Court sanctions litigation despite funding difficulties and liquidation committee opposition

In Ritchie Multi-Strategy Global Ltd. (in official liquidation), [2026] CIGC (FSD) 78, the Grand Court of the Cayman Islands sanctioned the commencement of proceedings challenging a pre-liquidation transaction despite a lack of litigation funding or support from the liquidation committee. Chief Justice Ramsay-Hale held that the proposed proceedings had a reasonable prospect of success and were in the interests of the liquidation estate. The decision, which provides helpful guidance for liquidators, confirms that the Court will exercise its own independent judgement when deciding whether to sanction an official liquidator’s commencement of proceedings.

Background

Before being placed in official liquidation, Ritchie Multi-Strategy Global Ltd. (the ‘Company‘), had entered into a sale and purchase agreement (the ‘SPA‘), under which various assets of the Company had been transferred to a related entity. The official liquidator (‘OL‘) saw the SPA as a potential source of recoveries for the liquidation estate and sought the Court’s sanction under s. 110(2)(a) of the Companies Act (2026 Revision) (‘Companies Act‘) to commence proceedings to set aside the SPA under section 146 of the Companies Act. Section 146 provides that every disposition of property made at an undervalue by or on behalf of a company with intent to defraud its creditors shall be voidable at the instance of the official liquidator.

The OL sought to challenge the SPA on the basis that the transfer of assets was at an undervalue, particularly given the absence of cash consideration, the contingent nature of the Company’s entitlement to recoveries and that the SPA was executed on behalf of both the Company and the purchaser by the same individual, acting in different capacities. The OL had been unsuccessful in securing litigation funding and in obtaining approval of the proposed proceedings from the liquidation committee. Nevertheless, the OL emphasised the urgency of the proceedings because of a pending limitation deadline.

The test for granting sanction in liquidation

The Court reaffirmed that its jurisdiction to grant a sanction arose under section 110(2)(a) and Part I of Schedule 3 to the Companies Act, as part of the Court’s general supervisory jurisdiction over official liquidators.

In determining whether sanction should be granted, the Court recognised that it must consider whether the interests of creditors or contributories (as the case may be) are likely to be best served by granting a sanction.¹

In the context of proposed litigation specifically, the consideration is twofold. The Court must consider:

• whether the proposed cause of action is sufficiently identifiable and possessed a reasonable prospect of success, and
• whether, having regard to the risks, costs, funding arrangements and likely benefit to creditors or contributories, the proposed proceedings are in the interests of the estate.²

The Court will not sanction speculative litigation, for example as a means of extracting a settlement from a party against whom there is no genuine cause of action, or where there is no evidence from which to infer that a possible cause of action has any real prospects of success.³

However, the existence of a good arguable claim is not of itself sufficient. The Court must also consider whether the proposed litigation is in the interests of the estate, having regard to the attendant risks and practicalities.⁴

The liquidation committee’s role

The Court reiterated that the decision whether to sanction the exercise of the OL’s powers rests with the Court. The role of the liquidation committee (‘LC‘) is consultative; it has no statutory power to sanction the exercise of an OL’s powers, nor can its resolutions bind the OL. In determining what weight should be attached to any opposition by the LC, the Court should consider whether members of the LC have interests adverse to those of the liquidation estate. The Court is entitled to make its own independent assessment.

Why sanction was granted

Applying these principles, the Court was satisfied that the proposed challenge to the SPA had a reasonable prospect of success and was not a speculative claim. The claim arose from an identifiable transaction with evidence to support the grounds for challenge.

The Court also accepted that a successful challenge to the SPA could benefit the estate by restoring assets and improving recovery prospects for creditors.

While the lack of litigation funding and a likelihood of an application for security for costs were material considerations, these were insufficient to refuse sanction where doing so would expose the liquidation estate to the loss of an otherwise reasonable claim. Indeed, the Court found that the possibility of the litigation subsequently being unable to progress did not outweigh the benefit of preserving a claim that could benefit creditors.

Similarly, the LC’s failure to approve the proposed litigation was not fatal to the OL’s application and was accordingly given limited weight. It was relevant that the LC included the counterparty to the SPA, whose interests were not aligned with the liquidation estate. The Court also had the benefit of detailed confidential material that had not been before the LC.

Conclusion

OLs can face difficult decisions as to whether to pursue potential litigation, particularly in circumstances like this where there can be challenges in funding the proceedings, or where there is opposition from the LC. This decision provides OLs a helpful summary of the principles governing applications for sanction, particularly where they propose to commence litigation.

It also confirms that a LC’s views are consultative rather than determinative.  The Court must make its own assessment of whether the proposed proceedings have a reasonable prospect of success and are in the interests of the liquidation estate, taking into account the practical risks, funding position and potential benefit to creditors.