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In the matter of Caledonian Bank Limited (In voluntary liquidation) (Unreported) (12 February 2015)

screen-shot-2016-11-12-at-10-54-30-amFrom Conyers Dill & Pearman


The US Securities and Exchange Commission filed a lawsuit in the US against Caledonian Bank Limited (the “Bank”), alleging fraudulent trading in securities. A temporary restraining order was subsequently issued by the USA Court (NY), restraining US$76 million of the Bank’s assets within the US.

In response to concerns regarding the regulatory implications of the SEC allegations and general concerns for the interests of the Bank’s depositors, the Cayman Islands Monetary Authority (“CIMA”) appointed controllers over the Bank on 10 February 2015 (the “Controllers”). On the same day, after receiving notice of controllership, the shareholders of the Bank voted to put the Bank into voluntary liquidation and appointed joint voluntary liquidators (“JVLs”).

The JVLs immediately applied to court for the voluntary liquidation of the Bank to continue under the supervision of the court on the basis of its apparent insolvency (the Bank had assets of US$618 million and liabilities of US$593 million, with shareholder’s equity at US$25 million), in addition, the Bank’s directors refused to swear a declaration of solvency. The application was opposed by CIMA who countered by seeking the Controllers’ appointment to be recognised, with powers vested by the court pursuant to S.18 of the Bankruptcy Law (1997 Revision) (the “Bankruptcy Law”). In the alternative CIMA requested that if the court was not prepared to recognise the Controllers, that they should be appointed as official liquidators instead of the JVLs.

There was no dispute between the parties as to whether the company should be wound up. The main issue was the identity of the liquidators, i.e. the JVLs appointed by the shareholders or the Controllers appointed by CIMA. The Chief Justice had to determine the effect of the appointment of the Controllers notice of which had been provided to the directors and shareholders of the Bank before the resolution to appoint JVLs.

The Chief Justice was called upon to identify and express the true meaning of the Banks and Trust Companies Law (2013 Revision), S.18 (the “Law”), which allows CIMA to appoint a person to assume control of the affairs of a company licensed under the Law, who shall have all the powers of a person appointed as a receiver or a manager under the Bankruptcy Law.

In his Ruling, the Chief Justice applied the decision in Finsbury Banks and Trust -v- Attorney General [1996] CILR 349, and interpreted S.18 of the Law to mean that the appointment of controllers by CIMA, vests immediate control of the licensee’s affairs in the Controllers. Therefore, the Controllers of the Bank had effectively assumed control of the Bank’s affairs prior to the appointment of, and to the exclusion of, the JVLs, the directors and the shareholders, and indeed anyone else who may have claimed control. The practical effect of the resolution to appoint the JVLs was no more than to vest the JVLs with such residual powers as might otherwise remain in the directors themselves notwithstanding the appointment of the Controllers, and therefore the JVLs’ petition for a supervision order was refused.

The Chief Justice also made an order for the vesting of the powers under S.18 of the Bankruptcy Law in the Controllers, on the basis of submissions made at the hearing. The Chief Justice indicated that, following the submission of their first report to CIMA, the Controllers would be at liberty to petition to be appointed as joint official liquidators (“JOLs”) of the Bank. That petition was subsequently made by the Controllers and they were appointed as JOLs on 23 February 2015.

It is noted that the temporary restraining order has since been reduced to US$7 million and the US judge has criticised the SEC for seeking to restrain US$76 million.



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