Doyle J
210929 In the Matter of Principal Investing Fund I Ltd (FSD 268 of 2021) and Long View II Limited (FSD 269 of 2021) and Global Fixed
Income Fund I Limited (FSD 270 of 2021) – Judgment (DDJ)
1 of 14
IN THE GRAND COURT OF THE CAYMAN ISLANDS
FINANCIAL SERVICES DIVISION
CAUSE NOs.: FSD 268, 269 and 270 of 2021 (DDJ)
IN THE MATTER OF THE COMPANIES ACT (2021 REVISION)
AND IN THE MATTER OF PRINCIPAL INVESTING FUND I LIMITED
IN THE MATTER OF THE COMPANIES ACT (2021 REVISION)
AND IN THE MATTER OF LONG VIEW II LIMITED
IN THE MATTER OF THE COMPANIES ACT (2021 REVISION)
AND IN THE MATTER OF GLOBAL FIXED INCOME FUND I LIMITED
Appearances:
Mr John Wardell QC and Mr David Lee, Mr Andrew Jackson and
Mr David Lewis-Hall of Appleby (Cayman) Limited for the
Petitioner (in each of FSD 268, 269 and 270 of 2021 (DDJ))
Before:
The Hon. Justice David Doyle
Heard:
17 September 2021
Date Ex Tempore
Judgment delivered:
17 September 2021
Draft transcript
of Judgment
circulated:
27 September 2021
Date transcript
of Judgment approved:
29 September 2021
210929 In the Matter of Principal Investing Fund I Ltd (FSD 268 of 2021) and Long View II Limited (FSD 269 of 2021) and Global Fixed
Income Fund I Limited (FSD 270 of 2021) – Judgment (DDJ)
2 of 14
HEADNOTE
Just and equitable winding up proceedings brought by contributory - ex parte application for
the appointment of provisional liquidators over three related Cayman Islands registered
funds on grounds set out in the Companies Act (2021 Revision) s. 104(2)(b)(i), (ii) and (iii)
JUDGMENT
Introduction
1.
On 8 September 2021, on the application of Mr Chai Hsing Wang (“Mr Wang”), I made
an order appointing Mr Michael Pearson and Ms Trudy-Ann Scott of FFP Limited as
receivers over shares beneficially owned by Mr Wang and held by Credit Suisse
London Nominees Limited (“CSLN”). The receivers’ appointment over the shares was
for the purpose of instructing attorneys to: a) commence just and equitable winding up
proceedings in the name of CSLN in respect of certain funds incorporated under the
laws of the Cayman Islands; and b) make such related or ancillary applications in the
name of CSLN as the receivers shall deem appropriate including but not limited to
applications for the appointment of joint provisional liquidators over the funds.
2.
There are now three urgent ex parte summonses in these proceedings which were filed
by Appleby (Cayman) Limited on the afternoon of Wednesday 15 September 2021 in
the name of CSLN. The Applicant is stated to be a contributory of the three companies,
namely:
1)
Principal Investing Fund I Limited (“PIF”);
2)
Long View II Limited (“Long View”); and
3)
Global Fixed Income Fund I Limited (“GFIF”)
(together the “Cayman Funds”)
3.
CSLN seek the ex parte / without notice appointment of provisional liquidators over
the Cayman Funds, all of which are incorporated under the laws of the Cayman Islands.
210929 In the Matter of Principal Investing Fund I Ltd (FSD 268 of 2021) and Long View II Limited (FSD 269 of 2021) and Global Fixed
Income Fund I Limited (FSD 270 of 2021) – Judgment (DDJ)
3 of 14
Appearances
4.
Mr John Wardle QC and Mr Andrew S Jackson appear for CSLN and I am very grateful
to them for their considerable assistance to the Court and the timely production of some
eleven bundles of relevant pleadings, evidence, skeleton argument and authorities and
draft orders.
Background
5.
