David Friedland v (1) Xena Investments Ltd; (2) William Tacon; (3) David Griffin; (4) Spectrum Galaxy Fund Ltd
| Jurisdiction | British Virgin Islands |
| Judgment Date | 06 June 2011 |
| Court | High Court (British Virgin Islands) |
| Docket Number | CLAIM NO. BVIHC (COM) 0083 OF 2010 |
| Date | 06 June 2011 |
THE EASTERN CARIBBEAN SUPREME COURT
IN THE HIGH COURT OF JUSTICE
CLAIM NO. BVIHC (COM) 0083 OF 2010
Mr Richard Evans for the Applicant
Ms Keisha Durham for the first Respondent
Mr Robert Foote for the second and third Respondents
The fourth Respondent was not represented and did not appear
(Application by director of company for termination of liquidation — applicant contending that decision of Court of Appeal in Westford Special Situations Fund Ltd v Barfield Nominees Ltd1 showing order appointing liquidators on 29 July 2010 should never have been made — section 233 Insolvency Act, 2003 considered)
[1] This is an application under section 2332 of the Insolvency Act, 2003 (“section 233”, “the Act”) for an order terminating the liquidation of the fourth Respondent, Spectrum Galaxy Fund Limited
(“Spectrum”). I appointed Joint Liquidators to Spectrum on 29 July 2010 on the application of the first Respondent, Xena Investments Limited (“Xena”).[2] Spectrum is a BVI incorporated company and recognized as a private fund. It has been described as an umbrella fund, inasmuch as it has established sub-funds the separate interests in which are held by designated classes of shares in Spectrum. One such sub-fund was the MG Secured Debt Fund (“MG”) and between 1 November 2006 and 1 June 2007 a company called Somers Dublin Ltd a/c KBCS (“Somers Dublin”) subscribed, on behalf of a company called Pentagon Select Ltd (“Pentagon”) for shares in Spectrum giving it an interest in MG. It appears that the parties treated MG as a trading style of Spectrum when it was convenient to do so. The total subscription price was some US$17m. On 30 April 2008 Somers Dublin submitted a redemption notice in respect of all its shares in Spectrum, effective on 30 June 2008. It is not disputed that as a result Somers Dublin/Pentagon became entitled as at that date to payment of redemption proceeds amounting to some US$21.4m (or to an equivalent distributionin specie).
[3] On 19 December 2008 Pentagon entered into a forbearance agreement with MG/Spectrum. Its principal terms may be summarized as follows. Spectrum acknowledged that Pentagon, as beneficial owner, was entitled to immediate payment of the redemption money (clause 7). Also by clause 7, Pentagon agreed not to bring any action against the fund or its directors in respect of its right to demand immediate payment for a period of two years from 30 June 2008, such forbearance to lapse if certain specified acts of default were committed within that period by Spectrum. Pentagon agreed not to charge interest on the outstanding amount (clause 5). As consideration for Pentagon's forbearance, Spectrum agreed that it would not attempt to satisfy the redemption by payment in kind. As further consideration Spectrum agreed irrevocably and unconditionally to consent to an anticipated transfer by Pentagon of its “legal and beneficial interest in the redemption” (including its rights under the forbearance agreement), described in the forbearance agreement as “the Proposed Transfers” (clause 9). Finally, by clause 10, it was declared that the forbearance agreement was governed by and to be construed in accordance with English law and that any dispute arising out of or in connection with the terms of the forbearance agreement should be subject to the exclusive jurisdiction of the English courts.
[4] On 1 May 2010, during the currency of the moratorium, Pentagon and Somers Dublin as assignors and Xena as assignee entered into a deed of assignment (“the assignment”). Under clause 3.1 of that document Pentagon and Somers Dublin assigned to Xena “the Assigned Property.” Clause 1.1 of the assignment defined “Assigned Property” as “the Redeemed Shares, the Receivables and all Related Rights”. “The Redeemed Shares” are defined (in summary) as shares having a value on June 30 2008 of US$21.4m and in respect of which a request for redemption had been duly accepted and processed by Spectrum but in respect of which Somers had not been removed from Spectrum's register of members and/or the redemption process had otherwise not been completed. “Receivables” is given an extended definition but includes, as one would expect, the US$21.4m redemption proceeds. “Related Rights” includes a number of rights which it is not necessary to mention, but which, importantly, included Pentagon's rights under the forbearance agreement.
