BANCO ECONOMICO S.A. v. ALLIED LEASING AND FINANCE CORPORATION 27-February-1998
[1998 CILR 102]
BANCO ECONOMICO S.A. v. ALLIED LEASING AND FINANCE CORPORATION
GRAND COURT (Smellie, J.): February 27th, 1998
Companies—liquidators—removal—provisional liquidators—under In­solvency Rules, rr. 4.25(1) and 4.31(1) company director has no locus standi to apply for removal of provisional liquidator—may not, without authority of company in general meeting, apply in company name
Companies—compulsory winding up—affidavit evidence—may extend time-limit for affidavit opposing winding-up petition under Insolvency Rules, r.4.18(1) if petition raises complex issues of fact and petitioner already granted ex parte relief
Civil Procedure—costs—security for costs—no order for security against foreign company in liquidation if large bank controlled by foreign government-appointed liquidator and prima facie likely to succeed in action
  The petitioner applied for an order for the winding up of the respondent company.
  The petitioner, a Brazilian bank itself in liquidation, applied ex parte as a creditor of the respondent, a Cayman company, and obtained an order for the appointment of provisional liquidators pending the hearing of the petition. The applicant applied, as a director of the respondent, for, inter alia, the discharge of the provisional liquidators, a short extension of time for service of the respondent’s affidavit opposing the petition, and security for the company’s costs of challenging the petition against the petitioner as a foreign entity.
  The applicant submitted that (a) since he was the sole remaining director of the respondent, he retained the residual power of its board to oppose the winding up of the company, notwithstanding that provisional liquidators had been appointed, and even without the authority of a resolution of the company in general meeting; (b) furthermore, since he acted on behalf of the company, he had locus standi to apply for the discharge of the provisional liquidators under the English Insolvency Rules, rr. 4.25(1) and 4.31(1); (c) even if he lacked locus standi, the company should be permitted to apply in its own name for the orders sought, having ratified the action taken on its behalf by a members’ resolution; (d) since the company’s delay in filing affidavit evidence opposing the petition was not excessive and was largely due to the fact that the petitioner had applied ex parte, the court should afford the
1998 CILR 103
respondent latitude in its compliance with r.4.18(1) of the Insolvency Rules; and (e) since the petitioner was a foreign company itself in liquidation and unable to pay its debts, the respondent should be awarded security for its costs at this stage to avoid the difficulty of recovering them later on.
  The petitioner submitted in reply that (a) the applicant did not represent the respondent company since he was not the sole director and was not authorized by a resolution of the board to act with regard to the company; (b) furthermore, even if he were the sole director, he would have no locus standi, without the authority of the members in general meeting, to present a petition on the company’s behalf, and therefore had no power to apply for either the appointment or the discharge of provisional liquidators under rr. 4.25(1) and 4.31(1); (c) nor should the respondent company be given leave to apply for orders in its own name by ratifying the applicant’s acts, since he had not acted on its behalf, and those who purported to authorize the application might not in fact be entitled to do so; (d) no extension of time should be granted for the filing of the respondent’s affidavit evidence since the petition had been served on it over a month previously; and (e) since the petitioner was a large bank under the control of a Brazilian Government-appointed liquidator and was likely to succeed on the petition, an order for security for the respondent’s costs was unwarranted.
  Held, dismissing the application:
