In a recent decision of In the matter of TROOPS Inc, the Grand Court declined to appoint joint provisional liquidators (JPLs) on an ex parte basis over TROOPS Inc. (the Company). The ruling provides a useful reminder of the Court's "especially cautious" approach to pressing the "nuclear button" of appointing JPLs, especially when that appointment is sought on an ex parte without notice basis.

The application was brought by Real Estate and Finance Fund (in official liquidation) (the Petitioner), which had obtained a Hong Kong High Court judgment against in the Company and others for approximately HK$405 million (c.US$52 million). The Petitioner alleged that the Company had been involved in a fraudulent restructuring and asset diversion scheme designed to strip value from the Petitioner's assets.

Fearing dissipation of assets, the Petitioner applied without notice for the urgent appointment of JPLs to preserve the Company's assets pending enforcement and/or determination of an appeal of the Hong Kong judgment.

In an earlier decision, Position Mobile Ltd SEZC (7 April 2022 and 31 October 2023) (Position Mobile), Justice Doyle set out (by reference to various earlier authorities) the four "main hurdles" for the appointment of provisional liquidators. These are:

The presentation of the winding up petition hurdle: a winding up petition has been duly presented and a winding up order has not yet been made.

The standing hurdle: the applicant has standing to make the application, i.e. the applicant is a creditor, contributory or CIMA.

The prima facie case hurdle: there is a prima facie case for making a winding up order.

The necessity hurdle: the appointment of JPLs is necessary in order to prevent the dissipation or misuse of the company's assets; and/or the oppression of minority shareholders; and/or mismanagement or misconduct on the part of the company's directors.

In the present case, the same judge presided and affirmed Position Mobile, holding that the Petitioner had overcome the first three of these hurdles. However, he was not persuaded that the fourth "necessity hurdle" was satisfied. Therefore, the Petitioner did not succeed.

In the judgment, the Judge emphasised that the appointment of JPLs is "one of the most intrusive remedies in the court's armoury" and requires clear and strong evidence.

The Judge also reiterated that where less draconian remedies are available, such as injunctive relief, JPLs should not be appointed. In the present case, the Petitioner's position was that the existing injunction that it had obtained in Hong Kong (the HK Injunction) was limited in scope and essentially inadequate to prevent the dissipation of assets.

However, Doyle J was not persuaded by this argument and suggested that there was nothing stopping it from returning to Hong Kong to seek further relief.

Ex parte applications for JPL appointments: applicants must be prepared for the Court to heavily scrutinise an application for the appointment of JPLs on an ex parte basis. The appointment of JPLs is the "nuclear option".

Necessity and proportionality: even with a strong prima facie case, the Court will not appoint JPLs unless it is strictly necessary, and proportionate, to protect the petitioner's position. The existence of alterative remedies may be considered adequate protection, making the appointment of JPLs unnecessary.

Form of order of appointment: the Court criticised various aspects of the draft order (albeit these criticisms were academic, as the relief sought was declined). For example, it was inappropriate for an order providing for the Company to be wound up on an application for the appointment of JPLs on an ex parte basis.

The Judge also questioned why the petition was proposed to be advertised only in the Cayman Islands, and not elsewhere, for example in Hong Kong. The Judge noted that he would have needed to be satisfied as to the wide JPL powers sought, and would have needed to be heard on the issue of the stifling of an...