Another Chapter In The China Milk Saga

As a jurisdiction that currently has no formal restructuring regime, the appointment of a provisional liquidator has long since been utilised for the purpose of facilitating a corporate restructuring in the Cayman Islands.

A provisional liquidator may only be appointed following the presentation of a winding up petition against a company1. Pursuant to Section 94(1) of the Companies Law one of the persons2 able to petition to wind up a company is the company itself. This has historically resulted in directors of a company presenting a petition to wind up the company absent approval from the shareholders in general meeting or express authorisation in the articles.

This historic practice received judicial approval in the 2011 judgment of Jones J in re China Milk Products Group Ltd.3 in which it was held that the directors of an insolvent company could petition to wind up the company without approval of the shareholders.

Whilst convenient from the perspective of both directors of insolvent companies and the restructuring community generally, the decision in China Milk was considered to be contrary to the express provision of Section 94(2) of the Companies Law which provides that a company may petition for its own winding up on the following basis:

"Where expressly provided for in the articles of association of a company the directors of a company incorporated after the commencement of this Law have the authority to present a winding up petition on its behalf without the sanction of a resolution passed at a general meeting."

A plethora of articles was written in late 20154 when in her judgment in China Shanshui Group Limited5 Mangatal J rejected the position set out in China Milk. Here Mangatal J held that as a matter of statutory construction, directors could only petition to wind up a company if so authorised by either the articles or the members in general meeting. This position reflected the old English common law position as set out in Re Emmardart Ltd.6.

The ability to facilitate a 'soft' restructuring was therefore somewhat hampered. Whilst China Shanshui provided certainty and almost certainly reflects the literal reading of the Companies Law, it left directors of an insolvent company in a very difficult position in that they are unable to petition to wind up the company and therefore may find themselves personally liable for its debts incurred post-insolvency.

In the recent unreported judgment of McMillan J in CHC Group Limited (the...