  (1) The applicant had no locus standi to apply for the discharge of the provisional liquidators since, under the English Insolvency Rules, rr. 4.25(1) and 4.31(1), only persons with locus standi to present a petition for the winding up of the company could apply for the appointment or removal of provisional liquidators, and these did not include a company director. Moreover, under Cayman law, which was the same as the pre-1985 English law, the applicant could not apply on behalf of the company to oppose the winding-up petition or remove the liquidators without the authority of the company in general meeting, whether he were a sole director or not. Accordingly, his application would be dismissed (page 106, lines 26–31; page 106, line 42 – page 107, line 2; page 107, lines 33–44; page 108, lines 24–28; lines 41–45).
  (2) However, since the applicant had intended to act on the company’s behalf in the mistaken belief that he had retained power to do so and despite the appointment of provisional liquidators, his actions could be ratified by the company and his application could be amended to substitute the company as applicant once the necessary resolution had been passed. Since the sole registered shareholder had now tendered that resolution, the court would not seek to deny the company locus standi to challenge the petition by looking behind its legal ownership, in the absence of an application for rectification of the register (page 109, lines 19–33; page 111, lines 32–36; page 112, lines 4–12).
1998 CILR 104
  (3) The respondent would be granted an extension of time to file its evidence, in recognition of the fact that the appointment which it sought to oppose had been made by a rapid ex parte order and that the respondent had to respond to complex allegations of fraud occurring in more than one jurisdiction. In the circumstances, injustice would result if the modest extension sought were not granted (page 110, lines 1–19; lines 37–45).
  (4) The petitioner would not be ordered to give security for the respondent’s costs, since it was a large bank under the control of a Brazilian Government-appointed liquidator and there was no reason for the court to believe that its obligations for costs would not be met in the event of the respondent’s succeeding. The fact that it was a foreign party and was prima facie unable to pay its debts were merely factors to be considered by the court and, when balanced against the court’s preliminary view that the petition was likely to succeed, were not conclusive (page 112, lines 15–29; page 112, line 37 – page 113, line 12).
Cases cited:
(1)      ­Arrows Ltd., Re, [1992] BCC 121.
(2)      ­Danish Mercantile Co. Ltd. v. Beaumont, [1951] Ch. 680; [1951] 1 All E.R. 925, followed.
(3)      ­Dartmouth Harbour Commrs. v. Mayor of Dartmouth Hardness (1886), 55 L.J.Q.B. 483, applied.
(4)      ­Emmadart Ltd., In re, [1979] Ch. 540; [1979] 1 All E.R. 599, followed.
(5)      ­Mid East Trading Ltd., Re, Lehman Bros. v. Phillips, [1997] 3 All E.R. 481; [1997] 2 BCLC 230; on appeal, [1998] 1 All E.R. 577, considered.
(6)      ­Parkinson (Sir Lindsay) & Co. Ltd. v. Triplan, [1973] Q.B. 609; [1973] 2 All E.R. 273, applied.
(7)      ­Pure Spirit Co. Ltd. v. Fowler (1890), 25 Q.B.D. 235, applied.
(8)      ­Union Accident Ins. Co. Ltd., In re, [1972] 1 W.L.R. 640; [1972] 1 All E.R. 1105, not followed.
Legislation construed:
Insolvency Act 1986 (c.45), s.124(1):
  “Subject to the provisions of this section, an application to the court for the winding up of a company shall be by petition presented either by the company, or the directors, or by any creditor or creditors (including any contingent or prospective creditor or creditors), contributory or contributories, or by all or any of those parties, together or separately.”
Insolvency Rules 1986 (S.I. 1986/1925), r.4.18(1):
  “If the company intends to oppose the petition, its affidavit in opposition shall be filed in court not less than 7 days before the date fixed for the hearing.”
1998 CILR 105
r.4.25(1): “An application to the court for the appointment of a provisional liquidator under section 135 may be made by the petitioner, or by a creditor of the company, or by a contributory, or by the company itself, or by the Secretary of State, or by any person who under any enactment would be entitled to present a petition for the winding up of the company.”
r.4.31(1): “The appointment of the provisional liquidator may be terminated by the court on his application, or on that of any person specified in Rule 4.25(1).”
J. Martin, Q.C., T. Lowe, M. Alberga and Ms. L. DaCosta for the applicant;
R.H. Hildyard, Q.C., G.A. Locke and Ms. S.J. Collins for the petitioner;
J.R. McDonough for the provisional liquidators.

