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Cayman Islands Court Confirms Importance of Access to Justice in Case Involving Collapse of the AAX Cryptocurrency Exchange

In a recently released decision from the Grand Court of the Cayman Islands (the Court) in Re Atom Holdings , the Court confirmed the importance of access to justice by finding that the Cayman Islands Companies Winding Up Rules (2023 Consolidation) (CWR) must be construed in a manner to “avoid depriving an entire class of creditors and/or contributories (those of modest means) of access to the Court” under the relevant provisions of the Companies Act (2023 Revision) (the Act).

Adam Crane


The application was brought by two individuals (the Petitioners) who were retail users and investors on the centralised cryptocurrency exchange, Atom Asset Exchange (AAX), via its platform (the AAX Platform), before the AAX Platform was abruptly shuttered in November 2022.

The Petitioners presented a winding up petition against Atom Holdings (the Company), the parent company of AAX, on the basis that the Company is insolvent within the meaning of section 92(d) of the Act and on just and equitable grounds under section 92(e) of the Act. The Petitioners then applied for the appointment of Angela Barkhouse and Kim Leck of Quantuma (Cayman) Ltd. as joint provisional liquidators in respect of the Company on an urgent ex parte without notice basis.

The Company is a Cayman Islands domiciled holding company with subsidiaries operating in multiple jurisdictions (including Hong Kong, Singapore, Seychelles, and Malta) through which AAX offered a full suite of cryptocurrency services to retail and institutional investors worldwide.

In November 2022, shortly after the collapse of FTX, the AAX Platform was abruptly closed and customer withdrawals frozen, which AAX blamed on “system maintenance”. AAX told users that AAX would use its best efforts to “resume regular operations for all users within 7-10 days”. By mid-December 2022, promises to users that the platform would go live again did not materialise, and users were prevented from accessing their accounts and making withdrawals and other transactions. The AAX Platform never resumed operations.

The application was heard on an ex parte basis because the Court was satisfied on the evidence that there was a risk that if notice were to be given to the Company and its principals, the purpose of the application (i.e., to investigate the affairs of AAX and the recovery of assets for the victims/users) would be defeated.

Dispensation with the Cross-Undertaking in Damages

Before turning to the substantive merits of the application for the appointment of provisional liquidators, Kawaley J considered the narrow but important point of whether the Petitioners, as retail investors with modest means, should be required to provide a cross-undertaking in damages to the Company and to pay the costs of the provisional liquidators.

The general legal position is that a cross-undertaking in damages will not be required where the risk of loss for which compensation would not be an adequate remedy is outweighed by the risk of injustice to the applicant if the order is not made without notice. However, the rule (as it relates to the appointment of provisional liquidators) appears at first blush to be mandatory in nature and is set out at Order 4, rule 3 of the CWR, as follows:

  1. “The applicant shall give an undertaking to the Court to pay –
    1. any damage suffered by the company by reason of the appointment of the provisional liquidator; and
    2. the remuneration and expenses of the provisional liquidator, in the event that the winding up petition is ultimately withdrawn or dismissed.
  2. The Court may require the applicant to give security for the applicant’s undertaking in such manner as the Court thinks fit.”

The main question was whether, upon an interpretation of the CWR, the cross-undertaking as to damages requirement is mandatory or discretionary. Justice Kawaley concluded that, whilst on the face of it the CWR appears to impose a mandatory requirement for a cross-undertaking in damages to be given, if an undertaking is mandatory, it could not validly be construed as operating to exclude a class of litigants from their right of access to the Court. Furthermore, it could not have been the intention for CWR Order 4, rule 3 to deprive the Court of the jurisdiction to waive the requirement of the undertaking in circumstances where, inter alia:

  1. There is a prima facie case for winding-up;
  2. Provisional liquidators are sought to be appointed to investigate fraud and/or to prevent a dissipation of assets;
  3. The company is no longer trading and the risks of damage to the company are negligible;
  4. The company’s creditors are all or mostly ordinary consumers who lack the means to offer any meaningful cross-undertaking in damages and so the effect of requiring strict compliance with the rule literally read would be to stifle the applicants’ ability to obtain any prompt and effective relief, contrary to the spirit (if not the letter) of their fundamental right of access to the Court under section 7 of the Bill of Rights.

