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Cayman court secrecy on the rise: 55% of recent financial cases are sealed

August 06, 2018 by David Marchant

The court that hears international business disputes in the Cayman Islands is sealing records of liquidations and other cases at unprecedented levels, meaning that foreign investors, creditors, and clients of Cayman-domiciled hedge funds and other companies are not alerted to insolvencies and other problems, OffshoreAlert can reveal.



One third of all cases filed this year at the Financial Services Division of the jurisdiction's Grand Court are sealed and a staggering 55% for the 68-day period from May 17th to July 23rd, inclusive. Not only are copies of writs and other forms of originating documents not available to the public, as they are with other cases, the names of plaintiffs and defendants are not viewable in the Court's Cause Books, meaning there is no public record of their existence.



Anthony SmellieAnthony SmellieThe sealing rate, which had been increasing steadily since OffshoreAlert began publishing details of records in 2011, exploded following the introduction 12 months ago of a Practice Direction entitled "Filing of Winding Up Petitions" by Cayman's Chief Justice, Anthony Smellie. "The filing of a petition to wind up a company if publicized can cause irreparable harm to its reputation, even if the petition is ultimately dismissed for lack of merit," wrote Smellie when implementing the Practice Direction on August 4th, 2017, disclosing a raft of measures intended "to address this mischief" by restricting the filing or publication of liquidation petitions filed by creditors, shareholders, and even the local financial services regulator, the Cayman Islands Monetary Authority.



Prior to that Practice Direction, approximately 5% of the more than 1,700 cases filed at the FSD since it opened on November 1st, 2009 to handle what the Court describes as "the more complex civil cases that arise out of the financial sector" were - and remain - sealed. That rate shot up to 29% for the more than 250 cases filed in the ensuing 11 months to July 23rd, 2018, with the rate accelerating significantly towards the end of that period.

The FSD is now so secretive that just two involuntary winding up petitions, i.e. those by aggrieved creditors, members, or the local regulator, are in the public record for the period from January 1st to July 23rd, 2018, compared with 12, 16, and 19, respectively, for the corresponding periods in 2017, 2016, and 2015.

 Of the 90 of the 133 total cases filed in the period that are in the public record, only three contain serious allegations, indicating that the Court's general policy is to keep such cases sealed. Most of the publicly-available cases concern non-contentious matters, such as applications for corporate restorations, which comprise 71% of all publicly-available cases; applications for court supervision of voluntary liquidations, approvals for Schemes of Arrangements, and liquidators' remuneration; and general corporate house-keeping.

An indication of the low thresh-hold for a case to be sealed can be found in a seemingly innocuous 'Originating Summons' that was filed by law firm Maples and Calder on behalf of Cayman-domiciled Project Panther, Ltd. against Michigan-based Comerica Bank & Trust, NA on July 19th. OffshoreAlert obtained a copy of the filing from the Court on July 24th but, by the following week, the entire case had been sealed, with all record of its existence removed from public view. In the filing, Project Panther was simply seeking the "striking out" of an unidentified individual from the company's register of members.



Cayman's Chief Justice did not respond to questions from OffshoreAlert asking him to explain the reason(s) for the Court's increased secrecy.



Among our questions were: 

  • Approximately how many of the sealed cases from August 4th, 2017 to July 19th, 2018 are winding up petitions?;
  • Approximately how many of the sealed cases concern companies whose securities are listed on stock exchanges, inside or outside Cayman, including the USA?;
  • When implementing the Practice Direction, what consideration, if any, did you give to the interests of clients, creditors, and investors of Cayman companies that are subject to winding up petitions? How do you determine the interests of a company and its controlling shareholders vs. the interests of a company's clients, creditors, and minority shareholders?;
  • How do you justify allowing approximately one-third of all cases to be entirely sealed?; and
  • As the business community globally moves towards greater transparency, why have you decided to take the Grand Court towards greater secrecy?

 

Colin McKie
Colin McKie
Hector Robinson
Hector Robinson
Samuel Bulgin
Samuel Bulgin

Smellie's Practice Direction making it easier for winding up petitions to be sealed was introduced less than four months after the Grand Court banned the copying of all Court documents - a ban that was quickly rescinded after OffshoreAlert questioned its legality. At the time, Smellie accused OffshoreAlert of breaching the copyright of local law firms by publishing copies of writs and of the Crown by publishing copies of judgments. "I will soon be convening a meeting of the rules committee to consider whether any changes to the rules are justified," Smellie informed us on April 27th, 2017. The Grand Court's Rules Committee comprises The Chief Justice, Anthony Smellie; The Attorney General, Samuel Bulgin; Colin McKie QC, of Maples and Calder; and Hector Robinson QC, of Mourant Ozannes.



Like Smellie, McKie did not respond to questions emailed to him by OffshoreAlert.

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Cayman Court Secrecy: A Huge Red Flag for Foreign Investors & Clients
David Marchant
As any fule kno, the biggest enemy of fraud, corruption, money laundering, and other forms of financial crime is transparency, while their best friend is secrecy. That's why the unprecedented mass sealing of cases that's taking place at the Financial Services Division of the Grand Court of the Cayman Islands is repugnant to anyone with a genuine concern for financial crime.