Liquidators’ fees in the Cayman Islands – Privy Council Decision

A recent case has shown that liquidators in the Cayman Islands must apply to Court to have their fees sanctioned and the Court has jurisdiction to lay down guidelines for fixing liquidators’ fees. The decision will be of interest to Insolvency Practitioners operating in the Cayman Islands.

The context of the decision is that in 2002, the Grand Court of the Cayman Islands held that it was mandatory for liquidators’ fees to be approved by the Court without the possibility of fees being approved after just creditor committee sanction. The decision referred to the procedure for seeking the approval of the Court, regardless of prior approval by a creditors’ committee, and made guidelines which set out maximum hourly fees for practitioners and requirements for recording chargeable time. This was to ensure maximum scrutiny of fees charged in the Cayman Islands and to ensure they were seen to be “fair and reasonable” in order to promote the off-shore jurisdiction’s status as one of the world’s leading financial centres, particularly as there were few Insolvency Practitioners.

The liquidators appealed the decision. The Court of Appeal in the Cayman Islands allowed the appeal and held that the procedure for fixing and approving a liquidators’ fees was governed by the Insolvency Rules 1986 and that Rules 4.127-4.131 specifically applied, making recourse to the Courts voluntary, and not mandatory and gave Creditors’ Committees the power to fix remuneration, as in England and Wales.

In 2004, the Attorney General of the Cayman Islands sought permission to intervene and appeal to the Privy Council.

The Decision

The Privy Council relied on section 107(2) of the Cayman Islands Companies Law (2002 Revision) which gives the Grand Court the power to make any such order regarding the remuneration of a liquidator, as may be appropriate. It was held that these local provisions give the Grand Court a primary power to decide fees in priority to the Insolvency Rules, which are only applicable in circumstances where they are consistent with the Cayman Island laws.

The Court concluded that the Grand Court does have powers to give guidelines and make decisions as to liquidators’ fees. Even though sanction by a Creditors’ Committee should be considered, the final right to sanction fees lays with the Cayman Island’s Court.

Implications of the Decision

Some commentators have suggested that this decision has strengthened the Cayman Islands’ image as an off shore jurisdiction which charges fair and reasonable fees. However, Insolvency Practitioners in the Cayman Islands will now be put to the cost and inconvenience of having to seek court approval for their fees, which are likely to receive closer scrutiny. This move is intended to avoid anti-competitive practices between those operating in the jurisdiction. It will certainly allow the Court to regulate liquidators’ fees more closely.

Law: The Attorney General of the Cayman Islands v (1) James Cleaver and Co (as liquidators of Liberty Capital Limited and Sun Holding Limited) and (2) Christopher Johnson and Nicholas Freeland (as liquidators of Waterford Insurance Limited) [2006] UKPC 28