lNHIE G RAND COURT OF THF. CAVMAN ISLANDS 2 FI.~AN C 1AL SERVICES DIVISION 3 4 FSD Nos. 60 and 61 of21113(AJJ) 5 The Hon MI' Justice And.'ew J . JOlles QC 6 In Chllnlbcrs, 26th November 2013 7 3 9 IN THE MATTEI{ un'li!:; HAI\KIWPTCY LAW (Cap.7)(1997 R~VISION) 10 I I AND IN THE MATTER OF PATRICIA Ii. MILLARD, A I)EIITOR 12 13 AND I.N THE MATTER OF WILLIAM H. MILLARD, A DEBTOR 14 15 1 G "ppcantnccs: 17 Mr. Kyle Broadhurst of Broadhurst LLC ler tile Agems of the Trustee in Bankruptcy 18 Mr. Michael Mulligan of Conyers Dill & Pearman for the Auditor General of the Cayman 19 Islands 20 Mr James Corbett QC and Ms Rebecca HUllle of Kobre & Kim for the Comll1onwealth of the 2 1 Northem Mariana Islands 22 23 24 25 REASONS 26 27 Introduction 28 29
Thi$ is tU1 uppl il.;aLiuII fur dir~ctiu l lS made b) Messrs Kenneth Krys ill1ld Margo MacInnis 30 in lheir capacity as joint agents for the Trustee in Bankruptcy in respect of the 31 bankruptcies of Patricia I-I. l\'li)lard and her busbaJld William II. Millard, whom I shall 32 refer to as "the Trustee's Agents" and "the Debtors" respectively. They ask for a 11 direction that the Auditor General shall not be required to audit the accounts of the 34 Trustee in BankJUptcy in respect of these estates, essenliaJly on the ground that it would 35 sm ice no useful purpose in circulllstances where the administration has been delegated 36 to professional insolvency practitioners. The Auditor General's position is that he has a 37 stannory dUly to audit tlu::se accounts and that this Court has no power to relieve him 38 from the performance of his duty. I agree with him for the following reasons, The applicllble statut o.·y pruvisiulls 2 1
The oITiee of Auditor General is establi3hcd under the Constitution or the Cayman 4 Islallds, section J 14(3) of which states that - 5 6 "The . llIdiror General ~"all hare 'he poll er will rl:Jspunsibifiry 10 (IIliIir {lie pI/hUe acCO/lllfS oj lite I Caymall Islands tUnl Iht: 1IC(:Ulm/~' Clnd jlw/JIci'Jl dealings qf all (llIllIorilies, oJJices and 8 departllleli/l vjGulf::mllle11l ond ofaf! COlirlS ...... 9 10 By section 60 of the Public Management and Fimmce Law (2005 Revision) the Auditor II General hoas a duty to oudilthc annual financial stalenlt::llt!S uf Ihe: Judicial Administration, 12 but this provision does 110t expressly include auditing the accounts maintai ned by or on 13 bella\f of the Trll~tec in Bankl'llptcy (which are of course wholly different from the 14 d:!partmental fi nancial ::;LaLemems). However, I think thm auditing the 1 mstee· s accounts I) must fall within the scope of his constitutional responsibility because Trustee in I (i Bankrllptcy is, by section 12 of the Bankruptcy Law (1997 Rt:vi ::;iun), a public office 17 aHached to the Grand COlirt. 18 19
Section 94 or the Bankruptcy Law ( 1997 Revision) states that - 20 2 1 "Tile Tr/I~/(>I' shafl submit !tis (JCCOIIII/S for audil at slldl limes alld ill such //IWlllel' (1,\' lIIay be 22 presci·ihed. " " -~ 24 25 Rules 58 and 79 of the Grand Coun (l:Jankruptcy Rules), 1977 prescribe the timing and the Illanner in which this shall be done. as follows - 26 27 ·-58 The a~COIII II~ oj rIll! 7h,s/e{! shall be SlIb/lliffed to rile Clelk, 1Iudif(-d by lite Alldilor ofrhe 28 Is'al1ds Cli7d apprOl'ed and pc/$sed by the Judge il/ Chambers and bejol'e SUb1l1lSsi(l1l 0/ fhe 29 aCCQl/nts fo the Judge, the C/f<l'k ~h(lll examine 'he Record Book (11/(/ shalf ilOle llic'reoll lin)" JO fIIalfer which. i1l his opmion. calls for enquiry or explmlOliOll ill conllectioll willi Ihe dlle 3 1 adminlstr(JliOIl of Ille estale, and Ihe Record Book. wifllnotes. tf ([IlY, of lile Clerk therltoll, shaff 32 be laid before Ihe Judge for exalll;I/(I(iOll 011 III.! pas~;illg of the aCCOlilltS. 33 14 "79. Th.: Record 110ok. Cash Book (lnd ,he Trustee 's bank 1/(:I:UWII shall te SlIbmilled to file 35 Audilor oj the /slal/ds durillg the fir.ll wed ill January alld the firsl week 11/ .//11)' each yew· jor 36 audit. " 37 3g
