Section 170 (1) (E) of the International Business Companies (Amendment and Consolidation) Act, Chapter 149 of the Revised Laws of Saint Vincent and the Grenadines 2009 an Application by the Financial Services Authority for an Order of Liquidation and the Appointment of Joint Liquidators of Dux Investment Funds Ltd

• Jurisdiction: St Vincent and the Grenadines
• Judge: Henry, J.
• Judgment Date: 14 April 2016
• Judgment citation (vLex): [2016] ECSC J0414-1
• Docket Number: SVGHCV2015/0132
• Court: High Court (Saint Vincent)
• Date: 14 April 2016

[2016] ECSC J0414-1

THE EASTERN CARIBBEAN SUPREME COURT

IN THE HIGH COURT OF JUSTICE

SVGHCV2015/0132

In the Matter of Section 170 (1) (E) of the International Business Companies (Amendment and Consolidation) Act, Chapter 149 of the Revised Laws of Saint Vincent and the Grenadines 2009

and

In the Matter of an Application by the Financial Services Authority for an Order of Liquidation and the Appointment of Joint Liquidators of Dux Investment Funds Limited

DECISION

BACKGROUND

Henry, J.

1 This is an application1 by the Financial Services Authority ('FSA'). The FSA seeks an order for the liquidation and dissolution of DUX Investment Funds Limited ('DUX Investment') and the appointment of two liquidators (Marcus Wide and David Holukoff) for the purpose of winding up DUX Investment. The FSA also requests that the liquidators be ordered to perform their duties pursuant to sections 165 ( 2) and 166 of the International Business Companies (Amendment and Consolidation)

Act, ('the Act').2 The application is undefended. The order granting liquidation of DUX Investment and the appointment of liquidators is made as requested, with certain pre-conditions.

Preliminary Observations

2 No respondent was named in the application and there is no evidence that it was served on DUX Investment. The FSA has provided no reason for these failures. The general rule is that an applicant must serve notice of an application at least 7 days before the court is to deal with it.3 Accordingly, DUX Investment should have been named as a respondent, and served with the application. If appropriate, the court may dispense with such service.4 No order was made dispensing with service in this case.

3 An applicant may make an application without notice if this is permitted by a practice direction or rule.5 The FSA has not identified any practice direction or rule which permits it to make this application without notice to DUX Investment. No such practice direction or rule exists. Notwithstanding, the court may dispense with compliance of the rules in special circumstances6 provide that it gives the other party an opportunity to make representations.7 If the court entertains the application and grants the orders sought, the CPR mandates that the FSA must serve the application and supporting documentation on DUX Investment, which may then apply to have them set aside or varied.8 The court office is also required to serve a copy of the order on DUX Investment.9

4 In exercising its discretion under the CPR, the court must give effect to the overriding objective to act justly.10 In considering whether to proceed with the application in the absence of such service and notice, the court must also have regard to any likely prejudice an order would have on DUX Investment or the FSA. Additionally, it must ensure that neither party obtains an unfair advantage by its non-compliance with the rules, and balance this factor against the likely benefits and cost of taking a particular step.11

5 Having regard to the circumstances outlined below, I am satisfied that consideration of the application without DUX Investment will:

(1) not unduly prejudice it as it would have an opportunity to make representations subsequently and apply to vary or set aside any such order;

(2) therefore the FSA would not have an unfair advantage;

(3) neither DUX Investment nor the FSA will be unduly prejudiced;

(4) it is just to proceed with the application as it appears to be urgent for the reasons provided below; and (5) failure to act may result in loss to innocent persons.

In these exceptional circumstances, I have decided to consider the application without hearing from DUX Investment at this juncture.

ISSUES

6 The issues are:-

(1) whether it is just and equitable to order the liquidation and dissolution of DUX Investment? and

(2) whether Marcus Wide and/or David Holukoff should be appointed as liquidators to wind up DUX Investment and if so, what duties they should perform?

ANALYSIS

Issue 1 – Is it just and equitable to order the liquidation and dissolution of DUX Investment?

7 The application for dissolution and liquidation was made under section 170 (1) (E)12 (sic) of the Act. It states:

'170 (1) An order for the liquidation and dissolution of an international business company may be made by the Court if—

(a) …

(e) the court considers that it would be just and equitable for the company to be liquidated and dissolved.'

