OCTOBER 2013

Legal Expert Board

33

The court’s power is a discretionary one, but the petitioner can expect the making an immediate winding-up order unless the company has satisfied the burden that justifies the adoption of a different course.3

Where the company in good

faith disputes the debt and on substantial grounds, the petitioner does not have locus standi as a creditor and the petition is an abuse of process of the court.

By way of illustration, where a mutual fund has failed to pay redemption obligations, and the date for payment had passed, the shareholders, as creditors, have locus standi to petition.4

A petitioner may seek a compulsory winding up on the “just and equitable” ground on the basis that the purpose for which the fund was established can no longer be carried out and that the fund has therefore ceased to be viable,5

if the

circumstances are such that it has become impractical, if not actually impossible, to carry on its investment business

reasonable

in accordance with the expectations

of participating shareholders.6

Investors who put their money into mutual funds incorporated in the Cayman Islands have every reason to expect that the

1 2 3

4 5 6 7

In re Onyx Natural Resource 2007 CILR Note 6 In re GFN Corporation Limited 2009 CILR 650

In re HSH Cayman I GP Limited, HSH Cayman II Cayman II GP Limited, HSH Cayman V GP Limited and HSH Coinvest (Cayman) GP Limited [2010 1 CILR 157] 2010 (1) CILR 164

In re Matador Investments Limited Unreported In re Belmont Asset Based Lending Limited 2010 (1) CILR 83

In the Matter of Philadelphia Alternative Asset Fund Limited 2006 CILR Note 7 RCB and Six Others v. Thai Asia Fund Limited 1996 CILR 9

8 Heriot African Trade Finance Fund Limited v. Deutsche Bank (Cayman) Limited 2011 (1) CILR 34 9

10 11

In re Strategic Turnaround Master Partnership Limited 2008 CILR 447 Allied Leasing v. Banco Economico 2001 CILR 93 In re Fruit of the Loom Ltd. 2000 CILR Note 7b

its

companies’ affairs will be conducted in accordance with Cayman law, including the Companies Winding Up Rules.

There are strong policy considerations in favour of a fund being liquidated by qualified insolvency practitioners, rather than on an informal basis by its management, and shareholders should be entitled to expect liquidation to be carried out in accordance with the statutory winding-up regime.

A petition to wind up on the “just and equitable” ground would not ordinarily succeed when the act complained of was a valid exercise of the powers conferred by the company’s articles, unless that act was entirely outside what was contemplated by the members.7 Similarly, a claim based on the alleged loss of confidence in the directors will fail if the petitioners cannot show that their legitimate expectations had been de- feated.8

The just and equitable grounds can be used to apply for a remedy oppression of the minority, including ordering the pur- chase of shares.9

Upon hearing the winding up petition the Court may –dismiss the petition,10

adjourn the hearing conditionally or unconditionally, make a provisional order, or any other order that it thinks fit.

Since there are no specific statutory powers enabling the court to make administration orders over companies, the court has used its wide discretion to make a provisional to allow the company to restructure and refinance itself for the benefit of creditors and shareholders. The intention may be to salvage the company as a going concern. An example was where the provisional liquidation operated as a corollary to a successful Chapter 11 bankruptcy proceeding in Delaware. A holding company for an international group filed a winding-up petition in the Grand Court in order to achieve refinancing as a debtor in possession of its assets, pledging its subsidiaries’ shares as security for the debt. Provisional

liquidators were

appointed to oversee the company’s business and the refinancing process, under the control of the board of directors and the supervision of the court. The court expressly approved the refinancing package and granted an injunction restraining all proceedings against the company until further order. The final hearing of the petition was adjourned with liberty to restore it.11

LM By Ian Paget-Brown

www.lawyer-monthly.com