[5] There is no evidence that the assignment is what was envisaged in the forbearance agreement as the “Proposed Transfers”, but it would seem to be a reasonable inference that it is.
[6] Notice of the assignment was given by Pentagon, Somers Dublin and Xena to Spectrum on the same day. The notice asked Spectrum to update the register of members (to the extent required) to reflect the transfer of the Redeemed Shares to Xena. It concluded by giving a contact reference for use by Spectrum “if [it] had any questions concerning the transfer from Somers [Dublin] to Xena.”
[7] On 20 May 2009 an entity calling itself Sterling Group, which appears to have been acting for Spectrum in some administrative capacity, sent separate “Confirmations of Transfer” to each of Somers Dublin and Xena. Each confirmation was in identical terms:
“In accordance with your instructions we confirm having transferred the following in Spectrum Galaxy Fund MG Secured Debt Fund Series 6/06”
There then followed particulars showing the trade date as 1 May 2009, the number of shares as 139,380.155, their value as US$21.4m, the NAV date as 30 June 2008, the transferor as Somers Dublin and the transferee as Xena. In context and against the previous dealings which I have summarized above, there can be no doubt that the words “we confirm having transferred” meantthat the relevant register of members had been amended to substitute Xena for Somers Dublin as member in respect of the Redeemed Shares.
[8] On 6 July 2010, shortly after the expiry of the moratorium under the forbearance agreement, Xena issued an originating application for the appointment of liquidators to Spectrum, which came before me on 29 July 2010. The originating application sets out the facts leading up to the redemption of 30 June 2008 and paragraph 7 gave a very short summary of the forbearance agreement. Paragraph 8 said:
“By the Forbearance Agreement [Spectrum] acting through MG Secured Debt Fund has acknowledged that it considers Somers [Dublin] (on behalf of [Pentagon]) to be an unsecured creditor of [Spectrum] by virtue of its entitlement to the Redemption Proceeds, the beneficial interest in which vested in [Pentagon]”
Paragraph 9 pleads that by the assignment the Redemption Proceeds were assigned to Xena. Paragraphs 10 and 11 plead that Xena has not received any part of the US$21.4m Redemption Proceeds owed to it and that they remain due and payable. It is then said that the Spectrum has failed to pay its debts as they fall due and appears to be insolvent. On those grounds Xena asked for liquidators to be appointed. Xena's standing to make the application was not challenged at the hearing and I accept that the only reason for that was that it was considered at the time that by reason of my decision inWestern Union International v Reserve International Liquidity Fund Limited3 a redeemed shareholder had locus to apply as a creditor for the appointment of liquidators to the relevant company, although that did not preclude Spectrum from challenging that reasoning on the hearing of the application. Instead, the matter was argued on the basis that Xena ought to have accepted, alternatively that there should be an adjournment for further consideration of, compromise proposals offered by Spectrum but which Xena was then not prepared to entertain.
[9] I granted the application and appointed liquidators. That part, at any rate, of my decision inReserve International which held that the applicant in that case was not applying in its character
as a member has subsequently been demonstrated by the Court of Appeal in Westford Special Situations Fund Ltd v Barfield Nominees Limited and ors4 to have been misconceived.[10] The present application, which was made on 27 April 2011 by Mr David Friedland (“Mr Friedland”), a director of Spectrum, is for an order under section 233 terminating its liquidation. The Court has been told that in tandem with and in addition to this application, an appeal to the Court of Appeal is being prepared against my appointment of liquidators on 29 July 2010. Section 233 is in the following terms:
“Order terminating liquidation
(1) The Court may at any time after the appointment of the liquidator of a company, make an order terminating the liquidation if it is satisfied that it is just and equitable to do so.
(2) An application under this section may be made by the liquidator, a creditor, a director or a member of the company or the Official Receiver.
(3) Before making an order under subsection (1), the Court may require the liquidator to file a report with respect to any matter relevant to the application.
(4) An order under subsection (1) may be made subject to such terms and conditions as the Court considers appropriate and, on making the order or at any time thereafter, the Court may give such supplemental directions or make such other order as it considers fit in connection with the termination of the liquidation.
(5) Where the Court makes an order under subsection (1), the company ceases to be in liquidation and the liquidator ceases to hold office with effect from the date of the order or such later date as may be specified in the order.
(6) Where the Court makes an order under subsection (1), the person who applied for the...
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