consider whether it 22 would be fair in the context of the liquidation as a whole, for the JOLs to have to deal with the 23 burden of the proposed litigation. 24 25

¶ [105] Counsel for KSB submitted in response that it is wrong to say that the JOLs are simply seeking 26 a declaration and that in doing this they are ignoring s.142 of the Companies Act. It is not 27 correct that the status quo would be maintained. The reason that secured creditors, debenture 28 holders, and mortgagors are able to enforce their security is that one is not now dealing with 29 the company’s assets. The declaration sought does prejudice KSB because it affects the assets 30 it now holds. 31 32

¶ [106] Counsel said that it was accepted that it would not prevent KSB commencing an action at any 33 time in the future for validation but that KSB should not have to make such an application for 34 the reasons previously outlined. 35 36 37 38 39 ___________________________________________________________________________________ 220426 - FSD 54 of 2020. In the Matter of Adenium Energy Capital, Ltd. Coram: Richards J. - Judgment Page 30 of 44 1 DISCUSSION 2 3

¶ [107] I am not at this stage inquiring into the merits of the matter. There appears to be, by the asserted 4 fact of the existence of the Debenture and the surrounding documents, material such as to 5 suggest that the status of the Lenders is that of secured creditors. If that is the case, they may 6 act outside of the liquidation estate and enforce their security. I accept the submissions of 7 KSB that there is an arguable case or serious question to be tried on this aspect. In respect of 8 the aspect of the January Summons seeking the strike out of the JOLs’ October Summons on 9 the basis that it is frivolous or vexatious, and/or is an abuse of the process of the Court, in light 10 of the questions raised by the JOLs, as set out in paragraphs 91 and 92 above, and all the factual 11 circumstances of this case, that aspect of the January Summons does not appear to raise a 12 serious question to be tried. 13 14

¶ [108] The question is whether leave should be granted in respect of the first aspect referenced. 15 16

¶ [109] Counsel for KSB drew the Court’s attention to an excerpt from McPherson’s Law of Company 17 Liquidation: 18 19 “It has been said that where what the claimant is claiming from the company is in 20 reality no more that his or her own property, leave to proceed will be granted as 21 a matter of course. The underlying principle is that the company should not, merely 22 because of the fact that it is in liquidation, be permitted to withhold the claimant’s 23 property and accordingly the court will permit proceedings to be taken by a 24 landlord to re-enter for breach of covenant, and by a mortgagee, debenture – 25 holder or lienee, for the enforcement of the security held by the claimant.”36 26 27

¶ [110] The authors do go on to say that the practice of granting leave has been viewed with disfavor 28 on occasions because it is “difficult to reconcile it with the policy of avoiding expensive 29 litigation” and they identify circumstances where a secured creditor has been refused leave 30 including: 31 32 i. Where the applicant for leave is offered everything to which he is entitled 33 without needing to bring an action. 34 36 4th Edition para 7-079 ___________________________________________________________________________________ 220426 - FSD 54 of 2020. In the Matter of Adenium Energy Capital, Ltd. Coram: Richards J. - Judgment Page 31 of 44 1 ii. Where the applicant for leave could obtain identical protection of its 2 position within the winding up. 3 4

¶ [111] It is said also that the determination of an application for leave by the courts has usually been 5 in two principal categories being one in which the determining factor is the nature of the claim 6 and the second category in which it is the balance of convenience and the demands of justice. 7 8

¶ [112] I have considered whether this matter can be conveniently dealt with in the liquidation process 9 as urged by the JOLs. The JOLs are officers of the Court, have particular duties and 10 responsibilities and will no doubt respect the rights of any secured creditor once any questions 11 are resolved. I accept that there is some merit to the argument that matters are at an early stage 12 of the liquidation and the application of KSB may be pre-mature pending further inquiry of the 13 JOLs. However I consider that it is an important factor that KSB is seeking to assert proprietary 14 rights in respect of property which it considers has been lawfully transferred to it. I note that 15 underlying the argument of the JOLs is a recognition of the possible nature and effect of any 16 declaration which may be made as a result of the October Summons. The important 17 consideration being that even if a declaration is made as sought it is not likely to impact 18 negatively any equitable interests which are actually held. Put another way, the response of 19 KSB is disproportionate to the possible outcome of the October Summons. While I accept the 20 strength of this argument which is reflected in part in the conclusions reached as to the non- 21 defensive nature of the application sought to be made by KSB, it is nevertheless the case that 22 KSB is seeking to protect rights which it says that it has. 23 24