I now deal with some further background. Mr Wang is stated to be the ultimate
beneficial owner (“UBO”) but not the registered shareholder of all non-voting
participating shares in PIF and Long View, and the UBO of 34% of the non-voting
participating shares in GFIF. He is also the UBO of 97.2% of the non-voting
participating shares in a related regulated British Virgin Islands (“BVI”) domiciled fund
named Real Assets (RA) Global Opportunity Fund I Limited (“RAGOF”).
6.
All of the issued management shares in the Cayman Funds and RAGOF (together the
“Floreat Funds”) are held by entities owned and controlled by the ‘Floreat Group’,
which comprises Floreat Merchant Banking Services Limited and its affiliates and/or
one or more of Messrs Mutaz Otaibi, Hussam Otaibi and James Wilcox (together the
“Floreat Principals”).
7.
Mr Wang appears to have obtained his wealth from his father and says that he himself
is not financially minded. Mr Wang met Mr Wilcox in July 2013 and May 2014 at
group healing seminars, run by a Brazilian faith healer in Basel, Switzerland, and
Salzburg, Austria, respectively. Mr Wang says that he had discussions with Mr Wilcox
and Mr Wilcox indicated that Floreat could help to supervise his financial affairs. As
Mr Wilcox was a devotee of the same spiritual healer, Mr Wang says that he felt that
Mr Wilcox was a kindred spirit and that he would be trustworthy. Mr Wang seemed
happy to let Floreat take over.
210929 In the Matter of Principal Investing Fund I Ltd (FSD 268 of 2021) and Long View II Limited (FSD 269 of 2021) and Global Fixed
Income Fund I Limited (FSD 270 of 2021) – Judgment (DDJ)
4 of 14
8.
The Floreat Funds’ directors delegated their respective investment management powers
to Floreat entities, which respectively served as the Floreat Funds’ investment managers
and investment advisors. On what I have read and heard to date, none of the Floreat
Funds’ respective directors appear to have exercised any real oversight regarding the
exercise of such powers. The reality appears to be that each of the Floreat Funds is
under the ultimate control of the Floreat Principals.
Mr Wang’s allegations of wrongdoing
9.
Mr Wang, who says he has invested approximately US$500million in the Floreat Funds,
makes very serious allegations of misconduct by the Floreat Principals in respect of the
Floreat Funds over the course of several years.
10.
As regard to the Cayman Funds, the main allegations are that:
1)
The Floreat Principals have used substantial sums invested by Mr Wang in PIF
to acquire, display and enjoy at their personal residences, offices and other
property nearly 100 expensive art pieces valued at over US$10million.
2)
GFIF invested US$61.5million in aviation notes issued by Floreat Fixed Income
SA which generated inappropriate and disproportionate fees for its Floreat
owned investment manager.
3)
GFIF made an investment to fund the development of land on Holbox Island,
Mexico, with benefits appearing to accrue to an entity owned by Mr Mutaz
Otaibi.
4)
Mr Mutaz Otaibi is alleged to have agreed purportedly on behalf of GFIF that a
loan termination fee of more than US$2million due to GFIF would not be repaid
to it but would instead be split equally between two companies which he and
former Floreat employees respectively owned in their personal capacities
210929 In the Matter of Principal Investing Fund I Ltd (FSD 268 of 2021) and Long View II Limited (FSD 269 of 2021) and Global Fixed
Income Fund I Limited (FSD 270 of 2021) – Judgment (DDJ)
5 of 14
5)
Unnecessary investment management fees have been charged in respect of Long
View for its holding of traded securities generally in firms which are household
global names.
11.
Furthermore, it appears that each of the Floreat Funds has failed to provide net asset
valuation calculations on an appropriately regular basis, leading one of the banks to
write the value of Mr Wang's investments in both RAGOF and PIF down to zero.
12.
Mr Wang further complains that, to make matters worse, his straightforward requests
for documents and information regarding the Floreat Funds was met with aggression.
