In a recent decision1, the
In the Matter of
The Petitioner's application to wind up Seahawk China
The Petitioner alleged that
The Petitioner alleged that Seahawk China was operated as a quasi-partnership, and that the relationship of mutual trust and confidence had irretrievably broken down on account of the Complaints. In addition, the Petitioner claimed that (i) that there had been a breach of a legitimate expectation by his removal as a director; (ii) he had lost confidence in
The Petitioner therefore applied for Seahawk China to be wound up on a just and equitable basis.
When will a winding up order be made on a just and equitable basis?
In a helpful summary of the grounds upon which a winding up order may be made on a just and equitable basis, Doyle J confirmed that such relief was available if it can be established by a contributory that:
- there has been a justifiable loss of confidence in management
- there has been a lack of probity in the conduct of the affairs of the company
- where the company can be considered a quasi-partnership, there has been an irretrievable breakdown in trust and confidence between the participating members
The existence of these grounds have been confirmed in various authorities including more recently in
A further ground was relied upon by the Petitioner which, prior to this case, had been accepted to be a free-standing basis upon which a company could be wound up, namely the need for an investigation into the affairs of the company. However, in opposition, the minority shareholders asserted that no such independent ground existed.
In describing the position of the minority shareholders as 'courageous' and 'bold', Doyle J noted that a number of authorities in Cayman had unequivocally accepted the need for an investigation as a self-standing ground for making a winding up order2. However, and notwithstanding his preliminary view that the earlier decisions recognising such a ground were not plainly wrong, Doyle J declined to determine the issue as, in the circumstances of the case, it was unnecessary to do so. This was due to the fact that that based upon on the evidence before it the Court found that the relationship between the Petitioner and
The Court found the Petitioner's credibility to be in issue, particularly as compared to that of
Importantly, the Court also found that even if the Petitioner had made out his case against
Conclusion
As noted above, this decision provides a helpful summary of a number of important issues when dealing with a shareholder's ability to wind up a company on the just and equitable basis, including the correct approach to assessing the reliability and credibility of witnesses, the need for a petitioner to act reasonable in pursuing any alternative remedies which may be available and the overall approach which the Court will take when dealing with an application to wind up a solvent, profitable company. The decision demonstrates that the threshold which must be met to make a winding up order against such a company is high and that the Court will not make such a draconian order simply at the behest of a disgruntled investor, particularly in circumstances where a reasonable alternative remedy is available.
What is likely to be of great interest going forward is how the Court will react when forced to grapple with the issue of whether the need for an independent investigation is sufficient to take the serious step of making a winding up order. While the issue appears to have been left open, the weight of the authorities to date, together with the preliminary indication given by Doyle J that those authorities are not plainly wrong, may mean that a company (or other interested party) who seeks to deny the existence of this ground may face an uphill struggle.
Footnotes
1. In the Matter of
2. Judgment at [80] referring to
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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