¶ [113] The referenced text (McPherson) identifies a circumstance in which a liquidator casts doubt 25 on the validity of security as being one in which leave ought to be granted. 26 27 “It has been held that where a receiver acts pursuant to a charge over the 28 company’s assets he or she is entitled to initiate proceedings against the company 29 to recover the charged assets as of right, on the basis that a secured creditor is 30 permitted to exercise the rights held in relation to security despite the fact that its 31 debtor company has entered liquidation. However, as Professor Riz Mokal points 32 out, a secured creditor could only obtain leave if it could not obtain identical 33 protection of its position within in the winding up. For instance, in the leading 34 case of Re David Lloyd & Co, Mokal points out that the liquidators were casting 35 ___________________________________________________________________________________ 220426 - FSD 54 of 2020. In the Matter of Adenium Energy Capital, Ltd. Coram: Richards J. - Judgment Page 32 of 44 1 doubts over the validity of the charge of the secured creditor and this precipitated 2 the application for leave.”37 3 4

¶ [114] In the referenced case of Re David Lloyd & Co.38 the Court said this: 5 6 “And as the liquidators in the present case do not offer to put the mortgagee in the 7 same position in which he would be when he obtains a judgment in his action, but 8 suggest that there are questions which may prevent his having the right upon which 9 he insists, and to enforce which he brought the action, I am of opinion that these 10 questions will be much better tried in the action, and that there is no ground for 11 refusing the mortgagee leave to proceed with his action.” 12 13

¶ [115] It is evident from the material exhibited to the affidavits and the submissions made that the 14 JOLs at the very least question the authenticity of the Debenture arrangements which led to the 15 transfers. In my view to deny leave in circumstances where the nature of the claim is as to the 16 asserted rights of KSB and /or the lender creditors, would be unfair. 17 18

¶ [116] I would grant leave to KSB to proceed with its application for declarations as to the transfers 19 of shares. 20 21 COSTS 22 23

¶ [117] The authorities cited suggest that there is a discretion to impose conditions on any grant of 24 leave. 25 26

¶ [118] Following release of the draft judgment, Counsel for KSB sought and was granted leave to 27 make submissions on the issue of costs as to whether the discretion of the Court can and ought 28 properly to be exercised such as to deny KSB its costs in respect of the instant matter and or to 29 impose a condition as to the payment of costs going forward. I reconsidered the matter39 in 30 light of the relevant authorities and the correct applicable test. 31 37 Paragraph 7-078 38 1877 6 Ch. D. 339 39 Mid-Town Acquisition L.P. v. Essar Global Fund Limited [2017] 2 CILR 776, In the Matter of Shanda Games Limited [2017] 2 CILR Note 3, In the matter of L and B [2013] UKSC 8,Vringo Infrastructure Inc. [2015] EWHC 214,Stewart v. Engel Case No. QBC MI 2000/0032/A3. ___________________________________________________________________________________ 220426 - FSD 54 of 2020. In the Matter of Adenium Energy Capital, Ltd. Coram: Richards J. - Judgment Page 33 of 44 1

¶ [119] Under this heading, I have considered the submissions of the JOLs with respect to the burden 2 to be placed on the Company and on other creditors by the grant of leave. The liquidation 3 estate and thus the other creditors may have to bear the cost of any such proceeding. This is 4 essentially being embarked upon in the liquidation estate, by those seeking to protect their own 5 interests, who say that they are outside of the liquidation estate. This in circumstances where 6 those seeking to protect their own interests had and continue to have the option to respond 7 substantively to the queries of the JOLs and to engage in that less costly process and or to bring 8 their own separate validation application, neither of which they have chosen to do. I also note 9 that implicit in Counsel for KSB’s acceptance that a negative response would not prevent KSB 10 from commencing an action for validation at any time in the future, is the recognition of the 11 range of options open to KSB. 12 13

