Key takeaways
- The petition debt must be disputed on substantial grounds. It is an abuse of process to use the winding up court as a debt collection agency.
- If the Court is to accede to an application to restrain a winding-up petition, the company must establish prima facie on the evidence that to do so would be an abuse of process.
- It is a serious step to restrain a company from exercising a statutory right and applying for a statutory remedy, therefore the Court's jurisdiction to restrain the presentation of a winding-up petition should only be exercised with great circumspection and only in clear cases.
On 26 February 2025, in an ex-tempore judgment the Honourable Justice David Doyle dismissed an application by ICM SPC to restrain the presentation of a winding-up petition against it (ICM SPC v Ryan Paul Jarvis et al).
Background
This case (ICM SPC v Ryan Paul Jarvis and John Johnston (in their capacity as Joint Liquidators of Phoenix Commodities PVT Ltd (In Liquidation)) [2025] CIGC (FSD) 17) concerns an application by ICM SPC (the "Company"), a segregated portfolio company incorporated in the Cayman Islands, seeking an injunction to restrain Ryan Paul Jarvis and John Johnston (the "Joint Liquidators") of Phoenix Commodities PVT Ltd (in voluntary liquidation in the British Virgin Islands ("BVI")) ("Phoenix BVI"), from presenting a winding-up petition against it. The Company has two segregated portfolios, one of which is Ancile Special Opportunity and Recovery Fund Segregated Portfolio ("ASOR").
The Joint Liquidators claim the Company owes $40 million because of a call on unpaid shares in Phoenix BVI, which they say is legally due and enforceable. The Company, through ASOR, denies that it is liable for this debt arguing that it was never a shareholder nor was it subject to a legally enforceable capital contribution requirement.
The BVI High Court dismissed the Company's application to remove itself from the List of Members of Phoenix BVI (ICM on behalf of the Ankle Opportunity and Recovery Fund Segregated Portfolio v Ryan Paul Jarvis and Rachelle Frisby (as Joint Liquidators of Phoenix Commodities PVT Ltd (in liquidation)) [2024] ECSC J0530-1) (the "BVI Decision").
After a six-day trial, Mangatal J, delivered the 90-page BVI Decision concluding that ASOR (acting by Mr Abdul-Massih) agreed in writing to becoming and in due course became a shareholder of Phoenix BVI. Mangatal J was highly critical of the Company and the evidence given on its behalf by Mr Abdul-Massih calling the various stories "quite incredible and often inconsistent … and incapable of belief", "untrue", a "complete fabrication." The BVI Decision remains subject to appeal.
The Company also claimed that the statutory demand issued by the Joint Liquidators following the BVI Decision under section 93 of the Cayman Islands Companies Act (2023 Revision), was invalid because under BVI insolvency law, the liquidators must first obtain a balance order under section 205 of the BVI Insolvency Act 2005 (the "IA") before enforcing the debt. The Joint Liquidators made clear that the debt and statutory demand are not based on the BVI Decision, but rather the debt itself.
Winding-up based on a disputed debt
The Grand Court reaffirmed the Cayman position that winding-up proceedings should not be commenced where the petition debt is genuinely disputed on substantial grounds and that it is an abuse of process to seek to use the winding up court as a debt collection agency (KrisEnergy (Gulf of Thailand) v Rubicon Vantage International Pte Ltd [2020] CIGC J0612-1 (decision held on appeal – KrisEnergy (Gulf of Thailand) v Rubicon Vantage International Pte Ltd [2020] CICA J1118-1). If the Court is to accede to an application to restrain a winding-up petition, the company must establish prima facie on the evidence that to do so would be an abuse of process.
Doyle J heeded the words of Quin J in Huawei Technologies v HiTs Africa Ltd [2014] CIGC J0129-1: “A dispute about the existence of a debt will not justify restraining the presentation of a winding up petition for non-payment of the debt … unless the Court is satisfied that the debt is disputed on some substantial ground (and not just on some ground which is frivolous or without substance and which the Court should therefore ignore) … The Court should be astute to ensure that, no matter how substantial the evidence in support of the dispute, it does actually disclose the dispute as having substantial ground.”
The onus is on the company to establish on a balance of probabilities that the debt is disputed on substantial grounds. The Court therefore has a duty to decide if there is a dispute on substantial grounds and remain alive to attempts to mask the fact that there is no arguable defence to a claim, whether on the facts or law.
Findings
After hearing argument from the parties, Doyle J was not persuaded by the Company that it would be an abuse of process to present a winding-up petition in the circumstances of the case nor that there was a bona fide dispute founded on substantial grounds as to the debt. He also resolved any question as to whether the existence of the BVI appeal might alter the position: at the date of the ex-tempore ruling, the BVI Decision still stood - the Company remained a member of Phoenix BVI.
Among the Company's arguments, it also submitted that the debt is not a debt or a debt which is due because there is no equivalent statutory provision in the IA to section 80 of the Insolvency Act 1986 of England and Wales. The Court confirmed on the evidence, the debt has become due; the Company has a liability to pay for the shares (section 195 IA), and the debt became due and payable when the call was made (section 204 of the IA).
Doyle J was also persuaded that section 205 of the IA is permissive and does not require the Joint Liquidators to present an application to enforce a call (balance order). As the evidence was accepted as showing ASOR as a member and the nominal value per share, the issue price per share and total number of shares remained good, there was no need for the Joint Liquidators to have obtained an order under section 205 of the IA.
Abuse of process and delaying tactics
The case comes as a warning to litigants that the Court will carefully assess the evidence to see through any delaying tactics, as sophisticated as they may appear to be. An entity seeking to avoid or delay payment of a clear liability will be unsuccessful in its attempts to restrain the presentation of a winding-up petition.
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