The Privy Council of the Cayman Islands recently ruled that courts of one British territory may be required to provide assistance to other British territories in bankruptcy proceedings.  In Re Al Sabah, [2004-2005] CILR 373.  In Re Al Sabah, Sheik Al Sabah, a resident of the Bahamas, defrauded Grupo Torras SA of approximately $800 million (US).  Grupo Torras SA obtained a default judgment in England and attempted to collect the judgment.  However, Al Sabah, in June of 2001, was declared bankrupt and the Bahamian court appointed a trustee in bankruptcy.  Prior to filing bankruptcy, Al Sabah had settled two trusts under Cayman law.  The Bahamian court requested that the Cayman Islands recognize the appointed trustee and grant the trustee the powers of a trustee in bankruptcy under Cayman law.

In its ruling, the Privy Council upheld the Court Of Appeals decision granting power and relied on sections 122 and 107 of the Imperial Bankruptcy Act of 1914.  The Privy Council noted that the application of section 122 allowed the Bahamian trustee to grant the authority to employ the avoidance provision of section 107, which would allow the trustee the power to reach the trusts.  The court provided several factors which it might consider in such an action, including the specific facts of the case, the validity of the foreign bankruptcy order, reasons for having the trust governed by Cayman law, and the court’s role in seeking justice.