¶ [120] In summary, on the first issue, Counsel on behalf of KSB argues that having regard to the 14 applicable guiding principles on the circumstances in which a successful defendant may be 15 denied his costs, there is no basis to deny KSB its costs in this matter. Counsel on behalf of the 16 JOLs argues in reply that KSB is not in the position of an entirely successful defendant. Counsel 17 submits that an adverse cost order is appropriate where KSB has been unsuccessful in respect 18 of two out of three applications. Counsel points also to three factors, the manner in which KSB 19 responded to requests for information from the JOLs, that it failed to produce supporting 20 documents and the costly route that it has chosen where less costly routes are available to it. 21 22

¶ [121] As to the second issue, Counsel on behalf of KSB submits that to grant leave to KSB subject 23 to a condition as to costs would be draconian and unfairly prejudicial. In reply Counsel on 24 behalf of the JOLs refers to s.97 of the Companies Act and submits that there is a broad 25 unfettered jurisdiction as to the terms and conditions on the grant of leave to bring proceedings 26 against a company in liquidation. 27 28 THE LEGISLATION 29 30

¶ [122] Section 24 of the Judicature Act (2021 Revision) provides a power to order costs in the 31 discretion of the Court. It is inter alia in the following terms:- 32 ___________________________________________________________________________________ 220426 - FSD 54 of 2020. In the Matter of Adenium Energy Capital, Ltd. Coram: Richards J. - Judgment Page 34 of 44 1 “24. (1) Subject to the provisions of this or any other Law and to rules of 2 court, the costs of and incidental to all civil proceedings in- 3 (a) the Court of Appeal; and 4 (b) the Grand Court, 5 shall be in the discretion of the relevant court. 6 7 (2) Without prejudice to any general power to make rules of court, 8 such rules may provide for regulating matters relating to the costs 9 of civil proceedings referred to in subsection (1), including, in 10 particular — 11 (a) the entitlement to costs; 12 (b) the taxation of costs; 13 (c) the powers of taxing officers; 14 (d) the powers of judges to review decisions of taxing officers; and 15 (e) the powers of the court, as defined in section 24A(4), to make 16 protective costs orders in judicial review proceedings and 17 constitutional proceedings 18 19 (3) The court shall have full power to determine by whom and to what 20 extent the costs are to be paid. 21 22 (4) In any criminal or civil proceedings, the court may disallow or (as 23 the case may be) order the attorney-at-law or foreign lawyer 24 concerned to meet the whole of any wasted costs or such part of 25 them as may be determined in accordance with the rules of court.” 26 27 28

¶ [123] The Grand Court Rules O.62 r.4 provides, inter alia: 29 “(1) This rule shall have effect unless otherwise provided by any Law. 30 31 … 32 33 (2) The overriding objective of this Order is that a successful party to 34 any proceeding should recover from the opposing party the 35 reasonable costs incurred by the successful party in conducting 36 that proceeding in an economical, expeditious and proper manner 37 unless otherwise ordered by the Court. 38 39 (5) If the Court in the exercise of its discretion sees fit to make any 40 order as to the costs of any proceedings, the Court shall order the 41 costs to follow the event, except when it appears to the Court that 42 in the circumstances of the case some other order should be made 43 as to the whole or any part of the costs. 44 45 (6) The amount of the costs which a successful party shall be entitled 46 to recover from any other party is – 47 … 48 (c) the fixed costs prescribed in rule 7; 49 ___________________________________________________________________________________ 220426 - FSD 54 of 2020. In the Matter of Adenium Energy Capital, Ltd. Coram: Richards J. - Judgment Page 35 of 44 1 (d) the amount assessed by the Judge in accordance with rule 2 8; 3 (e) the amount allowed after taxation on the standard basis; 4 or 5 (f) the amount allowed after taxation on the indemnity basis. 6 7 (7) The orders which the court may make under this rule include an 8 order that a party must pay – 9 10 (a) a proportion of another party’s costs; 11 (b) a stated amount in respect of another party’s costs; 12 (c) costs from or until a certain date only; 13 (d) costs incurred before proceedings have begun; 14 (e) costs relating to particular steps taken in the proceedings; 15 (f) costs relating only to a distinct part of the proceedings; 16 (g) interest on costs (at the prescribed rate for Cayman 17 Islands dollars) from or until a certain date, including a 18 date before judgment;...” 19 20 21