13.
Mr Wang is also concerned over a significant risk that the directors of the Cayman
Funds will be coerced into wrongly and unfairly exercising powers to sell and/or
compulsorily redeem the shares which Mr Wang ultimately beneficially owns in the
Cayman Funds with a view to undermining the legal proceedings. I note the reference
to the orchestrated attack by the Floreat Principals and the misuse of the resources of
the Floreat Funds in this respect.
14.
Mr Wang has lost all trust and confidence in Floreat and the Floreat Principals.
15.
In short it is said that the evidence demonstrates the very real risks that if provisional
liquidators are not urgently put in place to hold the ring and further to investigate the
affairs of the Floreat Funds and the Floreat Principals:
(a)
the Cayman Funds’ assets will be further diminished;
(b)
Mr Wang will continue to be oppressed; and
(c)
that there will be further misconduct and mismanagement, including a risk that
relevant books and records may be destroyed and/or fabricated.
210929 In the Matter of Principal Investing Fund I Ltd (FSD 268 of 2021) and Long View II Limited (FSD 269 of 2021) and Global Fixed
Income Fund I Limited (FSD 270 of 2021) – Judgment (DDJ)
6 of 14
Related BVI proceedings in relation to RAGOF
16.
I should record that Mr Wang has taken the same approach with respect to RAGOF in
proceedings before the BVI High Court. On 26 August 2021, Mr Wang successfully
obtained an ex parte order appointing receivers over his shares in RAGOF. I am
informed that the BVI High Court made a further order, again ex parte, on 1 September
2021 appointing provisional liquidators over RAGOF.
The relevant law
17.
I now turn to the relevant law.
18.
Section 104(1) of the Companies Act (2021 Revision) (“Act”) provides as follows:
“Subject to this section and any rules made under section 155, the Court may, at any
time after the presentation of a winding up petition but before the making of a winding
up order, appoint a liquidator provisionally.”
19.
Section 104(2) of the Act provides as follows:
“(2) An application for the appointment of a provisional liquidator may be made under
subsection (1) by a creditor or contributory of the company or, subject to subsection
(6), the Authority, on the grounds that-
(a) there is a prima-facie case for making a winding up order; and
(b) the appointment of a provisional liquidator is necessary in order to-
(i) prevent the dissipation or misuse of the company’s assets;
(ii) prevent the oppression of minority shareholders; or
(iii) prevent mismanagement or misconduct on the part of the company’s
directors.”
20.
In my recent judgment in In the Matter of ICG I (Unreported, FSD 192 of 2021 (DDJ),
4 August 2021) I referred to the four main hurdles applicants seeking the appointment
of provisional liquidators pending the determination of a winding up petition had to
jump. At paragraph 17(3) of my judgment I stated:
210929 In the Matter of Principal Investing Fund I Ltd (FSD 268 of 2021) and Long View II Limited (FSD 269 of 2021) and Global Fixed
Income Fund I Limited (FSD 270 of 2021) – Judgment (DDJ)
7 of 14
“(3) It can immediately be seen from the plain wording of these provisions that an
applicant seeking the appointment of a provisional liquidator pending the
determination of a winding up petition has four main hurdles to jump:
(a) The applicant must satisfy the court that a winding up petition has been duly
presented and a winding up order has not yet been made (the "presentation of
the winding up petition hurdle");
(b) The applicant must satisfy the court that the applicant has standing to make
the application i.e. the applicant is a creditor, contributory or the Authority (the
"standing hurdle");
(c) The applicant must satisfy the court that there is prima-facie case for making
a winding up order (the "prima-facie case hurdle"); and
(d) The applicant must satisfy the court that the appointment of the provisional
liquidator is necessary in order to prevent the dissipation or misuse of the
company's assets; and/or the oppression of minority shareholders; and/or
mismanagement or misconduct on the part of the company's directors (the
"necessity hurdle").”
