1 IN THE GRAND COURT OF THE CAYMAN ISLANDS 2 FINANCIAL SERVICES DIVISION 3 4 CAUSE NO: FSD 94 OF 2013 (AJJ) 5 6 The Hon Mr. Justice Andrew Jones QC 7 In Open Court, 9th and 13th August 2013 8 9 10 11 IN THE MATTER OF THE COMPANIES LAW (2012 REVISION) (AS AMENDED) 12 13 AND 14 15 IN THE MATTER OF HADAR FUND LTD. (IN VOLUNTARY LIQUIDATI 16 17 18 19 20 Appearances: 21 22 Mr. Matthew Goucke of Walkers for the joint voluntmy liquidators of Hadar Fund Ltd. as 23 petitioners; 24 25 Mr. Stephen Moverley-Smith QC instructed by Mr. Jayson Wood of Harneys Westwood & 26 Riegels for Ametista Patrimonial (Mauritius) Ltd, PNT Capital Advisors and Blue Pearl 27 Advisors Limited; 28 29 Mr. Rocco Cecere of Mourant Ozannes for Mr. Simon Graham, the former director of Hadar 30 Fund Ltd.; 31 32 Mr. Mark Goodman of Campbells for Hadar Investment Advisers Ltd, the former investment 33 manager of Hadar Fund Ltd. 34 35 36 37 REASONS 38 39 40 Introduction 41 42
This is a supervision petition presented by Messrs Walker and Stokoe of PwC Corporate 43 Finance & Recovery (Cayman) Limited ("PwC Cayman") in their capacity as joint voluntary 44 liquidators of Hadar Fund Ltd. ("the Fund") which was put into liquidation on 31 May 2013. 45 Its sole director decided not to sign a declaration of solvency with the result that the Fund is 1 of 11 deemed to be insolvent and Messrs Walker and Stokoe are required by section 124(1) of the 2 Companies Law (2012 Revision) as amended to present a petition for an order that the 3 liquidation be brought under the supervision of the Court. One of the fundamental principles 4 underlying the corporate insolvency regime introduced by the Companies (Amendment) Law 5 2007 is that the liquidation of all insolvent companies must be conducted by qualified 6 insolvency practitioners acting under the supervision of the Court. It follows that I am bound 7 to make a supervision order in respect of the Fund. The only issues arising for decision are 8 (1) who should be appointed as official liquidators and (2) what, if any, directions should be 9 given to the olticialliquidators. 10
Messrs Walker and Stokoe have nominated themselves for appointment as official II liquidators, which they are perfectly entitled to do, provided that they can be properly 12 regarded as independent as regards the Fund, in accordance with regulation 6 of the 13 Insolvency Practitioners' Regulations 2008 (as amended). Having read the Court file shortly 14 after the matter was assigned to me, I formed the view that this was not an appropriate case 15 in which to make a supervision order and appoint official liquidators "on the papers" and I 16 therefore fixed a hearing date and directed that copies of the supervision petition, supporting 17 affidavits and my order for directions be served on the redeemed shareholders and/or the 18 ultimate investors and/or the investment manager and/or its beneficial owners (as defined in 19 Mr Stokoe's first affidavit) and any other person who appears to the voluntary liquidators to 20 be a creditor or contingent creditor of the Fund. I directed that any person wishing to appear 21 at the hearing and oppose the appointment of Messrs Walker and Stokoe as official 22 liquidators must nominate alternative candidates and file and serve their affidavits 23 (complying with the requirement ofCWR Order 3, rule 4) no later than 2 August 2013. 24
In the event three related companies served notice of their intention to oppose the 25 appointment of Messrs Walker and Stokoe on the ground that they do not meet the 26 independence requirement of regulation 6. Two of the objectors are Ametista Patrimonial 27 (Mauritius) Ltd and PNT Capital Advisors, which indirectly own 50% of the issued share 28 capital of Hadar Investment Advisers Ltd ("HIA"), the Fund's investment manager. The 29 other objector is Blue Pearl Advisors Ltd ("BP A") which is a patty to the distribution 30 agreement made with the Fund (the significance of which is described in paragraph 8 below). 31 These objectors claim to be creditors of the Fund. It is sufficient to say that for present 32 purposes their locus standi has not been challenged. The ultimate beneficial owners of lilese 33 companies are Mr Sanjit Talukdar and Mr Marc Giebels von Bekestein. Mr Talukdar has 34 sworn an affidavit which sets out in detail the reasons why they consider that PwC Cayman 35 (and therefore Messrs Walker and Stokoe) do not meet the independence requirement. They 36 have nominated Ms Tammy Fu and Mr Gordon MacRae of Zolfo Cooper (Cayman) Limited 37 for appointment as official liquidators. Ms Tammy Fu swore an affidavit in compliance with 38 the rules and it is not disputed that she and Mr MacRae are ualified insolvency practitioners oc 20fll 1 who do meet the general residence and insurance requirements and can be properly regarded 2 as independent as regards the Fund. 3
