AWH Fund Ltd (in Compulsory Liquidation) v ZCM Asset Holding Company (Bermuda) Ltd
| Jurisdiction | UK Non-devolved |
| Judge | Lady Arden |
| Judgment Date | 29 July 2019 |
| Neutral Citation | [2019] UKPC 37 |
| Court | Privy Council |
| Docket Number | Privy Council Appeal No 0033 of 2018 |
| Date | 29 July 2019 |
[2019] UKPC 37
Privy Council
Trinity Term
From the Court of Appeal of the Commonwealth of the Bahamas
Lord Reed
Lord Carnwath
Lord Briggs
Lady Arden
Lord Sales
Privy Council Appeal No 0033 of 2018
Appellant
Brian Simms QC
Ms Sophia Rolle-Kapousouzoglou
(Instructed by Lennox Paton)
Respondent
Miss Carolyn Walton
Miss Travette Pyfrom
(Instructed by Pyfrom Farrington Chambers)
Heard on 4 February 2019
The appeal concerns the question whether there is a jurisdictional gateway available for the service out of the jurisdiction of the claims of the liquidator of the respondent (“AWH”) in these proceedings and, if so, whether the claims satisfy the merits threshold for an order by the court for such service. The liquidator seeks orders that payments to the appellant, ZCM Asset Holding Company (Bermuda) Ltd (“ZCM”), be declared void as undue or fraudulent preferences pursuant to section 160 of the International Business Companies Act 2000 (“IBCA”) of The Bahamas and that such payments be repaid to him. The Court of Appeal held in the liquidator's favour but ZCM now appeals their decision to the Board. For the reasons set out in this judgment, the Board concludes that it should humbly advise Her Majesty that this appeal should be dismissed.
ZCM is incorporated and resident in Bermuda. As part of its business it acts as a sub-custodian under custody agreements between Zurich Bank and various counterparties. One such counterparty was American Express Offshore Alternative Investment Fund (“AMEX”). In January 2002, AMEX transferred to ZCM as a sub-custodian a number of redeemable shares in AWH, an investment vehicle incorporated in The Bahamas on 26 June 1997 to deal in securities listed on the Asian markets.
AWH registered those shares in the name of ZCM “for the benefit of AMEX”. AWH was entitled under Article 2.06 of its articles of association to recognise the registered holder of its shares as the sole owner and so it is not suggested that the words “for the benefit of AMEX” have any significance. Therefore, if AMEX wished to redeem any of its AWH shares, it had to request ZCM to give notice to AWH to redeem the shares in question. This ZCM did, on AMEX's behalf, in respect of all AMEX's shares in AWH in about April 2002. On 30 July 2002, AWH completed the process of redeeming AMEX's shares by paying the redemption monies, totalling US$13,148,013.01, to ZCM, out of the jurisdiction. The redemption monies were calculated on the basis of the net asset value of the shares as at 30 June 2002.
AWH was incorporated as a particular type of corporate vehicle, adopted to promote international business, namely an international business company (“IBC”) formed under the IBCA. This has now been amended by the International Business Companies Act 2011 (“the 2011 Act”). The 2011 Act was not, however, in force when these proceedings were started. AWH is now in compulsory liquidation in The Bahamas, commencing with the presentation of a winding up petition presented by a number of investors on 17 October 2002. The petition alleged that AWH was insolvent. A material averment in the petition was that AWH's corporate investment manager (and its chief executive officer) had been the subject of sanctions imposed by the Takeovers and Mergers Panel of the Securities and Futures Commission in Hong Kong (including a “cold shoulder order” against the chief executive officer restricting transactions by authorised dealers and others on his behalf) and so could no longer trade on the Hong Kong Stock Exchange. This had jeopardised AWH's investment business. Only a small proportion of the petitioners' redemption requests made in July 2002 had been met (by redemptions made in September 2002), which was less than the amounts paid to ZCM (see para 3 above). The sole director of AWH had proposed to investors that the assets of AWH should be liquidated and distributed among investors but the petitioners pressed for an order that AWH be wound up by the court. This order was in due course made.
The liquidator of AWH, Mr Alan Bates, has begun these proceedings in The Bahamas against ZCM to set aside the payment of the redemption monies to ZCM as an undue or fraudulent preference of ZCM for the purposes of section 160 of the IBCA by issuing a summons within the liquidation proceedings. (The liquidator had to amend his summons but not in a way material to this judgment.)
Section 160 provides:
“(1) Any conveyance, mortgage, delivery of goods, payment, execution, or other act relating to property as would, if made or done by or against any individual trader, be deemed in the event of his bankruptcy to have been made or done by way of undue or fraudulent preference of the creditors of such traders, shall, if made or done by or against any company, be deemed, in the event of such company being wound up under this Act, to have been made or done by way of undue or fraudulent preference of the creditors of such company, and is invalid accordingly.
(2) For the purposes of this section —
(a) the presentation of a petition for winding up a company in the case of a company being wound up by the court or subject to the supervision of the court; and
(b) a resolution for winding up the company, in the case of a voluntary winding up,
shall be deemed to correspond with the act of bankruptcy in the case of an individual trader, and any conveyance or assignment made by any company formed under this Act of all or any part of its estate and effects to trustees for the benefit of all or any part of its creditors is void.”
