Jun 2025

US Holdings Limited, Re, [2024] SC (Bda) 11 Civ (2 April 2024)

In a significant decision from the Commercial Division of the Supreme Court of Bermuda, Justice Shade Subair Williams has provided important clarification on the standards applicable when courts are asked to sanction “momentous” commercial decisions made by insolvency office-holders. The judgement in Re US Holdings Limited sanctioned of a controversial pre-liquidation sale of the key asset of US Holdings Limited, despite objections from its largest unsecured creditor. The ruling provides key guidance on the Court’s approach to asset sales by joint provisional liquidators (JPLs) and the application of fiduciary principles in insolvency scenarios.

Director Rhys Williams represented the liquidators of US Holdings Limited (in liquidation) in their its application before the Supreme Court of Bermuda.

Background

US Holdings Limited, an insolvent entity incorporated in Bermuda, held shares in Madagascar Oil Limited (MOL), which in turn controlled Madagascar Oil SA (MOSA). With debts totalling over US$75 million, of which approximately US$60 million was owed to Outrider Master Fund LP (the “Outrider”) and the remainder to BMK Resources Ltd (BMK), the majority shareholder.

Following Outrider’s petition to wind up the company in 2022, the Court appointed JPLs with full powers in 2023 for the express purpose of considering a sale, refinancing or restructure. The JPLs explored various sale and restructuring options before entering into an Asset Purchase Agreement (APA) with BMK in late 2023.

The Contested Sale

The APA provided for the sale of MOL and MOSA to BMK for approximately US$2.04 million, an amount which would cover only the JPLs’ fees and Outrider’s legal costs. Outrider opposed the sale, arguing that (i) it received no return on its substantial debt, (ii) the sale amounted to a transfer at an undervalue to a shareholder, and (iii) the JPLs were motivated by self-interest, particularly the payment of their own fees.

Outrider also objected that the APA required it to execute a Joint Instruction Notice (JIN), which would waive its rights to recover under a US$58 million guarantee, in exchange for partial recovery of its interim funding of US$2.4 million and that to proceed with the sale would be a breach of contract and oppressive (the “Oppression Argument”).

Outrider further alleged that the APA breached the Facilities Agreement, which barred asset sales without lender consent (the “Contractual Argument”).

The Court’s Reasoning

The Court carefully considered the appropriate standard for reviewing momentous decisions by liquidators. It drew upon English authorities such as Public Trustee v Cooper 1 and Re Sova Capital Ltd 2, endorsing the view that courts should not second-guess the commercial judgment of insolvency professionals unless that judgment is irrational or improperly motivated. The Court noted that while insolvency and trust contexts differ, the underlying principle of judicial oversight over fiduciary discretion remains relevant.

The Court affirmed that it should not substitute its own view for that of experienced insolvency practitioners unless their conduct is (i) irrational, (ii) demonstrative of bad faith, or (iii) so unreasonable that no skilled practitioner would have acted similarly.

The Court found that:

  • The JPLs had conducted a market process and BMK’s offer was the only viable one given the company’s financial distress and timing constraints.
  • No viable alternative offers or restructuring proposals were available. The APA was the only means to preserve some value and avoid the complete dissipation of the company’s assets.
  • The JPLs acted without conflict or bias, and were motivated by the company’s interests, not personal gain.

In respect of Outrider’s objections:

  • The Oppression Argument: the Court acknowledged the hardship but found no improper motive on the JPLs’ part. Liquidator remuneration is prioritised in accordance with the Companies Act 1981 , read with the Winding-up Rules , and the company’s dire cash flow position.
  • The Contractual Argument: The Court noted that insolvency law permits liquidators to disclaim onerous contracts3, and technical breaches did not override the duty to preserve asset value. Importantly, even with strict compliance no alternative offer was viable.

Winding-Up Petition Rejected

Outrider argued that a winding-up order would be preferable. The Court disagreed, finding no evidence that a liquidation would offer any better prospect of recovery. In fact, refusing the APA would likely accelerate asset value destruction, further prejudicing all stakeholders.

Conclusion

The Court sanctioned the APA and dismissed the winding-up petition. It emphasized that while it retains supervisory powers under sections 175 and 176 of the Companies Act 1981, it will generally defer to the judgment of skilled insolvency practitioners unless bad faith or irrationality is established.

1 [2001] WTLR 901

2 [2023] EWHC 452 (Ch)

3 Companies Act 1981, section 240