No other candidates have been nominated. It appears that the only other stakeholders who 4 have an actual, potential or contingent claim or economic interest in the Fund's remaining 5 assets are (a) the four redeemed shareholders (referred to as the "Former Shareholders") and 6 their three ultimate beneficial owners (referred to as "the Investors"), (b) RIA itself and (c) 7 Mr. Pavel Sukhoruchkin and Mr Pavel Novoselov ("the Pavels") who are the ultimate 8 beneficial owners of 50% of the shares of RIA. Mr Talukdar's evidence is that the Pavels set 9 up a private office for the Investors and act as their investment managers, presumably 10 through one or more corporate vehicles. II
The Former Shareholders have not instructed counsel to appear on the hearing of this 12 petition. Initially, on 24 July 2013, they wrote four identical letters to Messrs Walker and 13 Stokoe stating that they were satisfied with the "approach and work carried out to date" and 14 expressed concern about the cost implications of appointing anyone else as official 15 liquidators. Then, on 8 August, they wrote four further identical letters in response to the 16 asseliion that PwC Cayman are not independent. Whilst these letters do positively suppDli 17 the appointment of Messrs Walker and Stokoe, they do not address the client relationships 18 which are said to impair their independence. The F DImeI' Shareholders appear to expect 19 Messrs Walker and Stoke to make the case for them, which is not an appropriate approach. 20 The stakeholders should make and plead their own case. In the circumstances of this petition, 21 the voluntary liquidators are expected to adopt a neutral position, having sworn an affidavit 22 which sets out all the relevant factual circumstances in an even-handed way for the benefit of 23 the COlUi and all the stakeholders. It would be improper for voluntary liquidators to adop: the 24 role of advocates on behalf of those stakeholders who support their appointment as official 25 liquidators and against those stakeholders who support other candidates. 26
RIA, acting by its independent directors, instructed counsel to appear and adopt a neutral 27 position. Mr Michael Pearson, one of RIA's newly appointed independent directors, swore 28 an affidavit in which he helpfully explained the circumstances in which he and his colleague 29 made the decision to put the Fund into liquidation. The only other party to appear by counsel 30 was Mr Simon Graham, who was the sole director of the Fund at the time it was put into 31 liquidation. It was his decision not to sign a declaration of solvency which necessitated the 32 presentation of the supervision petition. Mr Graham did not swear any affidavit, although I 33 was referred to celiain paragraphs of a witness statement which he signed on 17 June 2013 in 34 connection with the related English proceedings. I think it fair to say that his counsel had a 35 watching brief - he adopted a neutral position. No one else appeared at the hearing. It follows 36 that there was no stakeholder present in person or by counsel who suppDlied the appointment 37 of Messrs Walker and Stokoe as official liquidators. However, I have taken into account the 38 letters received by the COlUi from the Former Shareholders. 3 of II 1 Factual background 2 3
The Fund was incorporated on 8 May 2008 as an open ended investment fund for which 4 purpose it is registered under the Mutual Funds Law, but the evidence tends to suggest that it 5 has never actually carried on business as a mutual fund, at least in a conventional way. It is 6 part of a highly complex structure of companies used to hold investments for three Russian 7 businessmen, namely Messrs Vigit Alekperov, Leonid Fedun and Alexander Djaparidze, who 8 are said to be close business associates. I shall refer to them collectively as the "Investors". 9 Mr Talukdar's affidavit says that Mr Alekperov and Mr Fedun are respectively the president 10 and vice president of Lukoil, one of Russia's largest oil companies. Mr Djaparidze is the 11 chief executive officer of Eurasia Drilling Company Limited which used to be part of the 12 Lukoil group and is now one of its largest customers. In the light of this evidence, I think that 13 it is fair to describe the Investors as business associates who must be well known to each 14 other. They are acting in concert in relation to the liquidation and the related IitigatioL. In 15 paragraph 27 of his affidavit Mr Talukdar describes the Fund as "a vehicle for [the Investors] 16 which they could (and did) use to carry out unusual or bespoke transactions". The Fund was 17 apparently managed by HIA pursuant to the terms of an investment management agreement 18 made on 20 June 2008 (the "Investment Management Agreement"). Deutsche Bank 19 (Cayman) Limited was appointed as administrator and custodian and appears to have played 20 no role in the events surrounding the Fund's liquidation. The Fund's share capital comprises 21 a nominal number of management shares (which carryall the votes) and redeemable 22 participating shares (which represent all the economic interest). The management shares are 23 held by HIA and the participating shares were initially issued to three companies, each 24 ultimately owned by one of the tluee Investors. 25
