Companies - application by the Representor for orders in relation to its dissolution.
Before : |
J. A. Clyde-Smith, Esq., Commissioner, and Jurats Blampied and Thomas. |
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Andrew Isham and Gregory Branch |
Representors |
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IN THE MATTER OF THE REPRESENTATION OF ANDREW ISHAM AND GREGORY BRANCH AS JOINT LIQUIDATORS OF GREATER EUROPE DEEP VALUE FUND II LIMITED (IN LIQUIDATION)
AND IN THE MATTER OF ARTICLE 155 OF THE COMPANIES (JERSEY) LAW 1991 (AS AMENDED)
Advocate J. D. Garrood for the Representors
judgment
the commissioner:
1. On 23rd January, 2018, the representors ("the joint liquidators"), having completed the winding up of Greater Europe Deep Value Fund II Limited ("the Fund"), applied for orders in relation to its dissolution.
2. The Fund was a Jersey incorporated closed end investment "expert" fund, launched on 29th June, 2007, for the purpose of investing primarily in Russia and the former Soviet Union related countries. The prospectus provided for a life of the Fund of five years (unless extended), which was divided into two periods, the first defined as the "Investment Period", meaning the first three years, and the second defined as the "wind-down period", meaning the two years immediately following.
3. The Fund was initially successful, but was hit by what was described as the dramatic sell-off in global markets and the Russian market in 2008. Prior to the commencement of the wind-down period, some 61% of the Fund was invested in illiquid private equity and real estate assets in Russia which, on the advice of the investment manager, needed longer than the two year wind-down period to realise their fair value. A letter to shareholders of 22nd April, 2010, calculated that those investments would realise US$21,510,477 if they had to be realised during the wind-down period, as against a pessimistic US$80,843,810 or an optimistic US$132,210,477 if sold as a going concern beyond the wind-down period, with certain follow on investments.
4. A dispute arose as to whether the wind-down period should be extended or the company wound up with the Court ruling that it should be wound up under Article 155 of the Companies (Jersey) Law 1991 ("the Companies Law"). The joint liquidators were appointed on 4th December, 2012, and given all of the powers set out in Chapter 4 of Part 21 of the Companies Law. (EVIC v Greater Europe [2012] JRC 146 and EVIC-v-Greater Europe and Green Shoots [2013] JRC 004
5. The joint liquidators' application was supported by an affidavit by Andrew Isham, containing an account of their administration of the winding up, exhibited to which were copies of each of the quarterly reports made to the shareholders and the final accounts.
6. There were three Russian real estate projects comprised within the Fund. In each case, the Fund had made its investments by lending the investment funds to Cypriot SPV subsidiaries which in turn used a combination of debt and equity to effect the investments directly or indirectly in the Russian entities which held the assets. In each case, in order to comply with Russian law, the Fund entered into a legal relationship with a local project partner.
7. The joint liquidators faced a number of challenges in realising the investments arising from the manner in which they were structured, their location, the macro-economic climate and the complexities of Russian law and process, complexities which included the registration of claims, transfer property holding rights and rectification of defects in existing agreements. Consequently, realising the assets had proven to be time consuming, and required significant additional Russian legal advice. In those circumstances, it had not been possible for the joint liquidators to secure recoveries in line with the cost of the investments.
8. The joint liquidators had investigated the transactions entered into by the Fund prior to their appointment, specifically a review of how the loans made by the Fund to the Cypriot subsidiaries for the purpose of making real estate investments were made, and how those funds were utilised. No concerns were identified, save in respect of one of the investments, known as "Syktyvkar". That project had already been the subject of litigation with the project partner in Russia before the appointment of the joint liquidators. Having taken advice from Jersey lawyers and English leading counsel, the joint liquidators reported to the shareholders that:-
(i) there was merit in pursuing the claim against certain former directors in respect of the Syktyvkar investment, but the likely cost of pursuing it would utilise the remaining assets of the Fund, and would be likely to require additional litigation funding to be obtained;
(ii) on a cost/benefit analysis, the joint liquidators were of the opinion that it would not be in the interests of shareholders to pursue the matter further; and
(iii) the joint liquidators' Jersey legal advisers had been instructed to approach external specialist investors who may be interested in purchasing the claim.
