Conway v Air Arabia: Proofs of Debt and Submission to the Jurisdiction

In a Nutshell

Cayman Islands fraudulent trading claims have extraterritorial reach and lodging a proof in Cayman Islands liquidation proceedings (even if the proof is unadmitted and no dividend paid) amounts to submission to the jurisdiction of the Cayman Islands Court (the “Court”) for all purposes connected to the liquidation. Cayman Islands liquidators can pursue foreign entities for fraudulent trading claims and serve out of the jurisdiction without leave of Court.

This means that foreign creditors should carefully consider the pros and cons of lodging a proof of debt in Cayman Islands liquidation proceedings, as lodging a proof of debt may open that party itself up to claims against them.

For Cayman Islands liquidators, the clarification from the Court should streamline the process for bringing claims against overseas defendants and help curb skirmishes around service.

Background

The case arose from the collapse of the Abraj group of companies and involved claims by the joint official liquidators (“JOLs”) against a foreign creditor, seeking a contribution to the insolvent estate under section 147 of the Companies Act (2023 Revision) (the fraudulent trading provision). The claim was based on a series of short-term loans, totalling nearly US$1 billion, allegedly used to conceal Abraaj’s cashflow insolvency and delay its collapse, to the detriment of creditors. The JOLs were seeking a declaration that Air Arabia PJSC (“Air Arabia”) is liable to contribute to Abraaj Holdings’ assets on the basis that it was knowingly a party to the company’s business being carried on with intent to defraud creditors.

The defendant, Air Arabia, had submitted two proofs of debt in the liquidation of the company. The first proof of debt was adjudicated for the purpose of voting for and constituting the liquidation committee. However, neither proof of debt had been adjudicated or admitted for any other purpose. The JOLs commenced the claim by writ and served the proceedings on the Air Arabia by email and courier at the address listed on the proofs of debt.

This Court was asked to consider whether lodging a proof of debt by a foreign creditor constitutes submission to the jurisdiction for a fraudulent trading claim and the extraterritorial effect of section 147. It was also required to consider the procedural requirements for the JOLs’ claims, including validity of service and ability to serve proceedings outside of the jurisdiction without leave.

Summary of Arguments

The JOLs argued that by submitting proofs of debt, Air Arabia had submitted to the jurisdiction of the Court for all matters connected with the winding up, including section 147 claims. They further contended that section 147 has extraterritorial effect, allowing claims to be brought against persons outside the Cayman Islands and that the methods of service used were valid.

Air Arabia disputed the Court’s jurisdiction, arguing that submission of a proof of debt does not extend to section 147 claims, which it characterised as creating a new statutory liability rather than unwinding prior transactions. The defendant also challenged the extraterritorial effect of section 147, seeking to distinguish it from other insolvency claims and the validity of service, contending that the plaintiffs had used the wrong procedural form and that service should have been personal.

Submission to Jurisdiction by Lodging Proof of Debt

The Court held that lodging a proof of debt in a Cayman liquidation amounts to a submission to the jurisdiction for all matters connected with the winding up, including claims under section 147. This principle applies regardless of whether the proof has been admitted or a dividend paid. In considering a line of decisions of the English courts, the Court rejected the argument that fraudulent trading claims are fundamentally different from other insolvency claims (such as voidable preferences or transactions at undervalue) for jurisdictional purposes.

The Court approved and adopted the principles summarised in English case law, holding that the court supervising the liquidation of a company has jurisdiction to decide “all questions of whatever kind, whether of law, fact, or whatever else the court may think necessary in order to effect complete distribution of the company’s estate.” Further, liquidation is a mode of collective enforcement of claims arising under the general law. There is often no relevant difference between the claim for which a party may submit a proof (e.g., debt arising from its redemption notice) and a claim for which it does not prove (e.g., misrepresentation) if that arises under the general law. They are both capable of being proved in the liquidation. If they are proved, the courts will have subject matter jurisdiction to adjudicate on them. And so far as a party has submitted by proving for anything in the liquidation, it has submitted to a statutory regime which precludes it from acting to prevent the assets subject to the statutory trust from being distributed in accordance with it. In this respect the Court confirmed that submission to the jurisdiction of the court of the insolvency constitutes submission to “any order” of the court in connection with the insolvency procedure, including orders for injunctive relief.

Extraterritorial Effect of Section 147

Drawing on English and Cayman Islands authority, the Court held that section 147 has extraterritorial effect. The provision is intended to allow liquidators to pursue claims against persons located outside the Cayman Islands, reflecting the international nature of Cayman-incorporated companies and the need for effective remedies in cross-border insolvencies. In construing the language of section 147, it was not possible to identify any limitation which represented the presumed intention of the legislature. The words therefore had to be given their literal unrestricted meaning, and section 147 should therefore be understood as having extraterritorial effect so that the Court had jurisdiction to make an order under section 147 against a foreigner resident abroad.

Service Out Without Leave

The Court concluded that, where section 147 applies, claims can be served out of the jurisdiction without leave under the relevant procedural rules. This ensures that the remedy is not rendered ineffective by the location of the respondent.

Procedural Form

The Court confirmed that claim should have been brought by summons within the liquidation proceedings, not by separate writ. However, the plaintiffs’ use of the wrong form did not confer any improper advantage, and the Court exercised its discretion to waive the irregularity, treating the proceedings as if commenced by summons within the liquidation.

Validity of Service

The Court held that service by email and courier to the addresses provided in the defendant’s proofs of debt was valid, given the defendant’s submission to the jurisdiction. There was no requirement for personal service or for leave to serve out in these circumstances.

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¹ [2025] CIGC (FSD) 41