21.
In another recent judgment in Cathay Capital Holdings III LP v Osiris International
Cayman Limited (Unreported, FSD 245 of 2021 (DDJ), 30 August 2021) I endeavoured
to outline the legal principles to consider when a Court is being asked to proceed ex
parte and without notice.
22.
Order 4 Rule 1(2) of the Companies Winding Up Rules 2008 (“CWR”) provides that
the company is entitled to at least 4 clear days’ notice of the application for the
appointment of a provisional liquidator 'unless the Court is satisfied that there is some
exceptional circumstance which justifies the application being made ex parte.'
23.
Section B 1.2(a) of the Financial Services Division Guide under the heading, ‘Ex parte
interlocutory applications' provides:
“All applications should be made on notice to the other party/parties (if any), even if
that notice has for good reason to be short, unless
(i) any Rule or PD provides that the application may be made without notice; or
(ii) there are good reasons for making the application without notice, for example,
because giving notice would or might defeat the object of the application.”
24.
I agree with Mr Wardell, who represents the Applicant, when he submits that the
introduction of CWR Order 4 Rule 1(2) cannot have been intended to require any
210929 In the Matter of Principal Investing Fund I Ltd (FSD 268 of 2021) and Long View II Limited (FSD 269 of 2021) and Global Fixed
Income Fund I Limited (FSD 270 of 2021) – Judgment (DDJ)
8 of 14
circumstance more exceptional than those circumstances which would justify any
interlocutory application in civil proceedings being made ex parte / without notice.
The Ex Parte issue
25.
The first issue to determine is whether it is appropriate to proceed ex parte.
26.
I am persuaded that in the exceptional circumstances of these cases there is good reason
to proceed on an ex parte basis.
27.
I agree that giving notice to each of the Cayman Funds would enable the alleged
wrongdoers in control of the funds to defeat the object of the applications either entirely
or to some significant extent.
28.
I have noted the serious concerns of the Applicant, including the concerns over:
1)
the risk of further dissipation and misuse of the assets of the Cayman Funds;
2)
the risk of inappropriate action to compulsorily redeem or sell shares in the
Cayman Funds which belong to Mr Wang beneficially and which are legally
held and registered in the name of the applicant CSLN on behalf of Mr Wang;
3)
the risk of destruction and/or fabrication of relevant fund documents and records,
at least some of which may not be held by external service providers who,
particularly if regulated, may be trusted to preserve them.
Determination
29.
I turn now to the four hurdles that must be cleared prior to the appointment of
provisional liquidators. I am satisfied that the Applicant has jumped the four hurdles I
outlined in ICG I (as set out above). I briefly set out my conclusions and reasons as
follows in respect of each of the hurdles in respect of each of the three matters before
the Court.
210929 In the Matter of Principal Investing Fund I Ltd (FSD 268 of 2021) and Long View II Limited (FSD 269 of 2021) and Global Fixed
Income Fund I Limited (FSD 270 of 2021) – Judgment (DDJ)
9 of 14
The presentation of the winding up hurdle
30.
Winding up petitions have been duly presented in respect of each of the Cayman Funds
and winding up orders have not yet been made. That hurdle has therefore been jumped.
The standing hurdle
31.
The Applicant has standing to make the applications in its capacity as a contributory -
see the Second Affidavit of Mr Michael Pearson at paragraph 6.
The prima facie case hurdle
32.
I have carefully considered the Applicant’s concerns and note the reference to:
1)
a justifiable loss of trust and confidence in the management of the Cayman
Funds due to the lack of probity on the part of the management;
2)
oppression by those wielding the votes with respect to each of the Cayman
Funds;
3)
the alleged fraud from the inception in respect of the Cayman Funds;
4)
an irretrievable breakdown in the underlying relationship of mutual trust and
confidence; and
5)
a pressing need for an investigation into the affairs of each of the Cayman Funds.
33.