Section 170 also authorizes 'any interested person' to make such application and it provides further that the provisions of the Companies Act and any other relevant Act applies to such liquidation or dissolution. In deciding whether it is just and equitable to order that a company be liquidated and dissolved, the court examines the facts which exist at the time of the hearing.13 An example of what are just and equitable considerations in winding up a company include where it is carrying on business at a loss, its remaining assets are insufficient to pay its debts and there is no reasonable hope that it will ultimately make a profit.14

8 The FSA is established by the International Financial Services Act15 as a body corporate. It has primary responsibility for the efficient and responsible administration and supervision of international legislation including the Act. The FSA appoints the registrar and deputy registrars for IBCs. The registrar administers the Act subject to the FSA's control. It is within this operational framework that the FSA, registrar and other related officials purport to undertake their respective duties as described in this

matter. The FSA with Cabinet's approval appoints the registrar of mutual funds.16 It also appoints staff to assist in the administration of the Mutual Funds Act.

9 In support of her application, the FSA filed 3 affidavits17 sworn by Karen Jackson, Manager of International Financial Services and a document titled 'Further Information'.18 Ms. Jackson deposed that DUX Investment was incorporated as an IBC on 10^th January, 2006 and registered subsequently as an Umbrella Public Mutual Fund with Dux Trading Fund as a sub fund. She averred that Dux Trading Fund was subsequently cancelled and a second sub entity Dux Venture Capital Fund ('Dux Venture Capital') registered, through which DUX Investment conducted mutual fund business. Ms. Jackson exhibited a copy of the DUX Investment's certificate of incorporation as an IBC. She also exhibited copies of certificates of registration of DUX Trading Fund and Dux Venture Capital Fund as public mutual funds. No such certificate of registration was presented for DUX Investment.

10 Ms. Jackson indicated that Dux Venture Capital's investment objective of was to invest globally in long and short positions in equities, bonds, currencies, commodities, precious metals, derivatives and short term financing in real estate projects. She deposed that Mr. Rudolf Seeger is DUX Investment's sole shareholder and one of its two directors. She averred that by letter dated 17^th March, 2011, Mr. Seeger notified the FSA that DUX Investment found itself in illiquidity problems arising from the failure of borrowers to repay their loans to it. He allegedly attributed these failures to the global economic crisis.

11 For context, it is important to set out the text of that letter and it is reproduced below. It is written on DUX Investment's letter head and addressed to Ms. Alyson Samuel, Registrar International Business Companies. It reads:

'Dear Ms. Samuel

Re: DUX Venture Capital Fund – a sub-fund of DUX Investment Fund Limited (the Fund)

With reference to your letter dated 1^st March 2011 we would like to give you the following explanation as requested by your point (i) and (ii).

Between May and September 2008, the Fund has been financing three projects by granting loans. The major investment (< 90% of the Funds assets) was granting a loan to a real estate developing company in Germany. The second investment (9% of the Fund's assets) was granting a loan to a wholesale dealer of international brands in the Fashion industry. The third investment (1% of the Funds assets) was granting a loan to a precious stones trader in Switzerland.

Due to the economic crisis the borrowers were not able to fulfill the repayment on time. Despite an extension of the term, the borrowers still could not pay back the loan. Engaging in a legal case against the German real estate developer would not lead to any success in terms of the settlement of the loan contract. Moreover, the result of such a legal case would be the insolvency of the borrower combined with additional costs for the Fund and thus for the unit holders. As a result of this the asset manager decided to enter into an agreement with the borrower to liquidate the existing real estate assets at a discount. The proceeds of the sale were 60% of the book value to be credited to the Fund after completion of the legal framework (est. End of May). Concerning the loan to Kembel Fashion AG, the company got into liquidity problem due to cash loss of big wholesale customers in Germany. The company is no liquidating stock positions in order to honour the contractional agreements with the Fund.

Concerning (iii) $ (iv): no investments nor redemptions have taken place since October 2009. No suspension has been inacted so far. We will take care for an immediate suspension, as requested. However,all unit holders are personally known to us and they have been informed verbally about the illiquidity of the Fund. Nevertheless, we will send a circular to all Fund's investors upon your request.

We anticipate that the Fund will be settled before 30^th June 2011.

We trust that the foregoing information satisfies your requirements. Kindly contact us at any time if you need more information.

Signed Rudolf M. Seeger Director for DUX Investment Funds Limited' (emphasis added)

12 It is worth noting that the...