          SMELLIE, J.: 
           
      Locus standi 
          On the basis of a petition to wind up the company presented pursuant  
20      to s.95 of the Companies Law (1995 Revision) (“the Law”) this court, in  
      the exercise of its powers under s.105 of the Law, has appointed  
      provisional liquidators in connection with the preservation of the assets  
      and undertakings of Allied Leasing & Finance Corporation (“the com- 
      pany”), pending the hearing of the petition. 
25          The petitioner is a major Brazilian bank, now itself in liquidation,  
      which petitions as a creditor of the company on the basis that the  
      company is unable to meet liabilities owed to it. These liabilities are said  
      to have arisen from the company being used, by persons mutually  
      connected as former officers of the petitioner and of the company, as a  
30      cipher through which to perpetrate fraud on a massive and complex scale  
      against the petitioner by the misappropriation of its funds. To put it  
      simply, it is alleged on behalf of the petitioner that the company was  
      established ostensibly as an offshore investment vehicle to invest in  
      Brazilian securities on behalf of the petitioner but was used instead by its  
35      operatives as a means of siphoning off and misappropriating several  
      hundred million dollars’ worth of assets. 
          I now have before me what is styled an ordinary application under r.7.2  
      of the English Insolvency Rules 1986, made by William Donnelly. He is  
      described as the sole director of the company and seeks various directions  
40      and forms of relief, namely: 
          1. That the time for service for the hearing of the ordinary application  
      be abridged. As the application is made under the Insolvency Rules, Part  
      7, it should have been served at least 14 days prior to today’s hearing but  
      was in fact not filed—and presumably not served—until February 9th,  
45      1998. It is therefore at least 9 days out of time. This abridgement of time 
1998 CILR 106

      was granted without the opposition of the petitioner, although Mr.  
      Hildyard, Q.C. indicated that there could be no consent to that aspect of  
      the application requesting the discharge of the liquidators being heard  
      ahead of the petition. 
5          2. An adjournment of the petition to wind up, which is set to be heard  
      on Friday, February 19th, i.e. next Friday. 
          3. An extension of the time for service of the company’s evidence in  
      response to the petition. 
          4. An order for the cross-examination of Mr. Flavio Cunha, the  
10      liquidator of the petitioner, whose affidavit grounds the petition to wind  
      up. 
          5. An order for security for the costs of the hearing of the petition  
      against the petitioner, Banco Economico, which is a foreign entity. 
          6. The discharge of the order of January 8th, 1998 by which the  
15      provisional liquidators were appointed. 
          This ordinary application—in every aspect—is predicated on the basis  
      that Mr. Donnelly has locus standi to bring it. The relief and directions  
      sought in paras. 2–5 presume the existence of his locus standi to be heard  
      upon the hearing of the petition itself. The relief sought in para. 6  
20      presumes locus standi to apply for the discharge of the provisional  
      liquidators. 
          Mr. Hildyard raises the preliminary objection that Mr. Donnelly, in his  
      capacity as director of the company, can have no locus standi to bring this  
      application in any of its aspects and more particularly no locus standi to  
25      seek the order for the discharge of the provisional liquidators. He cites in  
      support of that submission the primary authority contained in the  
      Insolvency Rules, rr. 4.31 and 4.25. These rules apply in the Cayman  
      Islands in the absence of local rules by virtue of the Grand Court Rules,  
      O.102. These rules specifically provide that only a creditor, contributory,  
30      the provisional liquidators or a company itself may apply for the  
      termination of the appointment of a provisional liquidator. 
          Mr. Donnelly’s application is intituled in his own name. In the draft  
      affidavit of a Mr. Azevedo, which is also to be filed in support of Mr.  
      Donnelly’s application, Mr. Donnelly is described as “a director, or at  
35      least a former director” of the company. Mr. Lowe, who represents him,  
      tells me that his instructions are that Mr. Donnelly is the sole director of  
      the company. The first report of the provisional liquidators describes him,  
      however, as one of two directors. In that state of uncertainty about  
      Donnelly’s capacity, Mr. Lowe invites me none the less to proceed on the  
40      basis that Donnelly can represent the company, or at least has the residual  
      power which remains in its board of directors to bring this application on  
      behalf of the company. That is on the basis that he is the sole director. Mr.  
      Lowe is not, however, in a position here and now to present any  
      authorization by way of resolution either of the board or of the contribu- 
45      tories, to that effect. So the difficulty that confronts Mr. Lowe in that state 
1998 CILR 107