¶ [124] Counsel for KSB has also drawn the Courts attention to s.51 (1) of the United Kingdom Senior 22 Courts Act 1981 which empowers the English High Court with a similar discretion in respect 23 of costs. 24 25 ISSUE 1 – COSTS OF PROCEEDINGS 26 27

¶ [125] Counsel on behalf of KSB submits that the successful party is usually entitled to costs unless 28 there has been some form of misconduct and the circumstances are exceptional. It is submitted 29 that in the case of In Re Wanzer Limited40 while costs were awarded against the landlord, he 30 had been found to have been entirely in the wrong. He had commenced proceedings against a 31 company in liquidation without the leave of the court. Additionally the costs which were 32 awarded were limited to the costs of those proceedings. 33 34

¶ [126] Counsel on behalf of KSB has drawn the Court’s attention to a number of cases which are said 35 to be illustrative of the principle that a wholly successful defendant should not be deprived of 36 his costs except in exceptional circumstances. 37 38 40 [1891] 1 Ch. 305, ___________________________________________________________________________________ 220426 - FSD 54 of 2020. In the Matter of Adenium Energy Capital, Ltd. Coram: Richards J. - Judgment Page 36 of 44 1

¶ [127] In Cooper v. Whittingham41, the plaintiffs sought to enforce copyright with respect to certain 2 publications. The English Court held that:- 3 “Where an action is brought to enforce a legal right, and there is no misconduct 4 on the part of the plaintiff, the Court has no discretion to refuse him costs.” 5 6

¶ [128] The Court gave examples of misconduct which may be considered as possibly taking different 7 forms and occurring at different stages. The Court stated:- 8 9 “ As I understand the law as to costs it is this, that where a plaintiff comes to 10 enforce a legal right, and there has been no misconduct on his part—no omission 11 or neglect which would induce the Court to deprive him of his costs —the Court 12 has no discretion, and cannot take away the plaintiff's right to costs. There may be 13 misconduct of many sorts: for instance, there may be misconduct in commencing 14 the proceedings, or some miscarriage in the procedure, or an oppressive or 15 vexatious mode of conducting the proceedings, or other misconduct which will 16 induce the Court to refuse costs; but where there is nothing of the kind the rule is 17 plain and well settled, and is as I have stated it.” 18 19

¶ [129] In Ritter v. Godfrey42, the English Court of Appeal noted that the discretion as to costs is not 20 an absolute one but is limited in scope. The matter concerned the conduct of a successful 21 defendant. He had written a letter to the plaintiff in response to the plaintiff’s accusations of 22 medical negligence. He had denied the allegations but in such a manner as was said to be 23 callous in nature and in a tone of levity. Though successful at trial he was denied his costs. On 24 appeal the decision as to costs was reversed. Atkin L.J. reviewed a number of cases in which a 25 trial judge exercised a discretion to deprive a successful defendant of his costs. The issue was 26 as to the circumstances and or the conduct with respect to which this could properly be done. 27 The learned judge, identified three guiding principles as follows:- 28 29 “In exercising his discretion over costs a judge should be guided by the following 30 principles. In the case of a wholly successful defendant the judge must give him his 31 costs unless there is evidence (1) that the defendant brought about the litigation, 32 or (2) has done something connected with the institution or the conduct of the suit 33 41 [1880]15 Ch. D. 501 42 [1920] 2 KB 47 ___________________________________________________________________________________ 220426 - FSD 54 of 2020. In the Matter of Adenium Energy Capital, Ltd. Coram: Richards J. - Judgment Page 37 of 44 1 calculated to occasion unnecessary litigation and expense, or (3) has done some 2 wrongful act in the course of the transaction of which the plaintiff complains.” 3 4

¶ [130] The reference to the defendant bringing about the litigation was stated to mean where a 5 defendant induced a plaintiff to believe that he had a good cause of action against the defendant. 6 Alternatively where a defendant’s conduct was such as to induce the plaintiff to believe that he 7 has a good cause of action. 8 9

