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The body of reported case law regarding receivershipappointments in the Cayman Islands is relatively small, probablybecause many disputes in Cayman are resolved by winding up

petition rather than writ action, and the winding up regime has its ownprovisions for protection of assets, including the ability to appointprovisional liquidators to prevent the dissipation of assets prior to thehearing of the winding up petition. Similarly, if judgment is obtainedagainst a Cayman company and remains unpaid, a winding-up order isavailable as of right and, rather than appointing receivers, the morecommon course for the judgment creditor will be to seek to have thedebtor wound up. Notwithstanding that, the Grand Court of the Cayman Islands has

considered applications for the appointment of receivers on a number ofoccasions over the past 12 months.The Grand Court may appoint a receiver under section 11(1) of the

Grand Court Law, which gives it the same jurisdiction as the EnglishHigh Court has under the Senior Courts Act.Section 11A of the Grand Court Law confirms that the Grand Court’s

power extends to appointing receivers (or granting an injunction) insupport of foreign proceedings. This is an important power in the fightagainst cross-border fraud.The Court’s ability to appoint receivers where it is just and convenient

to do so is separate from a contractual right to appoint receivers, which isoften granted to lenders in a loan or mortgage agreement.The Grand Court will follow the approach of the English High Court

and will appoint receivers:• pre-judgment, where the risk of dissipation of assets is so high that

a freezing injunction will not give sufficient protection;• post-judgment via an equitable execution (as in the TMSF case); or• in other cases where it is just and convenient to do so.

Appointment of receivers pre-judgment

Receivers may be appointed prior to judgment where the risk ofdissipation of assets is so high that a freezing injunction will not give

CORPORATERECEIVERSHIP APPLICATIONS

Fighting back Receivership is an important weapon in the arsenal of any commercial litigator

1MINUTEREAD

This article discusses the roleof receivership applicationswithin the Cayman Court.Partner Paul Smith and seniorassociate Katie Pearsondeliberate the alternativeways receivers can beappointed, including prior tojudgement and by way ofequitable execution. Thearticle draws upon severalcases from the CaymanIslands courts, including the2011 case of TMSF v MerrillLynch Bank and TrustCompany (Cayman) Ltd. Smith and Pearson go on todiscuss the Grand Court’soften cautious approach tosuch applications and whythis is frequently the case.

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sufficient protection. The advantage of areceivership appointment over a freezinginjunction is obvious in cases where assets areheld through corporate structures. Receiversappointed over the assets of the topco (or theindividual holding the topco’s shares) may, ifgiven power to do so, replace the directors ofthe entities down the chain, giving them powerto take control of any assets held by thoseentities. A freezing injunction, whilst in itself adrastic remedy, does not enable a litigant to takecontrol of a corporate structure in this way.Unsurprisingly, given its drastic effect, the

bar for such appointment is very high and suchan application was recently resisted in the May2018 case of Meridian Trust Company Limitedv Batista and others on the basis that theappointment of receivers was ‘a draconianremedy that is “more intrusive, more expensive,and less reversible than the granting of aninjunction”’. In the Meridian Trust Company litigation,

the Grand Court had already grantedworldwide freezing orders in support ofsubstantive proceedings in Florida relating tothe failure of Mr Batista’s Brazilian oilexploration business (and subsequentallegations of fraud), at the time the receivershipapplication was made. There was no suggestionthat there had been dissipation of assets inbreach of the worldwide freezing orders. Thereceivership was sought on the basis of allegedbreach (or potential breach) of the disclosureobligations under the worldwide freezingorders. The Court took into account the facts that

disclosure in the Florida proceedings (to whichthe Cayman proceedings were ancillary) hadbeen stayed, and that Mr Batista had providedauthority letters to enable his co-defendantcompanies to meet their disclosure obligationsunder the worldwide freezing orders. It heldthat it was not appropriate, and unjust andinconvenient to grant the relief sought at thisstage.Another recent unsuccessful application for