      of affairs is that he is unable to assert that Donnelly acts on behalf of the  
      company itself by virtue of authorization in general meeting. 
          In In re Union Accident Ins. Co. Ltd. (8) it was held that notwith- 
      standing the appointment of a provisional liquidator on a petition for  
5      winding up, the board of directors of a company retained the residual  
      power to instruct solicitors and counsel to oppose the petition and to seek  
      the discharge of the provisional liquidator. In a very brief judgment,  
      Plowman, J. there explained why that residual power continues to exist in  
      the board notwithstanding that the provisional liquidators, once appointed,  
10      must generally be regarded as standing in the right of the company. 
          Mr. Hildyard cited the case of In re Emmadart Ltd. (4), which decision,  
      although not mentioning In re Union Accident Ins. Co. Ltd., declares in  
      definitive terms that in the absence of clear and express powers given in  
      the articles, the directors cannot resolve to present a petition in the name  
15      of a company without authorization from the shareholders in general  
      meeting. As I understand Mr. Hildyard’s submission, the nexus between  
      the rule in In re Emmadart Ltd. and the present case is one arising by  
      parity of reasoning: If the directors have no locus standi qua directors  
      without the authorization of the company in general meeting to present a  
20      petition, they can have no standing as directors to apply to remove  
      provisional liquidators. 
          Mr. Hildyard sought to draw further support for his submissions from  
      the decision in the very recent case of Re Mid East Trading Ltd. (5). In  
      that case it was held that only a party having locus standi to appear on the  
25      hearing of a petition to wind up a company had locus standi to apply to  
      rescind the winding-up order. The categories of persons there defined  
      clearly exclude directors acting as such and would only include them if  
      they were authorized to object on behalf of a company by that company  
      itself in general meeting or if specially authorized by the articles. An  
30      example of a company itself applying for the removal of its provisional  
      liquidators and for the appointment of others in their stead is to be seen in  
      Re Arrows Ltd. (1). 
          The general force of Mr. Hildyard’s submissions as to the capacity and  
      standing of directors must, it seems to me, be acknowledged having  
35      regard to the fact that the law in the Cayman Islands is as it was in  
      England prior to the changes introduced there by the Insolvency Act  
      1985, now in s.124 of the 1986 Act. Section 124 of the Insolvency Act  
      1986 now enables the directors acting unanimously (if more than one), to  
      petition to wind up and so also to oppose a petition to wind up. Taken in  
40      the historical context, it also appears that s.124 was introduced to reverse  
      the decision in In re Emmadart Ltd. (4), which, as we have seen, operates  
      in the context of the pre-1985 legislation to prevent directors from  
      petitioning who act without authorization of their company in general  
      meeting or without being expressly authorized by the articles. A helpful  
45      commentary on this aspect of the history of the legislation is to be found 
1998 CILR 108

      in Sealy & Milman, Annotated Guide to the Insolvency Legislation, 4th ed.,  
      at 164–165 (1994): 
                  “The directors are now empowered to present a petition for the  
          winding up of their company, as a result of a change made by IA  
5          1985. This has reversed the effect of the decision in Re Emmadart  
          Ltd. . . . , in which the court ruled that the practice of allowing a  
          company to present a petition on the strength of a resolution of the  
          directors, which had been tolerated for many years, was irregular.  
          The amendments make it possible in cases of urgency for a petition  
10          to be presented without the delay necessarily involved in sum- 
          moning a general meeting of the company. Where the petition is  
          presented by the directors, they petition in their own names, rather  
          than that of the company; and—at least in the absence of a formal  
          board resolution—they must act unanimously: Re Instrumentation  
15          Electrical Services Ltd. . . . However, where a proper resolution has  
          been passed by a majority of the directors at a board meeting, it  
          becomes the duty of all its directors, including those who took no  
          part in the meeting and those who voted against the resolution, to  
          implement it; and thereafter any director has authority to present a  
20          petition on behalf of all of them: Re Equiticorp International plc . . .  
          (a case decided on the similar wording of IA 1986, s. 9(1)). This  
          ruling in effect now gives legal blessing to the practice which was  
          declared irregular in Re Emmadart Ltd. . . .” 
          And so even if Mr. Donnelly is in fact the sole director of the company  
25      and therefore exercises the full powers of the board, in the absence of any  
      express powers in the articles the result must be the same under the  
      current Cayman Islands law: He may not stand to resist the petition  
      without the sanction of the company in general meeting. 
          Having regard to that conclusion, I should specifically note that to the  
30      extent that there is disagreement between them, I have accepted as being  
      more persuasive the later decision in In re Emmadart Ltd. (4) instead of  
      that in In re Union Accident Ins. Co. Ltd. (8). I do so for the obvious  
      reason that In re Emmadart Ltd. is more fully researched and reasoned,  
      and also because it had clearly been regarded in the United Kingdom as  
35      carrying the day and so necessitating legislation there to reintroduce the  
      earlier prevailing and more convenient but impugned practice evidenced  
      in In re Union Accident Ins. Co. Ltd. 
          Whatever, against that historical background, may be the practical  
      strictures of that construction of the present state of the Cayman law and  
40      rules governing locus standi, I consider that this court is obliged to apply  
      them in the present state of our legislation. Accordingly, my decision is  
      that Mr. Donnelly has no locus standi (whether he be a director or the sole  
      director) to apply to discharge the provisional liquidators, nor locus  
      standi to appear to oppose the petition and therefore the ordinary  
45      application must be dismissed as presently framed. 
1998 CILR 109