HIA, the Fund's investment manager, is beneficially owned by (a) Mr Talukdar and Mr 26 Bekestein and (b) the Pave1s. Through various companies, they each have a 25% interest in 27 HIA, whose sole source of income is (or was) fees payable by the Fund which would be 28 borne ultimately by the Investors. The Pavels are former employees of Lukoil. They left that 29 employment in 2004 to set up a private office to provide investment advisory and 30 management services for the Investors. The Investment Management Agreement prol'ided 31 for HIA to be paid an annual management fee equivalent to 5% ofNA V payable monthly and 32 a performance fee of 20% of net profits (including unrealised gains) payable semi-annually. 33 As beneficial owners of HIA, Messrs Talukdar and Bekestein and the Pave Is benefitted from 34 this fee income equally. Mr Talukdar's evidence is that prior to May 2011 the Fund's total 35 AUM was about US$100 million. He says that in May 2011 a company called Cloudburst 36 Orange Limited ("Cloudburst") (which is ultimately owned by Mr Djaparidze) subscribed for 37 shares in the Fund in consideration for the transfer of global depository receipts (having a 38 market value of US$1.1 billion) in Eurasia Drilling Company Limited which is listed on the 39 London Stock Exchange. The commercial rationale for this transaction is not something 40 which I need to consider. Its relevance is that it increased HIA's management fee income 4 of 11 from around US$5 million per annum to US$5 million per month. On 21 December 2010, 2 apparently in anticipation of the Cloudburst investment, the Fund and HIA entered into a 3 Distribution Agreement with BP A, a company wholly owned by Messrs Talukdar and 4 Bekestein (the Distribution Agreement"). According to Mr Talukdar's evidence, the purpose 5 of the Distribution Agreement was to vary the economic effect of the Inves{1"1ent 6 Management Agreement by providing for 66% of the fee income attributable to the 7 Cloudburst investment to flow through to the benefit of Messrs Talukdar and Bekestein only. 8 The Pavels have commenced an action in the English High Court in which they claim that the 9 Distribution Agreement was a mechanism for fraudulently depriving HIA (and indirectly 10 themselves) of part of its management fee income. 11
One might have expected that Messrs Talukdar and Bekestein and the Pavels would be the 12 directors of the Fund and HIA, whereas in fact the directors of both companies are employees 13 of professional corporate services providers. The Fund's directors were Mr Simon Graham 14 and Mr Scott Dakers, although Mr Dakers had resigned by the time the Fund was put into 15 liquidation. HIA's directors were Mr Simon Graham, Ms. Irina Gizikova and Mr Ben Frith. 16 Mr Graham is an employee (and minority shareholder) of Lancaster Trustees Limited and Ms 17 Gizikova is an employee of Lancaster Trustees (Cyprus) Limited and a former employee of 18 Lukoil. These companies are part of a group which is majority owned and controlled by the 19 Pavels and I infer that Messrs Graham and Gizikova represent the Pavels' interests. Mr 20 Dakers is an employee of Ogier Fiduciary Services (Cayman) Limited and the associated law 21 firm, Ogier, was retained as attorneys to both the Fund and HIA. Mr Frith represented the 22 interests of Messrs Talukdar and Bekestein on the board of HIA until his removal on 13 23 February 2013. I infer from these business relationships that the Pavels were in a position to 24 exercise control over the boards of directors of both HIA and the Fund. 25
The Cloudburst investment led to an ilTeparable breakdown in the business relationship 26 between Messrs Talukdar and Bekestein and the Pavels. It is not necessary for the purposes 27 of resolving the narrow issue before this Court to make any observation about the reasons 28 why this happened. Suffice it to say that it has lead to complex litigation (both pending and 29 threatened) in which serious allegations of fraud and wrongdoing are being made by and 30 against both sides. When one looks through the complex corporate structure, it is perfectly 31 clear that the underlying protagonists in this litigation are the Pavels and the Investors on one 32 side and Messrs Talukdar and Bekestein on the other side. The principal subject-matter of 33 this litigation is Messrs Talukdar and Bekestein's claim for damages representing their share 34 of the fee income which they say was generated or should have been generated from the 35 Fund through HIA. 36
