Levers J
IN CHAMBERS IN THE GRAND COURT OF THE CAYMAN ISLANDS CAUSE NO: 312 OF 2005 IN THE MATER OF THE COMPANIES LAW (2004 REVISION) -and- IN THE MATTER OF UNIVEST MULTI-STRATEGY FUND II LTD. BEFORE: The Honourable Madam Justice Levers Appearances: Mr. Richard Snowden QC for the Joint Official Liquidators (MS-II) with Ms. Laura Hatfield and Mr. Dawson Mr. Phillips QC with Mr. Nick Robinson for Unvest High Yield Fund Ltd. and Unvest Convertible Arbitrage Ltd. Mr. Peter & Kyle Broadhurst for RSM applicants Heard: 16th October 2006 JUDGMENT Levers, J. There are presently two applications before the Court. The first application is by way of Summons dated 2nd May 2006 pursuant to which the following relief is sought: (a) That Raymond Massi and Clifford Culmer, the Joint Provisional Liquidators of Mosaic Composite (US) Inc. pursuant to an Order of the Supreme Court of the Commonwealth of the Bahamas be recognised as the Joint Provisional Liquidators of Mosaic Composite (US) Inc., within the Cayman Islands; (b) That the applicants be given complete and unfettered access to, and copies of the documents relating to the liquidation of Univest Multi-Strategy Fund II Ltd (MS-II) including any and all information relating to a settlement affecting the sole known asset of the MS-II; and (c) That the Joint Official Liquidators of MS-II should be removed. The present Joint Official Liquidators of MS-II were appointed by the Cayman Islands Courts and they are Mr. Simon Whicker and Mr. Theodore Bullmore. The second application is made by way of Ordinary Application dated 24th May 2006. The Joint Official Liquidators of MS-II are seeking to settle the list of contributories of MS-II and/or the rectification of register of members of MS-II, and/or adjustment of the rights of the contributories of MS-II amongst themselves pursuant to section 112 and 122 of the Companies Law (2004 Revision). I should perhaps state at this stage that the application by the Joint Provisional Liquidators of MC (US) Inc. was heard first by agreement, as the question of recognition was the basis of their ability to take part in these proceedings. Accordingly, the Court heard the application and gave an oral judgment which is now reduced to writing with reasons. During the hearing of the second application, in view of my ruling on the first application, the Joint Provisional Liquidators represented in this Court by Mr. Massi, withdrew any objection they may have had to the settlement of the list of contributories in the form proposed by the Joint Official Liquidators. Mr. Snowden, QC on behalf of the Joint Official Liquidators (Mr. Whicker and Mr. Bullmore) drew the Court’s attention to all the relevant documents in support of the Liquidators’ position. At the end of his submissions and those of Mr. Phillips, QC who represented two of the contributories of Univest Multi-Strategy Fund II Ltd, the Court concluded that the list of contributories should be as suggested by the Official Liquidators, and that the methodology of distribution was the most appropriate in all the circumstances. During the submissions Mr. Phillips, QC on behalf of the “Fund companies” was anxious to ensure that the Court was informed of the commercial viability of these transactions and he took the Court to many documents that supported his submissions. The fact that persons acting or ostensibly acting on behalf of Mosaic may have subsequently diverted funds received from Univest Multi-Strategy Fund to other entities was not a matter that reflected badly on his client, he submitted. The Court was entirely in agreement with him. There was no doubt in my mind that the transactions made between Multi Strategy Fund II Ltd and Mosaic were in the best interest of all parties and was a sound commercial investment. THE MATTER OF RECOGNITION Mosaic is an American administrating company, which was at some point registered in the Bahamas. Mr. Massi and Mr. Culmer have been appointed Joint Provisional Liquidators by the Bahamian Court. That appointment is the subject of a challenge in the Bahamian Court. They await judgment on the application challenging the appointment. Counsel have submitted that the challenge may be based on the fact that the Bahamas is not the place of incorporation of Mosaic and that Mosaic does not in fact conduct any active business in the Bahamas at present. At the material time, the place of incorporation was Minnesota. Mr. Massi and Mr. Culmer were appointed Receivers of Mosaic by the Bahamian Court. That order was recognised by the Cayman Courts on 21st March 2006. On the same day while the ex-parte Order was made in these Courts asking the Court to recognise them as Receivers for a limited purpose (equitable execution of a judgment), they were also appointed Provisional Liquidators in the Bahamas of Mosaic. The two Orders cannot coexist under Bahamian Law and as Mr. Snowden, QC on behalf of the Joint Liquidators submits, it must inevitably mean that the previous order appointing them as Receivers is automatically stayed. Therefore, the Cayman Courts cannot go beyond the jurisdiction of their appointment in the Bahamas and the order recognising them as Receivers of Mosaic must inevitably be stayed in this jurisdiction too. They now come before this Court and ask for recognition for the following reasons:
That these are very serious allegations of a massive fraud and that this Court should view the matter very seriously and ensure that Mosaic is represented in any hearing and partake in any distribution or settling of contributories;
The fact that they are Provisional Liquidators matters not and despite the challenge, this Court should recognise them as finally appointed and enable them to act as if they were liquidators. The fact that there is a challenge to their appointment as Provisional Liquidators Mr. Broadhurst submits is fairly irrelevant and that this Court should recognise them.