          Further rulings are now required as to (a) the amendment of Mr.  
      Donnelly’s ordinary application (in light of the foregoing ruling) to be  
      intituled in the name of the company itself in reliance on the resolutions  
      which are now (upon resumption after the luncheon break) propounded as  
5      having been passed by the company in general meeting to ratify the  
      ordinary application as having been brought on its behalf; and (b) the  
      enlargement of time for the filing of affidavit evidence on behalf of the  
      company itself in opposition to the petition. 
          In the light of the decision in Danish Mercantile Co. Ltd. v. Beaumont  
10      (2) that a company, by resolution in general meeting, can ratify the  
      institution of proceedings earlier taken in its name but without proper  
      authority to do so, the question is whether the proceedings which were  
      instituted by Mr. Donnelly (i.e. the ordinary application) were instituted  
      on behalf of the company so as to be amenable to ratification by the  
15      company. 
          The circumstances here are immediately distinguishable from those in  
      the Danish Mercantile case, for the obvious reason that here the ordinary  
      application was not brought in the name of the company, but in Mr.  
      Donnelly’s name. An important consideration none the less is that here  
20      Mr. Donnelly purported to act on behalf of the company, but on the  
      mistaken assumption that the residuary powers of the board—which exist  
      notwithstanding the appointment of the provisional liquidators—enabled  
      him, as sole director, to oppose the petition without the authorization of  
      the company in general meeting. That being so, I am persuaded that his  
25      actions are amenable to ratification by the company in the light of the  
      decision in the Danish Mercantile case notwithstanding the difference of  
      formalities employed here. 
          I will therefore allow the application to be amended by the substitution  
      of the company for Mr. Donnelly as applicant and also to continue as so  
30      amended in light of the resolution given in general meeting and which has  
      been tendered (subject—at the insistence of the petitioner—to verifi- 
      cation) by White Lightning Corp., as the sole shareholder of record of the  
      company. 
          As for the enlargement of time for the filing of affidavit evidence, I  
35      have before me the uncontradicted affidavit of Mr. Michael Alberga. It  
      describes, in Mr. Alberga’s typically expressive terms, the difficulties his  
      firm has experienced in obtaining definitive instructions and in reducing  
      them to evidence. These difficulties are said to have arisen because of the  
      multi-jurisdictional nature of the case, the differences of languages and  
40      the “break-neck speed” required to meet the deadlines imposed by the  
      rules. 
          Mr. Alberga’s firm received the petitioner’s affidavit evidence in  
      support of the petition only on January 26th, 1998, notwithstanding that it  
      was served on the company or about January 8th. No explanation is given  
45      as to why it took so long to be sent to his firm but whichever of those two 
1998 CILR 110