¶ [131] The second principle includes conduct in the course of the litigation which is improper in that 10 it is calculated to defeat or delay justice. The third relates to where the facts complained of 11 disclose a wrong to the public meaning some criminal or quasi-criminal conduct. 12 13

¶ [132] One of the cases reviewed by the Court was that of Sutcliffe v. Smith43 in which the following 14 statement was made by Fry L.J.:- 15 16 “Whenever a defendant had by his misstatements made under circumstances 17 which imposed an obligation upon him to be truthful and careful in what he said, 18 brought litigation on himself, and rendered the action reasonable, there would be 19 ‘good cause’ to deprive him of costs.” 20 21

¶ [133] The case of Ritter v. Godfrey was followed in the case of Bevington v. Perks and the Bell 22 Assurance Society (Third Party)44. 23 24

¶ [134] In the case of Ottway v. Jones45, the English Appellate Court declined to interfere with the 25 judge’s discretion in not granting costs to the successful defendant. The Court referred to the 26 special provisions in the rent acts together with the circumstances of the case which included 27 that the defendant had not absolutely succeeded. The Master of the Rolls stated:- 28 “I said earlier that to make the defendant (who in the end succeeds in the sense 29 that no relief is ordered against him) pay the costs of the plaintiff (who fails in the 30 43 2 Times L. R, 881 44 [1925] 2 K.B. 229 45 [1955] 1 W.L. R. 706 ___________________________________________________________________________________ 220426 - FSD 54 of 2020. In the Matter of Adenium Energy Capital, Ltd. Coram: Richards J. - Judgment Page 38 of 44 1 sense that no relief is obtained at his suit) requires a strong and exceptional case. 2 But I cannot think that in a rent case such an award of costs must necessarily be 3 in excess either of the powers of the county court judge or of a proper exercise of 4 his judicial discretion.” 5 6

¶ [135] Counsel for KSB also relies on the case of Knight v. Clifton46 . In that case the issue related 7 to whether the third defendant had observed an injunction in respect of hindering or 8 obstructing the free use of a right of way. The defendant was found not guiltily of contempt 9 but was ordered to pay the plaintiff’s costs. The issue on appeal was whether the trial judge 10 had misdirected himself in law and in principle with respect to the costs order. Russell L.J. 11 stated:- 12 13 “To say of the third defendant that he should not get his costs because he acted 14 rashly, or steered rather close to the wind, is one thing; as has been often said a 15 successful defendant has no right to his costs. But to order him to pay the costs 16 incurred by the plaintiffs in launching a motion to commit which in the event 17 proved unjustified is quite another matter.” 18 19

¶ [136] Sachs L.J. noted that there is difficulty in precisely defining the circumstances which 20 constitute a strong or exceptional case such that a successful defendant should be deprived of 21 his costs. It may ultimately depend on the weight to be given to the relevant facts. The 22 learned Judge stated:- 23 24 “It is, of course, impossible as well as undesirable to attempt to define what 25 constitutes a strong or exceptional case, but to my mind it can include occasional 26 rare cases in which the conduct of the defendant has brought about the proceeding 27 or in which his conduct causes its continuance or in which he escapes the normal 28 consequences of his blameworthy conduct by reason of some unexpected matter 29 which he knew but which the plaintiff could not know. After giving every weight 30 both to the fact that the defendant has succeeded after being brought to court by a 31 plaintiff who has not secured any relief and to the settled practice of the courts in 32 ordinary cases, it may yet be that in justice the former should bear the costs. 33 Moreover, in assessing whether the material before the court entitles it to make an 34 exceptional order it is necessary to recognise that the approach needed nowadays 35 is one in which decisions made in the days when judges were influenced either by 36 46 [1971] Ch. 700 ___________________________________________________________________________________ 220426 - FSD 54 of 2020. In the Matter of Adenium Energy Capital, Ltd. Coram: Richards J. - Judgment Page 39 of 44 1 the jurisdiction decisions or by other fettering decisions that preceded Campbell 2 v. Pollak may prove at best to be of modest assistance, even if not misleading. In 3 practice the borderline between cases where a court may order that a wholly 4 successful defendant is not to be paid any costs and those where it may order him 5 to pay the plaintiff's costs may prove difficult to define - if indeed it exists. It may 6 well simply depend on a question of the degree of weight to be given to the relevant 7 facts.” 8 9