the appointment of receivers was made in thecase of Trina Solar Limited (unreported,judgment dated November 6 2017; upheld byjudgment of the Court of Appeal dated May 172018). This application was made in thecontext of proceedings under section 238 of theCompanies Law, which enables shareholdersdissenting from a merger to be paid the fairvalue of their shares as determined by the Court.The dissenting shareholders argued that a

restructuring which Trina Solar had undertakento enable it to relist on a PRC stock exchangeamounted to a dissipation of assets, such as to

entitle them to a freezing injunction. The Courtheld that the restructuring was justified and waspart of Trina’s ordinary course of business. Thedissenting shareholders had not proved thatthere was a risk of dissipation of assets and weretherefore not entitled to a freezing injunction.As they had not met the test for a freezinginjunction, it followed that the application forthe appointment of receivers was also dismissed.

Appointment of receivers by wayof equitable execution

Receivers may be appointed by way of equitableexecution in circumstances where othermethods of enforcing judgment debts are notpossible or have not been successful. This powerwas considered by the Privy Council, on appealfrom the Cayman Islands Court of Appeal, inthe seminal 2011 case of TMSF v Merrill LynchBank and Trust Company (Cayman) Ltd. TMSF had obtained judgment against Mr

Demirel in Turkey. It had had the Turkishjudgment recognised in Cayman, followingwhich it sought the appointment of receivers byway of equitable execution over Mr Demirel’spowers of revocation of two Cayman Islandstrusts.The application was rejected by the Grand

Court and the Court of Appeal on the groundthat Mr Demirel’s power of revocation did notamount to property. The Privy Council took adifferent view, holding that, following theEnglish Court of Appeal’s 2009 decision inMasri v Consolidated Contractors International(UK) Ltd (No. 2), the jurisdiction to appointreceivers was capable of incrementaldevelopment. The Privy Council held that MrDemirel’s powers of revocation weretantamount to ownership and that an order forthe appointment of receivers should be made.The decision in TMSF was widely welcomed asconfirmation of the power of the CaymanCourts to take action to assist victims of fraudin appropriate cases. A recent attempt to furtherextend the jurisdiction to appoint receivers byway of equitable execution was, however,unsuccessful. In the recent 2018 case of Y v R, a judgment

creditor sought to have receivers appointed overthe judgment debtor’s future distributions froma discretionary trust. The application wasrefused on the basis that the judgment debtorhad neither a legal nor a beneficial interest inthe trust fund. There were therefore no assets ofthe judgment debtor in the Cayman Islandsover which a receiver could be appointed.Mangatal J held that to grant the relief sought

in such circumstances would amount to ‘aradical, impermissible extension of the law’.

Practical considerations

Applications for the appointment of receiversare governed by Order 30 of the Grand CourtRules. The application may be made bysummons or motion, supported by an affidavit.There are no specific rules as to who may beappointed as receiver, but typically theappointees are Cayman insolvencypractitioners, who are well known to the Court.Where some or all of the assets in question areoverseas, a Cayman practitioner may beappointed jointly with an appointee in thejurisdiction where the assets are located. The receivers once appointed will have the

powers granted to them by the appointmentorder. These powers can range from the powerto manage a specific asset or receive a specificincome stream, to full powers over a company’sbusiness. A receiver may at any time requestdirections from the Court. The order for the receivers’ appointment

may include such directions as the Court thinksfit for the giving of security by the receivers. Inpractice, if the appointees are Caymaninsolvency practitioners, they will haveinsurance complying with the Cayman IslandsInsolvency Practitioners’ Regulations 2018 (IPRegulations) and the Court will be unlikely torequire additional security.Given the draconian effect of a receivership

appointment, it is not surprising to see theGrand Court in the cases considered in thisarticle taking a cautious approach to suchapplications. As was confirmed in the TMSFcase, the demands of justice are the overridingconsideration, and notwithstanding the factthat the recent applications considered in thisarticle have all been unsuccessful, the CaymanCourts will not hesitate to exercise theirjurisdiction to appoint receivers in anappropriate case.

Paul Smith PartnerHarneys (Cayman Islands)

Katie PearsonSenior associate Harneys (Cayman Islands)

CORPORATE RECEIVERSHIP APPLICATIONS