The events leading up to the liquidation of the Fund appear to have commenced in November 37 2012 when Mr Graham and Ms Gizikova (then being a majority ofHIA's board of dire,:tors) 38 resolved to waive payment offees of about US$5.2 million then owed by the Fund to HIA; to 39 reduce HIA's management fee from 5% of NAV (equati ut US$60 million per 5 of 11 annum) to a flat fee of US$100,000 per annum; and to waive payment of performance fees. 2 This is said to have been done without notifying Mr Frith, the third member of the board who 3 represented the interests of Messrs Talukdar and Bekestein. He was removed from the board 4 on 13 February 2013. In March 2013 the directors of the Fund (Mr Graham and Mr Dakers) 5 resolved to allow all the participating shares to be redeemed immediately, notwithstanding 6 that its offering document stipulated a tiU'ee year rolling lock-up period and a 95 day notice 7 requirement. Finally, on 10 April 2013 the Fund notified BPA that the Distribution 8 Agreement was terminated immediately by reason of the redemption of the participating 9 shares. For all practical purposes, these steps terminated the "business" of HIA and the Fund 10 and terminated Messrs Talukdar and Bekestein's participation (both retrospectively and 11 prospectively) in whatever fee income might otherwise have been generated from managing 12 the Investor's assets. They responded by consulting English lawyers who served a del~iled 13 letter of claim dated 19 April 2013 in which it is alleged that these actions were done in 14 fUliherance of an unlawful conspiracy amongst, inter alia, the Pavels, Mr Graham, Ms 15 Gizikova and Mr Dakers to deprive them oftheir economic interest in the fees payable by the 16 Fund to HIA and BP A. The Fund itself is alleged to be patiy to this conspiracy. The Pavels 17 pre-empted this threatened action by commencing their own action in the English High Court 18 in which it is alleged that the Distribution Agreement is a mechanism for defrauding the 19 Pavels of part of their economic interest in the fees which would othetwise have been paid by 20 the Fund to HIA. In the course of ruling upon an application to discharge an injunction, the 21 judge obs erved that the Fund appears to have a cause of action in respect of a secret 22 commission of US$4.4 million paid to BPA in connection with what is described as the 23 Telnic investment. Whilst various causes of action may exist by and against both the Fund 24 and HIA, I am inclined to regard these companies and the fee income generated through them 25 as the subject-matter of the litigation, both pending and tiU'eatened. 26 The decision to put the Fund into voluntary liquidation 27
It is against this background that I turn to consider the circumstances in which the Funr! was 28 put into voluntary liquidation and Messrs Walker and Stokoe of PwC Cayman were 29 appointed as liquidators. Power to put the Fund into liquidation rested with HIA as holder of 30 the voting shares. Rather than have Mr Graham and Ms Gizikova sign the special resolution, 31 it was decided (without reference to Messrs Talukdar and Bekestein) that an independent 32 board of directors would be put in place for this purpose. The first step was to instruct 33 Campbells as attorneys for HIA in place of Ogier. This was done on or about 22 March 2013, 34 again without reference to Messrs Talukdar and Bekestein. Campbells were instructed to 35 identify a local Cayman Islands professional service provider who could act as directors of 36 HIA in place of Mr Graham and Ms Gizikova. They recommended Fund Fiduciary Partners 37 and on 18 April 2013 the principals of that firm, Mr Michael Pearson and Mr Christopher 38 Rowland, were appointed as directors of HIA. They are both qualified insolvency 39 practitioners and former employees/directors ofDeloitte, who are eminently well J.liOllified to 6 of 11 perform the task allotted to them. Mr Pearson has sworn an affidavit in which he describes 2 the circumstances in which they were appointed. He says that his firm is independent in the 3 sense that it has never previously had any involvement with any of the relevant players, 4 although he does not describe what pre-engagement due diligence was conducted. 5
