The long arm of the liquidator: AWH Fund Ltd v ZCM Asset Holding Co Ltd (2019)

A recent decision of Judicial Committee of the Privy Council (handed down July 29 2019), hearing an appeal of a decision of the Court of Appeal of the Bahamas, helped clarify the extent to which liquidators can exercise their powers outside of their jurisdiction in the recovery of funds credited preferentially.

AWH was a Bahamian company incorporated under the International Business Companies Act 2000 of the Bahamas, which dealt with investments listed on the Asian stock markets. ZCH was a sub-custodian holding company operating on behalf of Zurich Bank, acting as an agent for American Express Alternative Offshore Fund (“AMEX”). On behalf of AMEX, ZCR invested in AWH, and in July 2002 redeemed a portion of the shares to the value of $13m. Shortly after AWH went into compulsory liquidation. Six years later the liquidator claimed that as the liquidation happened less than three months after the payment, the payment to ZCH should be set-aside, and sought to issue a summons to ZCH in Bermuda. ZCH resisted the summons on the grounds (a) there were no statutory grounds under either bankruptcy or winding-up legislation for issuing out of the jurisdiction (b) it must be shown that there was intent to prefer fraudulently (c) that ZCH was merely operating a bare trust and (d) ZCM was an agent which required a bona fide claim for restitution in order for service outside of a jurisdiction to be permissible and (e) ZCM was not a proper party to the proceedings because the funds had been paid to AMEX, ZCM’s principal.

The Court of Appeal upheld the decision of the Supreme Court of the Bahamas that a Bahamas-based liquidator could serve proceedings for recovery of nearly $13m from ZCM, who appealed to the Privy Council.

The Privy Council found the Court of Appeal was correct by considering two key questions: was there a Jurisdictional Gateway for Service and was the merits threshold reached.

In the ruling, it was found the lack of statutory grounds was not a bar to service given Order 11 of the Supreme Court Rules of the Bahamas created a “gap filler” applicable to this case, thus finding there was a gateway, accepting that business is increasingly international and that it is “settled law” that insolvency provisions can have extraterritorial effect. Furthermore, It held that an intent to defraud did not need to be shown, and rejected ZCR’s bare trust and agent/principal arguments.

Secondly, the Privy Council concluded there was a significantly arguable case for ZCM to answer based on the three-fold threshold test of Altimo Holdings and Investment Ltd v Kyrgyz Mobil Tel Ltd [2012] 1 WLR 1804.

It dismissed the appeal and held that AWH’s liquidator was entitled to serve the claim to claw-back the July 2002 payment on ZCM in Bermuda.

In so doing the Privy Council adopted a universalist approach that the Bahamian legislation covering international business structures was intended to have extra-jurisdictional application, and that non- Bahamas based investors should expect to be subject to winding-up procedures in the Bahamas.

The Implications

The implications of this decision are clear: liquidators have a “long arm” both in terms of time and cross-jurisdictional reach. For the Bahamas, it means that the “gap” in black-letter law on the powers of
liquidators is no bar to liquidators seeking the courts’ permission to serve summons on parties out of the Bahamas’ jurisdiction under Order Rule 11 8(4) of the Rules of the Supreme Court of the Bahamas, where a fraudulent preference payment is alleged to have been made not more than three months prior to the payor’s liquidation. This means that there is now a precedent for other common law jurisdictions without black-letter statute on extra-jurisdictional service to be subject to the “settled law” on service of insolvency provisions.


The information and any commentary on the law contained on this web site is provided free of charge for information purposes only. Every reasonable effort is made to make the information and commentary accurate and up to date, but no responsibility for its accuracy and correctness, or for any consequences of relying on it, is assumed by any member of Chambers. The information and commentary does not, and is not intended to, amount to legal advice to any person on a specific case or matter. You are strongly advised to obtain specific, personal advice from a lawyer about your case or matter and not to rely on the information or comments on this site. No responsibility is accepted for the content or accuracy of linked sites.

Our Expertise