The Trustee's Agen t ~ l:lCcept that the Auditor Gel1cml has authority to (Iudil the accounts 39 of the Trustee in Dankruptcy .. dating to every bankrupt debtor"s estate, but their case is 40 thaI the Court has nn overriding discrctionar), power. arising under seetio!, 5 of the 4 1 R~nkrup t cy Law (1997 Revision), to direct \hnt the accounts prepared ill rt:spect any -12 parlicutlr estate need not be audited. Section 5 states thaI - 43 1'1Ige1/1f$ 3 4 5 6 , , 8 9 10 II 12 13 14 15 16 17 18 19 20 21 '5. Subject 10 fhis Law, 'he Caliri has filII power 10 decide all qllcslioll.f of priorities. mId 0/1 a/her qllesliOlu II'halsO€mr wllelher oj /01." or oJ/acf, arising ill (Illy ca.se oj hankruptcy cOli/illg lI'ill1 lite cognizal/ce Qf sitch Cour l, or wflich s/lch COllrl II/fIJi deem il e:ypediem or II{!N!SStJry 10 decide/m'the purpose of doing complelejl1~/ir? or making a comple/e diwribliliclI of properly in (IllY Juch case: and fhe Cmm is nfl/ subject /0 be res/railled ill iI/t: exercise of il.,· {Juwel's IIIlder Ihj.~ 10111 by Ihe onler oj allY olher COllrl. 110r does ap~allie pom fhe decisiOlls oj Ihe COliN, except ill the IIIlI/llICr directed by or Ifllder the (lutlll,rify oj rhls Law. " In my j udgment section 94 is a mandatory provision. It provides that the Trustee in Bankruptcy shall submit his accounts for audit and sect ion 5 does not empower the Court to wnive Ihis requirement. 1111: ollly ljual ificalion is lilal the ri:quirement 10 submit accOllnts ror audit shall be performed "at such tlmes and in sitch manner as may be prescrihed" . However, the word " prescribed" is defincJ by 5eclion 2 10 1Il\:~,1Jl "prescribed by rul es or Court" ami tile :1pplicable rule making authority is the Grand Court Rules Committee. Rules 58 and 79 are the applicll.ble rules and I do Ilot ha\'e an)' power \0 di s- apply these rules or prcscribt: any Illodificati un or them, even if I was satisfied that their strict application would scrve no userul purpose in the circumstances or these particular cases. Application of Rules 58 and 79 22
For historical reasons the application oJ'these rules is inherently difficu lt The legislative 23 history of the Bankruptcy l aw ( 1997 Revision) is described in AI S'aba" v. Grt/po T()rm'l 30 31 32 33 34 35 36 37 38 39 40 41 42 SA 12004-051 CILR 373, per Lun.l Walker at paragraphs 11-22. In substance, it is a re- enactment of the Jamaican Bankruptcy L1\v of 1880, although the Grand Court or the rfl.ym~n Islrmds did not haw any jurisdiction in bankflljJll."y until the enactment (as a Jalll'lil.:an statute) of the Cayman Islands Administration or Justice Law 1894. When the Caym,lll Islands ccased to he dependency of Jamaic3, the 1880 Law continued Lo apply and \\as re-enoctcd (with minimal mu<.lifil.:alion) as Chapler 7 of tile L:nvs orthe Cayman Islands (Revised Edition) which came into force on 31st DecemhC'r 1963. By section 44 of the Judicature (Administrat ion of Justice) Law, which alsu n Ull\! imo rorce on 31J1 December 1963 as Chapter 74 orlhe Laws or the Cayman Islands (Revised Edition), Ihe bankruptcy rules then in roree in Jam!iica conti nued to apply in this jurisdiction. They continued to apply until 1977 wIlen th:: Grand Court Rules Commillec, which had been created by the Grand Court Law tLaw 8 of 1975). proceeded 10 make a "eries of rules of court to replRce the Jamaican rules. However, fit thai lime there wert: no bankruptcy proceedings pendillg bdore the Gr,md COllrl and the ollicc of Tmstec in Bankruptcy was vacant. In these circumstances it is perhaps \Jll~ l lrprising lh;1t the Rules Committee chose not io enact bespoke rules, but simply re-enacted the existing Jarr:aican rules a3 the Grand Court (Bankmplcy) Rules 1977, which are still in force today, The office of Tnrste-e in Bankmptcy remnined vacant until 22 00 Apri l 1980 when the Governor ill Council eppointcd the r-erson ror lh~ limc being holding the office or Clerk of tbe Courts to be R"nw lI$ _ "SD.~ 60 & 61 1J/101) - r"rri ... ·" & Inll/mll "fI"uri!: J(jll('f J J'lIgeJvf5 2 J 4 5 6 7 R 9 10 II 12 IJ 14 22