On 26 April 2013, within a week of their appointment, Messrs Pearson and Rowland 6 received a letter from Ogier, who continued to act as attorneys for the Fund, asking them to 7 put it into voluntary liquidation and appoint Messrs Stokoe and Walker of PwC Cayman as 8 liquidators. This letter concluded by stating - 9 "For the above reasons, the Directors hereby request H1A consider whether it would be willing to 10 exercise its rights as holder of 100 per cent of the Management Shares in the Fund to place the Fund II into voluntary liquidation and to appoint Ian Stokoe and David Walker of Price waterhouse Coopers as 12 voluntary liquidator of the Fund. We enclose a draft Management Shareholder resolution for your 13 consideration." 14 Mr Pearson says in his affidavit that they "approached the proposed voluntary liquidation of IS the Fund with great circumspection". They considered the matter over the next month, during 16 which time Mr Pearson discussed the issues directly with Messrs Talukdar and Bekestein 17 who argued that the Fund should not be put into liquidation. On 24 May 2013 Campbells 18 wrote to the solicitors acting for Messrs Talukdar and Bekestein to inform them that M, ssrs 19 Pearson and Rowland had decided to put the Fund into liquidation. They gave their reasons 20 for having reached this decision. Having waited and received no response to this letter, they 21 proceeded to sign the written resolution on 31 May 2013. 22
According to Mr Pearson's affidavit, the focus of the debate during May was whether or not 23 the Fund should be put into liquidation. He says (at paragraph 22)- 24 "Given the value of the sums involved and the complex disputes between the ultimate beneficial 25 owners and various other entities owned and controlled by them, we considered that this was an 26 appropriate appointment for a 'big-four' accounting practice with experience of complex and high- 27 value liquidations. Accordingly, we considered the nomination of PWC entirely appropriate, 28 believing they would, as a matter of course, conduct a conflict check and satisfY themselves that they 29 were sufficiently independent before accepting the appointment as voluntary liquidators. We were 30 obviously not aware at the time the resolution was passed of the matters complained of by Mr 31 Talukdar in the final sentence of paragraph 42(b) of his affidavit." 32 The final pali of paragraph 42(b) says that- 33 "We were not consulted at all about the identity of the proposed liquidators. HIA's New Dir(,~ .. ;tors 34 appointed [the Volunta.y Liquidators], who work for PwC's Cayman branch. Mr Graham [the Fund's 35 sole director] subsequently admitted, in the course of the English Proceedings, that PwC are advisers 36 to the Pavels." 7 of II I Since Messrs Talukdar and Bekestein knew that the proposed liquidators were PwC Cayman, 2 I infer that they agreed that it would be appropriate to appoint one of the "big-four" firms and 3 had no reason to object to PwC Cayman at the time of their telephone conversation with Mr 4 Pearson on 17 May 2013, othelwise they would have raised the point. Mr Pearson makes no 5 reference in his affidavit to having discussed the matter with PwC Cayman at all and Mr 6 Stokoe confirmed that they only had a brief conversation in which the subject was 7 mentioned. 8
I draw the following conclusions from this evidence. PwC Cayman were asked to "et as 9 liquidators by Ogier, who must have taken instructions from Mr Graham. He was acting as a 10 director of the Fund in his capacity as an employee of one or more of the Lancaster group II companies, which are majority owned by the Pavels and are presumably the vehicle through 12 which they act for the Investors and/or companies owned by them. Mr Graham represented 13 the interests of the Pavels and the Investors and it is reasonable to infer that he selected PwC 14 Cayman with their concurrence. There is no evidence from which to infer that Ogier selected IS PwC Cayman on their own initiative without reference to their client. Mr Pearson did not 16 apply his mind to the choice of liquidators. In reaching this conclusion, I do not imply any 17 criticism of him. He focused on whether or not the Fund should be put into liquidation. He 18 had no reason to focus on the identity of the liquidators. He had no reason to suppose that 19 PwC Cayman might not be regarded as independent. I conclude that the decision to appoint 20 Messrs Walker and Stokoe of PwC Cayman must have been made by Mr Graham with the 21 concurrence of the Pavels and the Investors. 22
