Chu V Lau ' The Privy Council Weighs In On Shareholder Deadlock And Winding Up A Company On 'Just And Equitable' Grounds

• Published date: 07 January 2021
• Subject Matter: Corporate/Commercial Law, Corporate and Company Law, Shareholders
• Law Firm: Collas Crill
• Author: Mr Simon Hurry and Sophia Moustras

The Judicial Committee of the Privy Council (the Privy Council) has recently had to consider when a company can and should be wound up on a just and equitable basis.

In Chu v Lau [2020] UKPC 24, the Privy Council considered the matter in the context of an appeal from the Court of Appeal of the Eastern Caribbean Supreme Court regarding a BVI company. However, like the BVI, Jersey's company law (as well as that of certain other offshore jurisdictions, such as Cayman and Guernsey) is similar to that in England (for example, Jersey's primary companies legislation, the Companies (Jersey) Law 1991 (CJL) is based on the United Kingdom Companies Act 1985) and English authorities are generally persuasive in Jersey in matters of company law, where there is no express Jersey authority or legislation regarding the point at issue. In particular, under the CJL, there is a similar discretion available to the Jersey courts to wind up a company on the same basis as that in Chu v Lau, i.e. where it is "just and equitable" to do so.

Read our guide which looks at the key things you need to know about winding up a Jersey company on just and equitable grounds here.

Background

Mr Lau and Mr Chu were business partners. They each owned 50% of the shares in a BVI company, Ocean Sino Limited (OSL). OSL had a wholly owned subsidiary, Asset Management Limited (PBM). OSL and PBM were Mr Lau's and Mr Chu's corporate vehicles for a joint venture with a state-owned entity of the People's Republic of China (PRC). The joint venture company was Beibu Gulf Ocean Shipping (Group) Ltd (Beibu Gulf), in which PBM held 49% of the shares. The remaining, and controlling, 51% of Beibu Gulf was held by a PRC corporate vehicle.

The relationship between Mr Lau and Mr Chu significantly deteriorated. Unsuccessful attempts were made to sever their many business relationships which led to numerous legal claims being made between them before the courts of Hong Kong.

In May 2015, Mr Lau applied to the BVI High Court (the BVI Court) for a just and equitable winding up of OSL, alleging:

• an irretrievable breakdown of trust and confidence between him and Mr Chu; and
• a functional deadlock in the management of OSL (and therefore PBM) at both board and shareholder level.

After a six-day trial in May and June 2017, the first-instance trial judge granted the winding-up order sought by Mr Lau and concluded that there was an irretrievable deadlock at board and shareholder level and that all of the trust and...