The directors of a company, which was placed into receivership, last year, after failing to repay almost $80 million debt to Republic Bank Limited, have scored a preliminary legal victory in their challenge against the court-appointed receiver.
In a 38-page judgement on Wednesday, Appellate Judges Charmaine Pemberton and Mira Dean-Armorer ruled that the trial judge hearing the case brought by Keith and Shandon Arjoon, the directors of KGC Company Limited, against receiver-manager Maria Daniel made errors when she struck out the case and a corresponding injunction blocking the sale of the company’s assets.
In the judgement, which sought to give guidance for future cases in which stakeholders of companies in receivership seek to challenge the work of court-appointed receivers, Pemberton and Dean-Armorer noted that the judge made an error in ruling that the Arjoons needed third party indemnity (TPI) to cover the debt in order to pursue the lawsuit.
They ruled that both the Companies Act and the Bankruptcy and Insolvency Act introduced no such requirements for stakeholders, who are allowed to bring such challenges in limited circumstances.
“Having recognised that basis we do not see how the lack of a TPI can automatically trigger the nuclear option of striking out an action on the ground that it constituted an abuse of process,” they said.
They also rejected the judge’s finding that the Arjoons had to prove personal losses by the receiver’s actions.
“In a claim brought on behalf of a debtor company by the directors, the losses proved must be losses sustained by the company. Where directors commence proceedings against a receiver on the ground of breach of duty owed to the debtor company, the directors do not need to seek the consent of the receiver for same, nor can a receiver pursue and action against himself,” they said.
The noted that any analysis on whether Daniel had failed in her statutory and equitable obligations to the company should be done at the trial of the case. As part of their decision, the Appeal Court returned the case to the trial judge for her consideration and ordered that the case be expedited.
They also noted that the judge was wrong to discharge a preliminary injunction granted to the Arjoons and reinstated it pending the determination of the case.
“We find that the requirements have been satisfied to continue the injunction and the trial judge was plainly wrong to discontinue and discharge the interim injunction,” they said.
According to the evidence in the case, between 2008 and 2014, the company took a series of loans and mortgages with the bank.
The directors claimed that during the period, it had experienced issues with receiving its payments from now-defunct Petrotrin, in relation to contracts it had.
The delays meant that the company was unable to repay its debt, which is a little over $72 million and US$800,000.
In December, last year, the bank applied to the court to appoint Daniel as receiver to recover the debt in accordance with the loan agreements and mortgages.
The Arjoons filed the case and sought the injunction after Daniel informed that she planned on selling the company’s assets for $35.5 million, leaving a shortfall of over $42 million.
They claimed that they appealed to her to consider two alternatives re-financing options but she declined.
In the lawsuit, the directors are claiming that Daniel breached her obligations by failing to provide them with the company’s accounts and for taking action which was not commercially reasonable.
The Arjoons and the company were represented by Fyard Hosein, SC, Devesh Maharaj, Sasha Bridgemohan-Singh, and Kandace Bharath-Nahous. Daniel was represented by Kerwyn Garcia and Adrian Byrne.