Mr Stokoe carried out his firm's client pre-engagement procedures in the usual way, based 23 upon the information and list of names provided to him by Ogier. He was provided with the 24 names that appear in the structure chart although this document itself was created later. As I 25 understand it, he and Mr Walker accepted the appointment on the basis that no PwC firm had 26 any professional relationship with any of the individuals and companies identified to them as 27 having any involvement in the matter. It transpired only later, after they had been appointed 28 as voluntary liquidators, that both the Pavels and two of the Investors are PwC clients, in the 29 sense that member firms within the PwC network are currently doing advisory work for 30 companies which are ultimately owned by them. For reasons of client confidentiality, Mr 31 Stokoe has not disclosed any details about these client relationships. Suffice it to say that his 32 evidence, which I accept, can be summarised as follows. PwC Cayman does not and never 33 has had any client relationship with the Investors or the Pavels or any company owned by 34 any of them. The names of PwC corporate clients in question do not appear on the structure 35 chart prepared for the purposes of this liquidation. Having made enquiry and on the basis of 36 the information now available to him, it appears to Mr Stokoe that these PwC clients have 37 nothing to do with this liquidation or the related litigation (except that they are owned or 38 controlled by the Pavels and/or two of the Investors). The PwC firms do not have access to 39 each other's client files. However, in the absence of any evidence from Ogier or Mr Graham 8 of II or the Pavels or the Investors, a fair minded stakeholder might reasonably infer that PwC 2 Cayman was selected because of the existing client relationship with other firms in the PwC 3 network. I do have the letters dated 8 August 2013 from the Former Shareholders, which are 4 ultimately owned by the Investors. They ignore the point. Nothing is said about the pre- S existing client relationships or the reasons why Ogier was instructed to nominate PwC 6 Cayman. I draw an adverse inference from the fact that none of those involved in making the 7 decision have given evidence to explain why PwC Cayman was selected; why the existing 8 client relationships which I have described were not drawn to the attention of Mr Stokoe for 9 the purposes of his conflict check; and why Messrs Pearson and Rowland were not left to 10 make their own choice of liquidator. 11 The applicable legal principles 12 13
Regulation 6(1) provides that "A qualified insolvency practitioner shall not be appointed by 14 the Court as official liquidator of a company unless he can properly be regarded as 15 independent as regards that company." Whether or not a film of insolvency practitioners can 16 be regarded as independent as regards any particular company in liquidation depends upon 17 the existence or non-existence of professional or economic relationships which are regarded 18 by the Court as creating a situation in which the appearance of complete impartiality is 19 compromised. Appearances matter. The fact that Messrs Walker and Stokoe are honest, 20 capable professionals who have been appointed as official liquidators on many occasions and 21 whose actions and judgment calls have been sanctioned by this Court on a regular basis is 22 beside the point. It is not good enough to say that these pmticular individuals can be relied 23 upon to perform their duties properly. 24
Whether or not any particular kind of professional or economic relationships will lead to the 25 conclusion that an insolvency practitioner can or cannot be properly regard as independent 26 must depend upon the factual circumstances of each case which will vary in an infinite 27 variety of ways. The Court must first identify the relationship and determine whether it is 28 capable of impairing the appearance of independence. If the answer is yes, the Court must 29 then consider whether its existence is sufficiently material in the factual circumstances of the 30 liquidation in question that a fair minded stakeholder would reasonably object to the 31 appointment of the nominee in question. In practice the Court is usually called upon to 32 resolve these issues in cases where the nominated insolvency practitioners are members of 33 firms which have multi-disciplinary practices including audit work and consultancy work. 34 They are most difficult to resolve in cases, such as the present one, where the nominated 35 practitioners are members of a Ca yman Islands firm which is part of one of the large 36 international networks of which the "big four" - Deloitte, Ernst & Young, KPMG and 37 PricewaterhouseCoopers - are not the only ones represented in this country. 4'~"~"""" 9 of II ",--" ,d 1 1 Conclusions 2 3
