AWH Fund Ltd v ZCM Asset Holding Company (Bermuda) Ltd

International Business Companies Act 2000, section 160 may operate extraterritorially where its language and statutory context support that construction. A foreign respondent must nevertheless have a sufficient connection with The Bahamas. Order 11 rule 8(4) provides a procedural gateway for service out of the jurisdiction of a summons issued in liquidation proceedings. No separate gateway for the winding-up petition or consequential repayment claim is required. Leave to serve out requires a serious issue to be tried, a good arguable case within the gateway, and a clearly or distinctly appropriate forum. Intent to prefer may be inferred from evidence. A registered shareholder who is the legal creditor and payee remains the proper respondent despite holding shares for another.

AWH Fund Ltd, a Bahamian international business company, redeemed shares registered in the name of ZCM Asset Holding Company (Bermuda) Ltd, acting as sub-custodian for AMEX. The redemption monies were paid to ZCM in Bermuda. AWH subsequently entered compulsory liquidation in The Bahamas.

The liquidator issued a summons seeking declarations under section 160 of the International Business Companies Act 2000 that the payment was an undue or fraudulent preference, together with repayment. The Supreme Court permitted service out, and ZCM’s jurisdictional and merits challenge succeeded there. The Court of Appeal held in the liquidator’s favour. The central questions before the Board were whether the claim could be served out of the jurisdiction and whether the merits threshold was satisfied.

Disposition. The Board advised Her Majesty that the appeal should be dismissed.

1. Extraterritoriality. Section 160 of the International Business Companies Act 2000 uses unqualified language and operates within a statutory scheme designed for international investors. It is therefore capable of having extraterritorial effect. The court must still identify a sufficient connection between The Bahamas and the foreign respondent. The redemption concerned shares in a Bahamian company, and ZCM knew it was dealing with that company. That connection was sufficient.
2. Procedural gateway. The Companies (Winding up) Rules 1975 did not apply to an international business company. Nor did Order 1 rule 2(2) of the Rules of the Supreme Court of The Bahamas disapply those Rules, because the Companies Act did not govern the liquidation. Order 11 rule 8(4) therefore supplied jurisdiction to serve the summons out of the jurisdiction.
3. Scope of rule 8(4). The Board distinguished Masri v Consolidated Contractors International (UK) Ltd (No 4) [2010] 1 AC 90 and treated the present case as closer to In re Seagull Manufacturing Co Ltd [1993] Ch 345. It was unnecessary to show that the winding-up petition could itself have been served abroad, or to identify a separate Order 11 rule 1 gateway for the repayment claim.
4. Form of proceedings. A summons issued within the liquidation was legitimate. Proceedings to collect assets or enforce claims are proceedings under the original winding-up order. The possibility that third-party claims might arise did not require originating process.
5. Merits threshold. Under Order 11 rule 4(2), the claimant had to show a serious issue to be tried, a good arguable case that the claim fell within an available gateway, and that The Bahamas was clearly or distinctly the appropriate forum and service should be permitted. The evidence supplied a plausible basis for inferring the requisite intent to prefer. Direct evidence was unnecessary, applying the reasoning in In re M Kushler Ltd [1943] Ch 248.
6. Proper respondent. ZCM was the registered holder, had agreed to be treated by AWH as principal, and would have been entitled to prove for unpaid redemption monies. It was therefore the legal creditor and payee. Its sub-custodian or bare-trust arrangements did not make it analogous to the agent in In re Morant [1924] 1 Ch 79. ZCM remained the proper respondent, while retaining any remedy against those to whom it paid the money.

• Privy Council. In [2019] UKPC 37, the Board dismissed ZCM’s appeal and advised Her Majesty accordingly.
• Court of Appeal of the Commonwealth of The Bahamas. Held in favour of the liquidator and upheld the jurisdiction to serve the proceedings out of the jurisdiction. No citation is stated in the judgment.
• Supreme Court of The Bahamas. Bain J granted leave to serve out, but ZCM’s challenge succeeded at that stage. No citation is stated in the judgment.