9. The shareholders were given the opportunity to raise any concerns or objections with respect to this strategy, and also were given the option of making an offer to purchase the claim themselves. The joint liquidators did not receive any response from the shareholders objecting to the course of action suggested by them and they did not receive any responses from shareholders expressing an interest in purchasing the claim against the directors. After an extensive marketing process, one external specialist investor made an offer to purchase the claim for £25,000, but in the event, the prospective purchaser decided not to proceed.
10. The final accounts show total receipts of US$16,782,522 and total payments of £5,303,256, with distributions to shareholders of US$10,500,000. There was a final balance available of US$979,266, of which US$939,016 would be paid to the shareholders by way of a final distribution with the balance retained in respect of costs.
11. With a creditors' winding up, as soon as the affairs of the company have been fully wound up, Article 169(1) of the Companies Law provides that the liquidators shall call a general meeting of the company and of the creditors for the purpose of laying the final accounts before the meeting, and giving an explanation of it. As noted in Loose and Griffiths on Liquidators 9th edition at paragraph 13.35, members and creditors rarely attend such meetings, as there is little or no incentive for them to do so. This is effectively recognised under Article 169(5) of the Companies Law.
12. This is, of course, a winding up ordered by the Court, and the Act appointing the joint liquidators did not impose upon them an obligation to call a meeting of the shareholders in order to lay the accounts before them, and we could see no merit in such a meeting of the shareholders in this case. They had been kept regularly informed by the joint liquidators as to the progress of the winding up and had not responded to the final accounts or to the notice given by the joint liquidators of the hearing. None of the shareholders had communicated with the Court or attended the hearing.
13. A point arose as to the power of the Court to order the dissolution of the Fund. Provision for the Court to order a dissolution is made under a summary winding up (Article 150(6) of the Companies Law), a creditors' winding up (Article 169(6) of the Companies Law), on a reconstruction or amalgamation (Article 127 of the Companies Law) and under a désastre (Article 38(2) of the Bankruptcy (Désastre) Jersey Law 1990). There is no provision for the Court to order a dissolution of a company wound up by the Court under Article 155 of the Companies Law.
14. In the absence of an express power authorising the Court to order the dissolution of a company, Advocate Garrood suggested that the issue of dissolution could be left to the Registrar, who has power under Article 205 of the Companies Law to strike a company off the register where the Registrar has reason to believe that it is not carrying on business or is not in operation. A letter inquiring whether it is carrying on business or is in operation has to be sent and a period of three months has to elapse before the company is dissolved, unless the company or its members show reason why it should not be dissolved.
15. However, in our view, it is not appropriate to leave a company to be struck off in this way by the Registrar following the completion of a winding up under Article 155. As stated in Bisson v 3B Holdings Limited [2012] JRC 021 at paragraph 53: "the whole purpose of a winding up is to prepare a company for its dissolution" and it cannot have been intended by the legislature that, uniquely in the winding up processes provided for, a winding up by the Court would not result in the company being dissolved. It would instead be left without assets or purpose, to be the subject of further regulatory action on the part of the Registrar".
16. In our view, and as a matter of statutory interpretation, the express power of the Court under Article 155 to wind up a company must by implication include a power to order the dissolution of the company as the final act in that process.
17. If that is wrong, then as the Court of Appeal held in Jones v Attorney General [2000] JLR 103, an inherent procedural power, being based on necessity, can be invoked if it would enable the Court to operate more effectively by giving it an implied power to do something ancillary to that which it had an explicit power to do. It was held in that case that it was possible for an inherent jurisdiction to exist in respect of matters about which a statute was silent and could also supplement a permissive jurisdiction granted by statute, but could not confer a power which was inconsistent with a mandatory provision. In our view dissolution of a company at the end of a winding up is ancillary to and consistent with the power of the Court to wind up a company.
18. The Court therefore:-
(i) approved the final accounts of the Fund, commending the joint liquidators for the way they had conducted the winding up under difficult circumstances;
(ii) ordered the joint liquidators to deliver a copy of the final accounts and the Act of Court to the Registrar and ordered that upon registration, the Fund be removed from the registry and dissolved;
(iii) upon the dissolution of the Fund released and discharged the joint liquidators;
(iv) made other orders ancillary thereto.
Authorities
Companies (Jersey) Law 1991.
EVIC v Greater Europe [2012] JRC 146
EVIC-v-Greater Europe and Green Shoots [2013] JRC 004
Loose and Griffiths on Liquidators 9th edition
Bankruptcy (Désastre) Jersey Law 1990