¶ [137] Counsel on behalf of the JOLs submits in reply that KSB’s reliance on the cases of Knight v. 10 Clifton and Ottway v. Jones is misplaced. This is on the basis that KSB has been unsuccessful 11 save for the grant of leave. It thus cannot claim to be a “wholly successful defendant.” 12 13

¶ [138] With respect to the factual circumstances leading up to the filed applications by KSB, Counsel, 14 notes that the evidence from correspondence produced is that the former director of the 15 Company had been made aware from at least May 29, 202047 of the effect of s.99 of the 16 Companies Act on the transfers made. KSB therefore had the opportunity to seek validation of 17 the transfers before the JOLs issued the November summons. Counsel for the JOLs also states 18 that it remains unclear whether KSB is acting on behalf of all of the secured creditors or simply 19 as a transferee with the legal or beneficial interest in the funds transferred. 20 21

¶ [139] In my view the arguments of Counsel on behalf of the JOLs are persuasive. KSB cannot claim 22 to be a wholly successful defendant and in any event as noted above, there are questions as to 23 its conduct and as to the route by which it has sought to proceed. I am satisfied on the general 24 cost principles espoused in the cases cited and in exercising the discretion on the grant of leave 25 that KSB should bear the costs of these proceedings. 26 27 ISSUE 2 – CONDITIONS ON THE GRANT OF LEAVE – PRE-EMPTIVE COSTS 28 29

¶ [140] Counsel on behalf of KSB submits that while there is discretion to award pre-emptive costs, 30 there is no basis to do so in this particular case. Counsel submits that the jurisdiction to do so 31 is confined to a distinct group of cases such as those detailed in the case of McDonald and 32 33 47 Exhibit BT -1 to the First Affidavit of B. Tyndale ___________________________________________________________________________________ 220426 - FSD 54 of 2020. In the Matter of Adenium Energy Capital, Ltd. Coram: Richards J. - Judgment Page 40 of 44 1 others v. Horn and others48. These include where costs are awarded from a fund in 2 representative actions or matters of an analogous nature. 3 4

¶ [141] In McDonald v. Horn, members of a pension scheme brought an action against their 5 employers, the trustees of the pension fund and others in respect of the administration of the 6 scheme. The issue was whether a pre-emptive costs order can be made against a pension 7 fund. Hoffman L.J. stated:- 8 9 “In cases like Ritter v. Godfrey [1920] 2 K.B. 47 the Court of Appeal has laid 10 down more detailed principles limiting the circumstances in which a successful 11 party can be deprived of his costs or ordered to pay the costs of the other party. 12 Ord. 62, r. 3(3) is a formidable obstacle to any pre-emptive cost order as between 13 adverse parties in ordinary litigation. It is difficult to imagine a case falling within 14 the general principle in which it would be possible for a court properly to exercise 15 its discretion in advance of the substantive decision. So in Wallersteiner v. Moir 16 (No. 2) [1975] Q.B. 373, 403 Buckley L.J. rejected an application for an order 17 protecting the plaintiff, Mr. Moir, from being ordered to pay the costs of the 18 defendant, Dr. Wallersteiner, irrespective of the outcome of the case: “I have never 19 known a court to make any order as to costs fettering a later exercise of the court's 20 discretion in respect of costs to be incurred after the date of the order. I cannot 21 think of any circumstances in which such an order would be justified.” 22 23

¶ [142] The learned Judge noted that on the other hand, Order 62, r.3(3) and the relevant principles is 24 not an obstacle to preemptive orders as between parties in the same interest as to how they 25 should as between them bear the burden of costs. 26 27