      dates is taken as the effective date of service, I felt compelled to afford  
      some reasonable leeway to the company, given the nature of the ex parte  
      relief afforded to the petitioner in the manner of the appointment of the  
      provisional liquidators. Accordingly, and although such relief is not  
5      unusual in circumstances involving the risk of damage postulated in this  
      case as the reason for that appointment, I must acknowledge that the  
      company now wishes under difficult circumstances to exercise its right to  
      oppose the petition. The case is one of great complexity and size. The  
      allegations involve imputations of dishonesty of the most serious kind for  
10      some of those formerly involved in the management and direction of the  
      company. 
          Although the petition is based on the cited insolvency of the company,  
      those allegations of insolvency appear to be inextricably linked to the  
      allegations of fraud and misappropriation of the company’s assets. It  
15      would be an extraordinary thing indeed if a petition based on insolvency  
      resulting from what Mr. Flavio Cunha describes as “systematic fraud”  
      were to go unanswered because the court did not afford the leeway of a  
      matter of three days—by which the company now finds itself to be in  
      breach of Insolvency Rule 4.18—in the filing of its affidavit evidence.  
20      This is, of course, assuming that the affidavit evidence to be relied upon  
      will be the same as that which was filed today in draft form in support of  
      the ordinary application brought erroneously in Mr. Donnelly’s name but  
      now to be continued in the company’s name. 
           
25      Costs 
          The ordinary application brought in Mr. Donnelly’s name was miscon- 
      ceived, as he had no proper authorization for bringing it. The petitioner  
      acted entirely within its rights in raising the issue of locus standi and  
      must therefore be entitled in any event to its costs occasioned by the  
30      application having been improperly brought. 
          Given the logistical difficulties presented to the company in procuring  
      its affidavit evidence (which I have accepted as described in Mr. Alberga’s  
      affidavit) its request beforehand to the other side for an abridgement of  
      the seven-day notice requirement of r.4.18 was not unreasonable. I must,  
35      however, also accept Mr. Hildyard’s explanation of the petitioner’s  
      concerns why that abridgement was not agreed. The petitioner would not  
      risk the prejudice of any other recourse available to it. None the less, at  
      the end of the day, I think the court must recognize the realities of the  
      consequences of its orders and those consequences in this case must be  
40      seen as bearing a direct relationship to the ex parte order for the  
      appointment of the provisional liquidators, which must have had an  
      impact upon the company’s ability to meet the deadlines set in the rules,  
      given the far-flung and disparate nature of the company’s operations  
      and of the responsibilities of the people involved in formulating its  
45      response. 
1998 CILR 111

          I think it is also likely that even had the company’s evidence been filed  
      three days earlier—so as to have come within the rule—the petition, from  
      all I have heard in the course of arguments, would hardly have been likely  
      to proceed on Friday next in any event. With those factors in mind, the  
5      order is that the costs of and occasioned by the late service of the  
      company’s evidence are to be costs in the cause. 
          [The learned judge gave directions for the hearing of the remaining  
      issues raised by the applicant and continued:] 
           
10      Proof of ownership of the shares in the company 
          I have just been shown an affidavit of Mr. Locke’s which exhibits  
      certain records of the company which may cast suspicion, if not doubt, on  
      Mr. Cesar Mello’s claim to be the owner of the shares in the company  
      through White Lightning Corp. (a British Virgin Islands company). I must  
15      now rule on whether Mr. Mello should take further steps—apart from the  
      resolutions tendered from White Lightning and the company to be  
      verified by his own affidavit—to satisfy me that he is indeed the legal and  
      beneficial owner of the shares of White Lightning and thus of the com- 
      pany. The material revealed in Mr. Locke’s affidavit may well provide the  
20      basis for an enquiry into the beneficial ownership of the company such as  
      conceivably could lead to a conclusion that the true beneficial ownership  
      still vests in Transworld, where it is alleged to have vested prior to the  
      transfer to White Lightning which has been impugned. Such a  
      conclusion, it is said, would somehow alter the position as Transworld is  
25      said to have been in the same common ownership and control as the  
      petitioner prior to their liquidations. 
          What I have before me, however, is a petition to wind up the company  
      presented by Banco Economico, not in any capacity as purportedly  
      beneficially entitled to the company, but instead as a creditor for very  
30      large sums. Thus, the petition itself, predicated as it is upon that  
      creditor/debtor relationship, does not directly turn upon any question of  
      the true beneficial ownership of the company itself. The question now is  
      whether the company has locus standi to challenge the petition, having  
      been properly authorized to do so by those entitled to shares in the  
35      company. The prima facie evidence is that White Lightning is so entitled.  
      The register of the company so reflects. 
          Mr. Michael Alberga’s evidence is that he has taken instructions from  
      Mr. Mello. Mr. Mello is the director of record of White Lightning. The  
      registered office of White Lightning in the British Virgin Islands regards  
40      Mr. Mello as the shareholder of record. There are before me resolutions  
      signed by Mr. Mello in that capacity on behalf of White Lightning  
      purporting to authorize the company in these proceedings. While I can  
      and do direct that Mr. Mello submit an affidavit himself verifying those  
      matters, that, taken strictly in the present context, is a formal requirement  
45      which I must assume will be readily met. Mr. Alberga is in direct contact 
1998 CILR 112