Section 160 by its terms incorporates section 72 of the Bankruptcy Act 1870 of The Bahamas, which provides in essence that transactions which an insolvent person who is made bankrupt within the ensuing three months carries out with a creditor with intent to prefer that creditor are void:
“72. Every conveyance or transfer of property, or charge thereon made, every payment made, every obligation incurred, and every judicial proceeding taken or suffered by any person unable to pay his debts as they become due from his own moneys in favour of any creditor, or any person in trust for any creditor, with a view of giving such creditor a preference over the other creditors, shall if the person making, taking, paying or suffering the same becomes bankrupt, within three months after the date of making, taking, paying or suffering the same, be deemed fraudulent and void as against the trustee of the bankrupt appointed under this Act; but this section shall not affect the rights of a purchaser, payee or incumbrancer in good faith and for valuable consideration.”
Section 160 is similar to section 320 of the UK Companies Act 1948, which in like manner incorporated section 44 of the Bankruptcy Act 1914. That section was in force in England and Wales until it was replaced by section 239 of the Insolvency Act 1986 (“the IA86”), referred to below. A payment which is found to be a fraudulent preference is void against the recipient. In principle, it is the person who in law received the payment who has to repay it to the liquidator. The clear intention of the legislature is that the status quo ante the payment in issue should be restored.
Under the express words of both section 72 and section 44, the recipient of the payment may be a “creditor or any person in trust for any creditor.” A “creditor” is the person who would, if the winding up had supervened immediately before the impugned payment took place, be entitled to prove in the liquidation.
In this case, the liquidator filed a short affidavit in support of his application for the court's permission to serve the proceedings out of the jurisdiction, in which he stated:
“5. Approximately two months before the commencement of its liquidation, the company made a redemption payment (‘the ZCM payment’) in the amount of US$13,148,013.01 to one of its investors, namely ZCM Asset Holding Company (Bermuda) Ltd (‘ZCM’).
6. The Company is advised by its attorneys and verily believes that pursuant to section 160 of the International Business Companies Act 2000 the ZCM payment is deemed to have been an undue and/or fraudulent preference payment and is therefore invalid. As a result, the Company filed the summons in order to seek relief in respect of the ZCM payment.”
On 27 June 2008, the Supreme Court of The Bahamas gave the liquidator leave to serve his amended summons on ZCM in Bermuda pursuant to Order 11 rule 8(4) of the Rules of the Supreme Court of The Bahamas (“the RSC”). (All subsequent references to Orders are to Orders of the RSC and will be abbreviated to “Ord”.) The liquidator duly served this summons on ZCM on 30 September 2008.
Order 11 rule 8 confers jurisdiction to order the service of certain documents out of the jurisdiction. It provides:
“8(1) Subject to paragraph 2 and Order 66, rule 4, service out of the jurisdiction of an originating summons is permissible with the leave of the court.
(2) Where the proceedings begun by an originating summons might have been begun by writ, service out of the jurisdiction of the originating summons is permissible as aforesaid if, but only if, service of the writ, or notice of the writ, out of the jurisdiction would be permissible had the proceedings been begun by writ.
(3) Where any proceedings are authorised by these Rules or (apart from these Rules) by or under any Act to be begun by originating motion or petition, service out of the jurisdiction of the notice of motion or of the petition is permissible with the leave of the court.
(4) Subject to Order 66, rule 4, service out of the jurisdiction of any summons, notice or order issued, given or made in any proceedings is...
To continue reading
Request your trial
-
Al Jaber and Others v Mitchell and Others
...v M’Ewan [1905] AC 480, HL(Sc)The following additional cases were cited in argument:AWH Fund Ltd v ZCM Asset Holding Co (Bermuda) Ltd [2019] UKPC 37, PCAkkurate Ltd, In re [2020] EWHC 1433 (Ch); [2021] Ch 73; [2020] 3 WLR 1077; [2021] 1 All ER (Comm) 1339; [2020] 2 BCLC 619Ayerst v C & K (C......
-
Greig William Alexander Mitchell v Sheikh Mohamed Bin Issa Al Jaber
...takes place under the umbrella of existing insolvency proceedings, as described in AWH Fund Ltd v ZCM Asset Holding Co (Bermuda) Ltd [2019] UKPC 37 per Lady Arden at [61]–[63], (albeit in this case in the BVI), does not seem to me to outweigh the fact that the private examination process i......
-
Tatiana Akhmedova v Farkhad Teimur Ogly Akhmedov
...they relied on In re Paramount Airways Ltd [1993] Ch. 223 at [239]–[240] per Sir Donald Nicholls VC and AWH Fund v ZCM Asset Holding [2019] UKPC 37 at [41] and 210 In Paramount Airways, the court stated the following at [240C-E]: “Thus in considering whether there is a sufficient connecti......
-
Pearson (in his capacity as Additional Liquidator of Herald Fund SPC (in Official Liquidation)) v Primeo Fund (in Official Liquidation)
...98 of the Companies Act 1862 was included in addition to section 35. As I explained in AWH Fund Ltd v ZCM Asset Holding Co (Bermuda) Ltd [2019] UKPC 37, paras 62–63, the various steps taken in proceedings before the court in winding up were and are treated as a single proceeding. Section 9......