That, even if he was wrong as to the appointment of a provisional liquidator being recognized, the fact that they were appointed as Receivers and recognised by this Court should be sufficient to enable them to act and be recognised in this case. Mr. Broadhurst submits that it matters not that the receivership order was stayed and it was only for a limited purpose. He relies on Smart on Cross-Border Insolvencies and submits that the recognition of a liquidator albeit provisional is not exclusive where he’s appointed in the place of incorporation. That in fact if he is appointed in other jurisdictions where the company conducts business recognition may also be accorded to a liquidator or provisional liquidator. He makes a further point that the owner of this company Mr. Maloney who is aware of all of these applications has made no challenge to the application. He further submits that Mosaic has a proprietary claim to assets of Univest Multi-Strategy Fund II. His submissions on the question of the removal of the Joint Official Liquidators were not in any great detail but as a result of reference being made to Mr. Massi’s affidavit Mr. Broadhurst submits that there was nothing untowards about the contents therein. During the course of the hearing of the application counsel for the Joint Official Liquidators and Univest made several complaints about the language used in the affidavit. It did in fact seem to be a personal attack on Mr. Whicker the Cayman appointed liquidator. Mr. Massi’s language was unfortunate and it is perhaps a reflection of this that Mr. Massi at the end of the hearing which inevitably touched on the language used in his affidavit gave instructions to his counsel to withdraw the allegations, to apologise and to agree to certain matters being settled. I will therefore not go into the Court’s view of the contents of the affidavit, save and except to say that the court’s view was reflected in the order for costs which will be dealt with later on in this judgment. Mr. Snowden QC on behalf of the Joint Official Liquidators responded to Mr. Broadhurst’s submissions as follows: 1. That this Court has no jurisdiction to recognise a Provisional Liquidator, more so in this case as the appointment had been challenged in the Bahamian Courts; 2. That it is wrong to suggest that Mosaic will not be represented properly and its interest protected in this application. The Joint Official Liquidators are officers of this Court and accordingly, they must act professionally and with integrity protecting all parties; 3. That the fact that the receivership order cannot coexist with the order appointing a liquidator in the Bahamas must mean that the receivership order here is limited to the Bahamian order and that this court cannot go beyond the scope of the Bahamian Order. Therefore, the argument that because he was appointed Receiver previously makes him recognisable in this proceeding has no validity;
That the Liquidator can be recognised by Cayman law, if in fact he is appointed in the place of incorporation. If he was not appointed in the place of incorporation but in another jurisdiction then at least this Court must have some evidence that he would be recognised in the place of incorporation i.e. Minnesota. He submits that there is no such evidence in this particular matter;
That it may well be that he was appointed a provisional liquidator in the Bahamas over the assets within the jurisdiction of the Bahamian Courts but that does not necessarily mean it is a basis for recognition by these courts;
That the circumstances of this case dictate against recognition because he does not come within any circumstance that is recognised by the law to enable this Court to accept him as a liquidator;
That Mr. Massi is about to embark upon hostile litigation against MS-II in relation to its assets which are the subject of this liquidation. This litigation would not be brought as a creditor or contributory, and is therefore not a matter which gives Mr. Massi any interest in the liquidation entitling him to seek the removal of the Joint Official Liquidators. Indeed, it would give rise to a direct conflict were Mr. Massi to seek his own appointment as Official Liquidator of MS-II;
That the Letter of Request does not mention the subject matter of this particular liquidation and therefore it does not really apply to any of these companies;
That the Order of the Ontario Court does not mention these companies either; and
That recognition is a matter of discretion and that this Court should not exercise its discretion in favour of Mr. Massi or Mr. Culmer in view of the above. Mr. Phillips’ QC on behalf of the Univest High Yield Fund II and Univest Convertible Arbitrage Ltd. submits that it is: (1) Totally irrelevant and misleading to suggest that nobody will represent the interest of Mosaic if there is no recognition of Mr. Massi; (2) He says that the word “massive fraud” is bandied around but that it has no relation to these companies; (3) He submits that Mosaic got value and it was a good commercial deal; (4) That Merril Lynch were investors in a structured Hedge Fund; (5) That the companies that Mr. Massi represents do not have any interest in MSII and that NAM may be the only one that has some interest albeit very minimal. That it may have a hundred management