¶ [143] Counsel for KSB also refers to the case of R. v. Lord Chancellor, ex parte Child Poverty 28 Action Group; R. v. Director of Public Prosecutions, ex parte Bull and another49 as being 29 one example of exceptional circumstances justifying the making of a pre-emptive costs order. 30 In that case a pre-emptive order for costs was sought by the applicants on the basis that the 31 matters being brought were matters in the public interest. 32 33 34 48 [1995] 1 ALL ER 961. 49 [1988] 2 All ER 755 ___________________________________________________________________________________ 220426 - FSD 54 of 2020. In the Matter of Adenium Energy Capital, Ltd. Coram: Richards J. - Judgment Page 41 of 44 1

¶ [144] The Court said that the general rule that costs follow the event “promotes discipline within the 2 litigation system, compelling parties to assess carefully for themselves the strength of any 3 claim”. For this to be departed from there should be exceptional circumstances. This is so even 4 in cases involving public interest challenges. 5 6

¶ [145] Both Counsel made submissions with respect to the case of In the matter of SphinX Group of 7 Companies50. In that case the liquidators of the companies made applications including for an 8 order to appoint representatives on behalf of certain parties who had interests in common and 9 for a pre-emptive costs order. The Grand Court accepted that there is jurisdiction to make a 10 pre-emptive order for costs and stated this in the following terms:- 11 12 “42 In seeking to adopt the In re Buckton (5) approach to the practice in 13 liquidation cases, Kekewich, J.’s prefatory remarks as to the need to apply judicial 14 discretion in the quest for uniformity of practice remain apposite. Nonetheless, as 15 was said by Browne-Wilkinson, V.-C. in Re Westdock Realisations Ltd. (20), it is 16 now clear that the court, in the context of liquidation proceedings, can make pre- 17 emptive orders as to the ultimate incidence of costs in the proceedings.” 18 19

¶ [146] In deciding whether or not to make the costs order sought, the Court was guided by the 20 principles on the equitable discretion as to costs in trust cases as set out in the case of In re 21 Buckton51. That case identified three categories of circumstances in which a pre-emptive costs 22 order may be appropriate: 23 “38 The three categories of circumstances identified in In re Buckton (5) as 24 requiring the court’s exercise of discretion as to pre-emptive costs are described 25 by Kekewich, J. as follows ([1907] 2 Ch. at 414–415): 26 27 “In a large proportion of the summonses adjourned into Court for argument the 28 applicants are trustees of a will or settlement who ask the Court to construe the 29 instrument of trust for their guidance, and in order to ascertain the interests of the 30 beneficiaries, or else ask to have some question determined which has arisen in 31 the administration of the trusts. In cases of this character I regard the costs of all 32 parties as necessarily incurred for the benefit of the estate, and direct them to be 33 taxed as between solicitor and client and paid out of the estate . . . 34 35 There is a second class of cases differing in form, but not in substance, from the 36 first. In these cases it is admitted on all hands, or it is apparent from the 37 50 [2010 (2) CILR 13 51 1907 2 Ch. 406 ___________________________________________________________________________________ 220426 - FSD 54 of 2020. In the Matter of Adenium Energy Capital, Ltd. Coram: Richards J. - Judgment Page 42 of 44 1 proceedings, that although the application is made, not by trustees (who are 2 respondents), but by some of the beneficiaries, yet it is made by reason of some 3 difficulty of construction, or administration, which would have justified an 4 application by the trustees, and it is not made by them only because, for some 5 reason or other, a different course has been deemed more convenient. To cases of 6 this class I extend the operation of the same rule as is observed in cases of the first 7 class. The application is necessary for the administration of the trust, and the costs 8 of all parties are necessarily incurred for the benefit of the estate regarded as a 9 whole. 10 11 There is yet a third class of cases differing in form and substance from the first, 12 and in substance, though not in form, from the second. In this class the application 13 is made by a beneficiary who makes a claim adverse to other beneficiaries, and 14 really takes advantage of the convenient procedure by originating summons to get 15 a question determined which, but for this procedure, would be the subject of an 16 action commenced by writ, and would strictly fall within the description of 17 litigation . . . Whether he ought to be ordered to pay the costs of the trustees, who 18 are, of course, respondents, or not, is sometimes open to question, but with this 19 possible exception the unsuccessful party bears the costs of all whom he has 20 brought before the Court.” 21 22