      with him and there can be no reason why the requirement should not be  
      met. I therefore can see no proper basis for precluding the company’s  
      participation in the proceedings in the meantime, in its absence. 
          The gravamen of Mr. Hildyard’s concern is as to where the true  
5      beneficial ownership of the company lies. That, it seems to me and I agree  
      with Mr. Martin, can only properly be addressed by an application for  
      rectification of the register by those who would seek to go behind the  
      register. It would be wrong for me now, on the present state of the  
      evidence and as the proceedings are presently joined, to pre-judge that  
10      issue—in the absence of an application for rectification—so as to  
      preclude the company from challenging the petition by denying it the  
      locus standi to do so. 
           
      Security for costs 
15          I refuse the company’s application for security. The matter was one of  
      discretion to be exercised by reference to a number of factors. Whilst the  
      petitioner is a foreign entity, that by itself does not dictate that an order  
      shall be made against it for security for the company’s costs: see Sir  
      Lindsay Parkinson & Co. Ltd. v. Triplan (6). The court is instead obliged  
20      to consider all the circumstances of the case. An important factor is the  
      petitioner’s likelihood of success. In considering whether this was shown  
      to be so I was not required to embark upon a detailed consideration of the  
      merits. In this case, however, considerable time has already been taken in  
      exploring in some detail the issues to be involved in the case, on both  
25      sides. This has been sufficient, I believe, to afford me a fair grasp of  
      whether or not this petition is likely to succeed in respect of any element  
      of the indebtedness claimed. 
          On that entirely prima facie basis I have formed the impression that  
      there is merit in the petition—particularly when one bears in mind the  
30      admissions from the other side that the company itself was promoted  
      primarily as an investment vehicle for the petitioner and that there was an  
      offer made in the context of negotiations for all its assets to be transferred  
      to the petitioner. I am told that that offer was not accepted only because  
      those negotiating on behalf of the company refused the opportunity  
35      sought by the petitioner of taking an independent audit of the extent and  
      value of the assets. 
          I had to balance as against that the unchallenged assertion by Mr.  
      Alberga that the fact that the petitioner is itself in liquidation is prima  
      facie evidence that it is unable to pay its debts and so it is unlikely that the  
40      company would ever be able to recover its costs from the petition if the  
      company should prove successful in the end. That is indeed a factor to be  
      taken into account (see Pure Spirit Co. Ltd. v. Fowler (7)). 
          I conclude that the proper balance is struck when account is taken of  
      the consideration that the petitioner is now under the control of a  
45      liquidator who is appointed by the Brazilian Government. Even in the 
1998 CILR 113

      ordinary case, the fact of insolvency will not by itself dictate an order for  
      security. When the entity is a large bank, as the petitioner is, any such  
      presumption becomes even less appropriate as grounds for ordering  
      security for costs: see Dartmouth Harbour Commrs. v. Mayor of  
5      Dartmouth Hardness (3) and the notes in 1 The Supreme Court Practice  
      1997, para. 23/1–3/13, at 412. 
          Although Ms. Collins (who argued the aspect of the matter for the  
      petitioner) had no instructions to give an undertaking as to costs, I have  
      nothing at all before me to support any suggestion that the Brazilian  
10      Government would not ensure that its obligations for costs (to be incurred  
      if its appointed officer proves unsuccessful before this court) would not  
      be honoured. In the interest of comity, I would consider that any  
      presumptions would arise in favour of such obligations being met and not  
      the other way around. The rule in the Dartmouth Harbour Commrs. case  
15      applies, a fortiori, to the present circumstances. 
Orders accordingly.
Attorneys: Myers & Alberga for the applicant; W.S. Walker & Co. for the petitioner; Bruce Campbell & Co. for the provisional liquidators.