shares at one cent per share; (6) He further submits that if I exercise my discretion judicially there really is insufficient interest in this liquidation to have NAM represented and that NAM should in fact be dismissed as a real party to these proceedings; and (7) He further submits that all the deals were commercially viable; that they were beneficial to the company; that in fact the option agreement which was gone into between the parties involved in these proceedings was at the time exceptionally beneficial and that Mosaic got value for money. In response to Mr. Broadhurst Mr. Snowden QC on behalf of the Joint Official Liquidators does not oppose the recognition of other liquidators in principle. However what he does say is that in this particular case, they have not come properly before the Court to be recognised and as officers of the Court, the Joint Official Liquidators have a duty to question the validity of the application and ask the Court to exercise its discretion based purely on the law. He submits that Mr. Broadhurst did not at anytime explain to the Court precisely for what purpose, Mr. Massi wished to be accepted (whether generally for this hearing or otherwise). He says that it is important to know this prior to the Court excising its discretion. He also submits that these are provisional liquidations and that as such there is no authority to recognise them under our law. He adopts the point that is made by Mr. Phillips, QC that if they were not appointed in the place of incorporation there should be some evidence before me that having been appointed in another jurisdiction, they would be accepted in the country of incorporation. These are not simultaneous incorporations and the company does not have two domiciles. At any given time it had separate domiciles and at the material time when the liquidators were appointed their domicile was Minnesota. There is not a scintilla of evidence, he submits that Minnesota would accept these liquidators in that jurisdiction. In any event, he reminds the Court that the provisional liquidators’ appointment is challenged and a judgment is awaited in the Bahamas. Mr. Snowden QC submits that Mr. Massi’s affidavit and contents are very hostile in nature and that allegations against Mr. Whicker such as acting improperly are serious in nature and should not go without investigation. He says that any proprietary claim that may be advanced by Mr. Massi and on which he is relying is important for recognition. He submits that as he understands it, the only company that can conceivably bring that proprietary claim is Mosaic, and it is the one company which is excluded from the order of the Ontario Courts. It is referred to, he said in the Letter of Request but only in the recitals. The point he makes in any event is that the Letter of Request does not comply with the Evidence Act in Cayman. Further it is not even issued in proceedings in the jurisdiction of the requesting court concerning these two companies, the subject matter of this liquidation. THE COURT’S FINDINGS The Court found that in fact it could not recognise Mr. Massi for the following reasons: 1. He is only a provisional Liquidator and further he has been challenged in the jurisdiction in which he was appointed; 2. That he was not appointed by the Court of the incorporating country and that there is no evidence before this Court that the place of incorporation Minesotta would accept him as a liquidator (which is a pre-requirement for recognition); 3. That the Letter of Request does not refer to the subject matter of these proceeding; 4. Nor does the Order except in the recital; 5. That the court disagrees with Mr. Broadhurst’s submission that the prior receivership order would extend itself to Mr. Massi being recognized in these proceedings; 6. That the Receivership Order and the Provisional Liquidators Order cannot coexist. A receiver appointed by way of execution of a judgment has a different mandate to that of the liquidator or provisional liquidator and that in fact the Receivership Order must inevitably be stayed in the Bahamas. Accordingly the recognition afforded by this Court must be a mirror reflection of the Bahamian jurisdiction. The Court disagrees with Mr. Broadhurst’s submissions. The Court is of the view that Mr. Massi cannot be recognised. The question of costs was argued by the parties and both Mr. Snowden, QC and Mr. Phillips, QC argued for costs on an indemnity basis. Mr. Broadhurst submitted that there had been an unfortunate use of language but it had not been meant to be a personal attack on Mr. Whicker. During the course of these submissions Mr. Broadhurst informed the Court that he was instructed to withdraw the allegations, apologise to Mr. Whicker and to agree to pay costs on an indemnity basis. Accordingly costs on an indemnity basis of the application by Mr. Massi and Mr. Culmer were awarded to Univest High Yield Fund Ltd and Univest Convertible Arbitrage Ltd and the Joint Official Liquidators. Finally, the Court ordered that, all applications by the Joint Provisional Liquidators Mr. Massi and Mr. Culmer stand dismissed and the question of contributories be settled as the next step in these proceedings as outlined by the Caymanian liquidators. Dated this 7th day of November 2006 Judge of the Grand Court