Initiation of proceedings against a company in liquidation – Abraaj Investment Management Limited (in official liquidation) – [FSD 111 of 2018 – (RMJ)]

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When a Cayman Islands company is in formal liquidation, no proceedings or claims may be brought against the company without the permission of the Cayman Court. This requirement serves as a safeguard against the liquidation assets of the company being liquidated being unnecessarily depleted at the expense of the liquidation stakeholders. It is only where a plaintiff has an arguable case, and the Court considers it fair, in the context of the liquidation as a whole, that the liquidators have to bear the burden of that litigation, that the Court allows litigation to be brought against a company in liquidation.

These principles were taken into account in the decision of Abraaj Investment Management Limited (in official liquidation) – [FSD 111 of 2018 – (RMJ)]. Abraaj General Partner VIII Limited (the “generalist“), in its capacity as general partner of various funds forming part of the Abraaj group (the “Abraaj Funds“), has filed a motion with the Court for leave to commence proceedings against the former investment manager of the Abraaj Funds, ABRAJ Investment Management Limited (in official liquidation) (“AIML“), for an order directing AIML to provide information to the GP. Although presenting an arguable and sufficiently strong case for providing the documents to the GP, the Court denied the GP’s request for leave to bind this proceeding on the ground that AIML is deeply insolvent without resources to pay the existing and approved expenses of the previous provisional liquidation or the expenses of the current liquidation. Accordingly, it has concluded that it is not in the advantage of the liquidation of AIML that the liquidators should bear the burden of responding to such proceedings and that the ability of a creditor and a contributor to inspect the documents of AIML was the most prudent course and the more constructive under the circumstances.

For more information on this case, or if you require offshore legal advice, please contact one of the following people from the Insolvency and Dispute Resolution team in Dubai.

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