Concerns (1) and (5) in particular have persuaded me that there is a prima facie case.
34.
It is well settled that a company may be wound up on the just and equitable ground if it
is established that there has been a justifiable loss of confidence in management, for
example, on account of serious misconduct or serious mismanagement of the affairs of
210929 In the Matter of Principal Investing Fund I Ltd (FSD 268 of 2021) and Long View II Limited (FSD 269 of 2021) and Global Fixed
Income Fund I Limited (FSD 270 of 2021) – Judgment (DDJ)
10 of 14
the company by the directors or the majority shareholders (see the judgment of Martin
JA in Tianrui (International) Holding Company Limited v China Shanshui Cement
Group Limited 2019 (1) CILR 481 at paragraph 22). I also accept, as did Martin JA at
paragraph 23 of his judgment in the Tianrui case, that it is also well settled that a
winding up petition will not succeed if there exists an adequate alternative remedy
which the petitioner has unreasonably failed to pursue.
35.
In my judgment, the Applicant as a contributory has a tangible interest in any winding
up and has no alternative remedy reasonably available to it. Moreover again, based on
what I have read and heard to date, it can reasonably be said on an objectively justifiable
basis that the Applicant, as a contributory, has lost trust and confidence in the
management of the Cayman Funds in light of the serious wrongdoing identified by the
Applicant.
36.
Moreover, Smellie CJ in In re GFN Corporation Limited 2009 CILR 135 (at paragraph
42) helpfully confirmed that the need for an investigation into the affairs of a company
can be a free-standing basis for making a winding up order on the just and equitable
ground. The Chief Justice also stated (at paragraph 43 of his judgment) that the
liquidators should have the power to investigate as widely in the circumstances as may
be required, including an investigation into the reasons for the company's failure and
the conduct of those concerned in its management.
37.
Floreat and the Floreat Principals should welcome and fully cooperate with an
independent investigation if they have nothing to hide.
38.
Whichever test is applied, I am satisfied that the Applicant has jumped the prima facie
case hurdle. On the face of it, there appears to be a strong case for winding up on the
just and equitable ground. Of course, I keep my mind open to persuasion and at a
subsequent hearing, having heard all the relevant evidence and arguments, winding up
orders may or may not be made.
210929 In the Matter of Principal Investing Fund I Ltd (FSD 268 of 2021) and Long View II Limited (FSD 269 of 2021) and Global Fixed
Income Fund I Limited (FSD 270 of 2021) – Judgment (DDJ)
11 of 14
39.
At this stage, on the basis of what I have read and heard, I am satisfied that there is at
least a prima facie case for the making of winding up orders.
The necessity hurdle
40.
I turn now to the necessity hurdle. I am also satisfied that the appointment of the
provisional liquidators is necessary to prevent the dissipation and misuse of the assets
of the Cayman Funds and the possible oppression of minority shareholders and also the
mismanagement and misconduct on the part of the directors of the funds.
41.
It is necessary to take this step of appointing provisional liquidators as no other more
proportionate and reasonable alternatives are available to the contributory.
42.
I am satisfied that there is a serious risk that those in control of the Cayman Funds will
engage in dealings with the assets of the Cayman Funds which may result in those assets,
or at least a proportion of them, ceasing to be available to the fund to which they belong,
ultimately to the detriment of those financially interested in that fund.
43.
In particular, in respect of the PIF, the Shanti artwork can be readily moved and/or sold.
Long View holds traded securities which can be sold immediately and the proceeds
dissipated. In respect of GFIF, the diversion of the loan termination fee demonstrates a
serious risk of further dissipation of assets.
44.
There is force in the submission that absent the appointment of provisional liquidators
such risks of dissipation and misuse of assets could only be heightened by the threat of
winding up orders “ which would signal that they should take what more they can while
they can” as it is put at paragraph 139 of the skeleton argument.
45.