Trustee in Dankruptcy. \Vhether or lIot this appuintment was prompted by the presentation of a bankruptcy petition is not known. The first reported bankruptcy ca5e is III Re Kruger [199JI CI LR 424 but it is not possible to say for certain whether this was in facl lhc lirsl time 1hal the Grand COlin had made all absolute order for bankruptcy. The rCSldl of Ihis legislative history is Ihm th:: substanti ve bankruptcy law ami as~uciate d procedural rules 2P?licabJe to the Cayman Islands today is that which was inherited from Jamaica in 1963. This inevitably pro:sents some difficlllty for the Court Vvhen attempting to apply tllest: ru[t:$ in l:irCUrnSlances \\ hich have changed significantly over the past 50 years. Today, the Trus!ee in Bankruptcy administers bankfllpl estates in name only. All the work is delegoted to professional insolvency practitioners. Rule 79 req uires Ihat llit! Trustee shall submit the "Record l3ook'· and the "Cash Book" for audit twice a year. This i~ a reference to books and records which must have existed and been lI1aintained by the Jamaican trustee ill bankruph;y ill 1963. No snch books and records have ever been created in thisjUlisdiction. Section 93 requi res that ali monies received by the Trustee in Bankruptcy shall be paid into an account entitled ·'The Trustee in Dankruptcy Account"' maintained with the Government Savings Hank. ·1 his bank no longer exists and no sllch account has ever heen e~ t nblished with any other bank. Al l funds received in respect of the Debtoe-s' estates have been paid illto if llumina\l;J accuunt established with Bank or BUllertieid and controlled by Messrs Krys and Maci nnis in their capacity as the Trustee's agents. 23
Doing the best 1 can to apply Rulec; 5K find 79 today in a practical way. 1 propose to 24 make the rollO\\>ing directions - 25 26 27 28 29 JO 31 33 34 35 36 37 38 (1) The T nlstcc's Agents snail prcp3re reports and accounts ror th.:: ~ri od rrom inception [03 1 December 20 13 and thereaP.er ror each six month penod ended 30 June and 31 December each year. I can only specul(lte about the form and content of the " Record Book" and "Casb Dook" maintained by the tl u ~ tl;:t! ill bankmptcy in pre-I963 Jamaica. Suffice to say that I shall consider the Trustec's Agcnts \0 have discharged their duty ir dley prepare reports and accounts which comply wilh till: n:quirl:ment5 Order 10 orlhe Companies Winding Up Rules. (2) The Tmstee's Agents shall comply \,,·ith Rule 79 by filing these fl!P011 s ami accounts in Court and sending copies to the Auditor General within one month afTer the applicable accounting dales, that is by the end of Jam.ary and July each year, 39
I h:\Ve 110 jurisdiction to give any direclioll3 to the Auditor General about the manner in 40 whieh he will discharge his duty lo audit these aCCQlmts. Nor would I wish to do so. RtllSOllf - FSDf 60" 6/ ('flOIJ - P~'ridll.r Wi/fill,., MiI.'lIrr/ .. JQ~1'f J I'Ug<!" oiS I-Io\\cver, I think that it is relevant to nl:lke two further observations. Fi rst. ill tht: presCIlI 2 context, the Auditor Gt:nc:ml's jurisdiction is limited to auditing tbe accounts of the 3 rruste: in Bankrurtcy, for which purpose section 114(4) of the Constitution gives him 4 acre;s to all books, records, reports and documents rd tlting, t() these accounts, which 5 necessarily includes all documents created or received by Messrs Krys and Macinnis (and 6 their lirlll. Krys GlohHI) in thei r C<lpacilY as the Trustee's Agcnt~ , lie does not haw allY 7 right of access to (1/1 the boob and records of Krys Global as If he were auditing that 8 liml 'g own tinancial statements. Second. the Auditor (jener~ 1 has no p0,\·cr to charge fees 9 to the Debtors' estates. I appreciate lhot it is now the practice or Gu\,ernmelll to render to inler-departmental invoices in accordance with procedures established pursuant to the II Public Management and Finance Law (2010 Revision). HO\ycver, any invoice rendert:d 12 by the Audi tor General upon tltl:: Judicial f\dministratioll for aUditing the Trustee in 13 Bankruptcy's accounts is done only for OO\'ernment"s internal management purposes and 14 does not result in any eharge being made to the Debtors' estates. 15 16
Since this summons has mi~d a point of general application, my ordcr and these reasons 17 will be treated IlS having been delivered in upen COliI'!. 18 19 Order accordingly_ 20 21 22 nated this 29 111 day ofNo~v~,""",,_!OTlr 23 24 1- -) 26 27 28 TiIl.- lIon. Mr. Justice And,'('w J. Jones QC 29 JUUGE OFTI-IE GllAND CO UnT HI'UJotls - FSlJ$ 60 & 6/ 0/10/3 - 'Imido" WiUia", I/illord; J(JI/t'$ J P"gl!Sr.fj