In this case it is accepted that PwC Cayman does not itself have any pre-existing professional 4 relationship with any of the stakeholders. However, it is well established in this Court that 5 the existence of a professional relationship between a stakeholder and some other PwC firm 6 is capable of leading to the conclusion that the Cayman firm cannot be regarded as 7 independent. The fact that one or more PwC firms are currently doing advisory work for 8 companies owned by or associated with the Pavels and two of the Investors is such a 9 relationship. The question is whether or not these client relationships are material in the 10 circumstances of this liquidation and I must answer this question on the basis of the evidence 11 before the COUli. The mere fact that Messrs Walker and Stokoe have considered the matter 12 and come to their own conclusion that it is not material is relevant evidence which I have 13 taken into account, but it cannot be conclusive. The two Investors (and their companies) and 14 the Pavels have had the opportunity to file written evidence which explains the nature and 15 extent of the professional relationships in question, but have chosen not to do so. 16
I have come to the conclusion that these client relationships are material, in that a fair minded 17 stakeholder would reasonably object to the appointment of PwC Cayman. I have come to this 18 conclusion for the following reasons. First, the Fund is an important part of the subject- 19 matter of litigation between two groups of protagonists who are making allegations of fraud 20 each other. I have directed that the official liquidators be authorised to participate in this 2 I litigation. There are no stakeholders other than the members of these two opposing groups. 22 The fact that members of one opposing group are PwC clients is a reasonable basis upon 23 which a fair minded stakeholder could reasonably object to PwC Cayman's involvemu1t as 24 liquidators. The conclusion would be different if this was a fund with a hundred shareholders 25 and a handful of them turn out to be PwC clients. Second, Messrs Walker and Stokoe's 26 nomination as official liquidators results from the fact that they were appointed as voluntary 27 liquidators. The evidence leads me to conclude that this appointment was in fact made with 28 the concurrence of the InvestorslPavels, who did not disclose the client relationships with the 29 other PwC firm( s) either to Messrs Pearson and Rowland or to Messrs Walker and Stokoe. 30 The evidence reflects that Messrs Pearson and Rowland did make an independent, reasoned 31 decision to put the Fund into liquidation. However, they did not make any independent 32 decision about the selection of official liquidators. They appointed PwC Cayman because 33 they were asked to do so by Ogier. Third, the outcome of the liquidation of the Fund appears 34 to depend entirely upon the outcome of the litigation between the two protagonist groups. For 35 these reasons it seems to me that the client relationship between the InvestorslPavels and the 36 PwC network must be regarded as material. In the absence of any evidence from the 37 stakeholders (who could have explained their relationships with the foreign PwC firms and 38 the reasons why PwC Cayman was chosen as liquidators of the Fund), Mr Stokoe's evidence 39 that the names of the actual client companies are not mentioned on the structure chart and lOofl1 I therefore appear to have no relevance to the liquidation or the litigation is not sufficient to 2 displace my conclusion that the relationship is material. 3
Having concluded that Messrs Walker and Stokoe (and PwC Cayman) cannot be regarded as 4 independent as regards the Fund, regulation 6 mandates that the Court shall not appoint them 5 as official liquidators. The fact that they have done an enormous amount of work over a two 6 month period in their capacity as voluntary liquidators is irrelevant. Since there is no 7 objection to the only other candidates, I therefore appoint Messrs Tammy Fu and Gordon 8 MacRae of Zolfo Cooper (Cayman) Limited as joint official liquidators of the Fund. 9
The supervision petition includes a prayer for directions authorising the official liquidators to 10 participate (in such manner as they consider necessary) in the existing proceeding pending II before the English High Court and in connection with the proceedings threatened in the letter 12 of claim served on behalf of the various companies ultimately owned by Messrs Tahl1'~dar 13 and Bekestein. Counsel agreed that I should give such directions in any event, inespective of 14 the identity of the official liquidators. It seemed to me plainly obvious that the official IS liquidators should have power to participate in both the pending and threatened proceedings. 16 Exactly how they exercise the power is not a matter for consideration today. I anticipate that 17 it will be the subject of a sanction application in due course. 18 19 20 21 22 23 24 25 26 Dated this 13th day of August 2013 The Hon. Mr. Justice Andrew J, Jones QC JUDGE OF THE GRAND COURT 11 of 11