I also note the submission in respect of the oppression of minority shareholders, that
those in control cannot be trusted to fairly exercise the powers they have to
compulsorily redeem the shares held by CSLN over which the receivers have been
appointed. These powers are contained in the Articles of Association of each of the
210929 In the Matter of Principal Investing Fund I Ltd (FSD 268 of 2021) and Long View II Limited (FSD 269 of 2021) and Global Fixed
Income Fund I Limited (FSD 270 of 2021) – Judgment (DDJ)
12 of 14
Cayman Funds - Article 12 of PIF's Articles, Article 13 of Long View's Articles and
Article 12 of GFIF's Articles. There is a real concern over potential oppression of
minority shareholders and the exercise of powers for improper and unfair purposes.
46.
As regard to mismanagement or misconduct, Segal J in In the matter of Asia Strategic
Capital Fund, L.P. (Unreported, FSD 42 of 2015 (NSJ), 30 April 2015) at paragraph
60 stated that the wording in section 104(b)(iii) connotes culpable behaviour involving
a breach of duty or improper behaviour involving a breach of the relevant entity’s
governing documents and governance regime and that this:
“…could involve inaction where such inaction would give rise to a breach of duty and
action was needed and possible to protect the interests of the [relevant legal entity]”
47.
I agree that this may include situations where the evidence shows that the directors have
delegated their powers and wrongfully failed to properly supervise the exercise of such
powers thereafter.
48.
Another form of misconduct which is relevant and a serious risk in this case is the loss
or destruction of the relevant entity’s documents and records.
49.
I also agree that the balance of convenience with respect to each of the Cayman Funds
weighs strongly in favour of provisional liquidators being appointed over each of them.
Full and frank disclosure obligation
50.
I should record that in concluding it was appropriate to proceed ex parte / without notice
and to grant the substantive relief requested I had full regard to all that was written and
said in respect of full and frank disclosure.
51.
In particular, I had regard to:
1)
paragraphs 150 to 186 of the Applicant’s skeleton argument;
210929 In the Matter of Principal Investing Fund I Ltd (FSD 268 of 2021) and Long View II Limited (FSD 269 of 2021) and Global Fixed
Income Fund I Limited (FSD 270 of 2021) – Judgment (DDJ)
13 of 14
2)
Mr Wang's second affidavit, especially at paragraphs 240 to 287;
3)
Herbert Smith Freehill's letter dated 9 April 2021 to Lipman Karas LLP in
London; and
4)
the first witness statement of Hussam Otaibi dated 21 July 2021 in the English
Pre-Action Disclosure Proceedings and the second witness statement of Hussam
Otaibi dated 24 August 2021 in those proceedings. I note that permission had
been obtained to use such in the BVI proceedings and in the proceedings before
this Court.
52.
I have also carefully considered all the factors so properly and eloquently put before
the Court by Mr Wardell on behalf of the Applicant this morning, including the further
comments made in respect of the Shanti artwork allegations on behalf of the
respondents at a hearing in the High Court in London earlier today. I note that a short
affidavit confirming this information will be provided to the Court, for the court record,
before 3:00pm next Wednesday.
The Order
53.
I am most grateful to the attorneys for their valuable assistance to the Court in respect
of these matters.
54.
In summary, I am persuaded that it is appropriate to appoint joint provisional liquidators
on an ex parte basis for the brief reasons provided in this ex tempore judgment. I
therefore make orders in the terms of the drafts helpfully filed prior to today's hearing,
such orders to incorporate the amendments which I specified during my exchanges with
counsel.
210929 In the Matter of Principal Investing Fund I Ltd (FSD 268 of 2021) and Long View II Limited (FSD 269 of 2021) and Global Fixed
Income Fund I Limited (FSD 270 of 2021) – Judgment (DDJ)
14 of 14
55.
That is my judgment in respect of these matters.
THE HON. JUSTICE DAVID DOYLE
JUDGE OF THE GRAND COURT