Kawaley J found that the word “shall” in CWR Order 4, rule 3 will likely mean “shall usually”. In the circumstances of the case before the Court, Kawaley J found that the Court’s discretion to dispense with the generally obligatory cross-undertaking in damages was maintained where:

  1. an undertaking would deny the petitioner’s access to relief under section 104 of the Act to which they would otherwise be entitled and would further potentially infringe their rights under section 7 of the Cayman Islands Constitution Order 2009; and
  2. the risks of damage to the non-trading and rudderless Company (the management of which was publicly known to be subject to criminal investigation aboard), if the appointment was subsequently shown to be wrong were heavily outweighed by the risks of prejudice to the Petitioners and the public interest.

The importance of the principle of access to justice is such that it is necessary to flexibly construe the cross-undertaking requirement under the CWR, allowing the Court to dispense with the requirement in appropriate circumstances, depending upon the facts of the case. Any other interpretation would deny or impair a litigant’s right of access to the relief sought.

Court’s Analysis on the Appointment of Provisional Liquidators

When considering whether provisional liquidators should be appointed to the Company, Kawaley J examined the “four hurdles” applicants must overcome on such an application (as identified by Justice Doyle in Re ICG I ):

  1. “The presentation of the winding up petition hurdle”: the applicant must satisfy the Court that a winding up petition has been duly presented and a winding up order has not yet been made;
  2. The “standing hurdle”: the applicant must satisfy the Court that the applicant has standing to make the application i.e., the applicant is a creditor, contributory, or the Cayman Islands Monetary Authority;
  3. The “prima-facie case hurdle”: the applicant must satisfy the Court that there is a prima facie case for making a winding up order; and
  4. The “necessity hurdle”: the applicant must satisfy the Court that the appointment of the provisional liquidator 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 on the part of the company’s directors.

The Court held that the Petitioners satisfied the four hurdles in that:

  1. A winding up petition was duly presented and a winding up order was not yet made.
  2. The Petitioners were non-contractual contingent creditors of the Company and had standing to make the application as a result of their tangible interest in the Company. The scope for standing to prove as a contingent creditor (under section 139 of the Act) is very broad; and non-contractual claims such as damages for fraud, qualifies as sufficient proof.
  3. There was a prima facie case for making a winding up order. On the evidence, the Company was unable to pay its debts pursuant to the Act, and alternatively on the just and equitable grounds because of “the obvious (and seemingly incontrovertible) need for an investigation.”
  4. There was a clear need to prevent the dissipation of assets or mismanagement by the Company’s directors, which the Court labelled as the ‘slam-dunk’ point because the Company’s directors have either absconded with assets, including AAX’s users’ assets, or are incommunicado.

The Court granted the requested order appointing the provisional liquidators, as well as confidentiality, sealing, and gagging orders thereby delaying service and notice requirements to enable immediate asset and record conservation steps to be taken by the provisional liquidators.


This decision provides guidance on the application of rules relating to cross-undertakings in relation to an application for the appointment of provisional liquidators. It also serves as a reminder that the Court is prepared to use its inherent discretion in a manner that is consistent with the “recognised public interest in protecting the reputation of the Cayman Islands as a well-regulated financial centre” and to enable access to justice by “retail creditors of companies set up to conduct global business on a mass ‘retail’ scale [who may otherwise] have no effective access to interim relief against corporate fraud and mismanagement.”.

This decision should be of interest to litigants, insolvency practitioners and attorneys alike, particularly given the limited local case authority on the dispensation of the cross-undertaking in damages requirement in provisional liquidation applications.

The Baker and Partners Cayman Islands team acted for the Petitioners. For more information about how we can assist you to find straightforward and practical solutions for your needs, visit our website at Baker and Partners.