¶ [147] The Court concluded that the circumstances in the case before it, where the questions to be 23 determined related to the administration of the estate for the interests of the beneficiaries, that 24 this was analogous to the first category in Re Buckton. In ordering costs to be pre-emptively 25 paid from the liquidation estate the Court held:- 26 27 28 “An order for pre-emptive costs would only rarely be made in liquidations— 29 special circumstances would be required to displace the ordinary principle that 30 costs follow the event. In particular, the court would be unlikely to make an order 31 for pre-emptive costs in the context of hostile litigation in which the applicant 32 could not be said to be representing a group of interested parties or the estate as 33 a whole and where the judge was not likely ultimately to award costs to the 34 applicant. On the facts, however, all of the parties regarded the resolution of the 35 issues here as being for the benefit of the liquidation as a whole—and not just of 36 the respective parties. The court would therefore order the costs to be pre- 37 emptively paid from the liquidation estate, albeit capped as to the amount 38 chargeable, based on maximum hourly rates.” 39 40 41

¶ [148] In reply Counsel on behalf of the JOLs submits that the issue in the instant case has to be 42 considered in the circumstances of this particular case meaning in the light of a liquidation 43 rather than in respect of the general areas referenced in the cases cited on behalf of KSB. 44 Counsel for the JOLs submits that the discretion on the grant of leave is unfettered for the 45 ___________________________________________________________________________________ 220426 - FSD 54 of 2020. In the Matter of Adenium Energy Capital, Ltd. Coram: Richards J. - Judgment Page 43 of 44 1 reasons set out by the Grand Court in the cases of BDO Cayman Ltd v. Ardent Harmony Fund 2 Inc. (In Official Liquidation)52 and AHAB v. Saad53. Counsel has drawn the Court’s attention 3 to the statement of the Court in the latter case:- 4 5 “72 Consideration must be given to what conditions may be imposed upon the 6 lifting of the stay to mitigate that burden in determining whether the stay should 7 be lifted. The conditions which may appropriately be placed upon the lifting of the 8 stay will also be determined according to the circumstances: see In re Euro Bank 9 Corp. (12), in which this court exercised its discretion leading to the imposition of 10 strict conditions to preserve the priority of claims of lawful depositors with the 11 bank over any fine imposed in favour of the Crown in its prosecution against the 12 bank, which was allowed to proceed despite the bank being in liquidation.” 13 14

¶ [149] Counsel for the JOLs also submits in reply that the imposition of conditions is by its very nature 15 pre-emptory and that pre-emptory costs in the context of a liquidation is not novel or 16 exceptional. It is also argued that these proceedings are distinguishable from the circumstances 17 in the case of In Re Sphinx in that while they do not fall within the first category mentioned in 18 Re Buckton, they do fall within the third category as KSB is effectively adverse to all other 19 shareholders. 20 21

¶ [150] While there is some force to the arguments of Counsel on behalf of the JOLs as to the 22 categorisation of the instant matter, for the reasons set out above on the grant of leave, it must 23 also be bourne in mind that KSB is seeking to enforce a right which it says that it has. The 24 issues raised as to whether KSB was responsive in providing information to the JOLs and the 25 process and route by which it is seeking to do so are relevant factors but they ought not to over 26 shadow this point. Counsel on behalf of KSB drew the Court’s attention to the case of Hunt v 27 Aziz54. The Court in that case referred to the many unexpected events which can occur during 28 the progress of a matter which may make pre-emptive costs orders undesirable. Having 29 considered all the circumstances, the submissions made and the authorities cited, I accept the 30 submissions of Counsel on behalf of KSB on this second costs issue and conclude that a pre- 31 emptive costs order should not be made. 32 33 52 Grand Court Unreported 19th November 2020 53 [2010] 1 CILR 553 54 [2012 ] W.L. R. 317 ___________________________________________________________________________________ 220426 - FSD 54 of 2020. In the Matter of Adenium Energy Capital, Ltd. Coram: Richards J. - Judgment Page 44 of 44 1

¶ [151] I am grateful to Counsel for their helpful detailed submissions, extensive authorities and for 2 their patience. 3 4 Dated this the 26th day of April 2022 5 6 Honourable Justice Cheryll Richards Q.C. 7 Judge of the Grand Court 8