Liquidation – Foreign company – Sections 2, 4(1), 161, 184(1), and 195 of the Companies Act 1981 of Bermuda – Section 1 of the External Companies (Jurisdiction in Actions) Act 1885 – Whether the Supreme Court of Bermuda had jurisdiction to wind up a Cayman Islands company – Whether the Company’s auditors are entitled to challenge the winding up order in answer to an application by the liquidators under section 195 of the Companies Act 1981 of Bermuda seeking disclosure of documents
The appeal concerned an attempt on the part of the liquidators of Saad Investments Company Ltd to obtain information from the company’s former auditors, PWC.
On 5th August 2009 the Grand Court in the Cayman Islands appointed Hugh Dickinson, Stephen Akers and Mark Byers as the provisional liquidators of the company. Six weeks later the company was wound up and the provisional liquidators were appointed as the official liquidators. Their investigations revealed a deficiency in the liquidation amounting to billions of US dollars. In September 2010 the liquidators obtained an order from the Cayman Islands Grand Court requiring PWC to deliver up its working files relating to the company’s business. The liquidators contended that PWC’s compliance with this order was late, partial and heavily redacted. In these circumstances the liquidators decided to apply to wind up the company in Bermuda in order that they could take advantage of s.195 of the Companies Act 1981 of Bermuda which was applicable and exercisable only in respect of a company which the Bermuda court had wound up.
A petition to wind up the company was presented to the Supreme Court of Bermuda on 17 August 2012 and a winding up order was made on 14 September 2012. On 12 February 2013 an application was made to the Supreme Court for an order under s.195 of the 1981 Act and Kawaley CJ ordered PWC to attend for examination and produce all documents in their possession relating to the affairs of the company. On 15 April 2013 Kawaley CJ dismissed PWC’s application to set aside his order, which application was made on the ground that the court had no jurisdiction to wind up the company. PWC’s appeal to the Court of Appeal was dismissed and it appealed to the Privy Council.
The issues on the appeal were (a) whether the Supreme Court in Bermuda had jurisdiction to make a winding up order in respect of the company and (b) even if it did not have such jurisdiction, whether it was open to PWC to challenge the winding up order.
After reviewing the terms of ss.2, 4(1) and 161 of the 1981 Act and s.1 of the External Companies (Jurisdiction in Actions) Act 1885, Lord Neuberger, giving the opinion of the Board, concluded that the Supreme Court did not have jurisdiction to wind up the company.
The Respondents argued that even if the Supreme Court had no jurisdiction to wind up the Company, the winding up order remained valid unless and until set aside and that PWC had no locus standi to apply to set it aside because it was a stranger to the winding up.
The Board accepted that PWC was properly to be described as a stranger to the winding up, not being a contributory or a creditor, and noted that there was authority that such a stranger cannot be heard on a winding up petition and does not have locus standi to challenge the making of a winding up order (In re Mid East Trading Ltd [1998] BCC 726). Lord Neuberger stated that as a general proposition a court will not entertain submissions from strangers to a winding up on the issue of whether a winding up order should have been made, but stated that this sensible and practical rule should not be elevated into an immutable principle, which is applicable irrespective of the facts of the case.
Lord Neuberger observed that PWC was a stranger to the winding up only in the most technical sense because they were the sole direct targets of the winding up order, which had been made to enable an application to be made under s.195 of the 1981 Act. In these circumstances PWC certainly had standing to raise the question with the court as to whether it had had jurisdiction to make the winding up order and to appeal from the decision of the court on that point. Lord Neuberger said that a court should generally be very reluctant to permit a person who is neither a contributory nor a creditor the right to be a party to and to be heard on a winding up petition, but the Board could see no reason why, in appropriate circumstances, a person who would be directly affected by a winding up order should not have the right to be added as a party. He stated however, that the circumstances where this was appropriate would be exceptional.
The Board also rejected the Respondents’ contention that there was a procedural principle that nobody can raise an argument that a winding up order was made without jurisdiction during the course of the winding up proceedings themselves on the basis that it did not consider that the judgment of Chadwick LJ in Mid East Trading supported such a contention, but to the extent that it does it is wrong.
The jurisdiction to wind up a company in Bermuda is purely statutory and simply did not exist in this case. PWC was neither a creditor nor a contributory but it was entitled to bring a challenge to the jurisdiction of the Bermudan court to wind up the company: whilst generally speaking the court will only entertain challenges to the jurisdiction of the court to wind up a company from a creditor or contributory, that rule is not an immutable principle, and a challenge might be permitted by someone directly affected by the winding up.
