Court Of Appeal Guidance On Just And Equitable Winding Up Petitions

The recent judgment of the Cayman Islands Court of Appeal ("CICA") in Asia Pacific Limited v ARC Capital LLC1 explains the approach that the Court will take when considering an application to strike-out a contributory's just and equitable winding up petition which is based on an offer to purchase the petitioner's shares at fair value.

The decision also confirms the principles that the Court will apply when awarding indemnity costs where it is argued that a party has conducted proceedings improperly, unreasonably or negligently.

Facts

Trikona Advisors Ltd ("Trikona") was a Cayman Islands company which acted as investment advisor to an investment fund, Trinity Capital Plc.

Both the ultimate beneficial ownership and management of Trikona were split 50/50 between two individuals, or members of their families, Aashish Kalra and Rakshitt Chugh. Mr Kalra and Mr Chugh were both directors of Trikona and each had nominated one further director to the board. However the Court found that Trikona's affairs were managed solely by Mr Kalra and Mr Chugh and that the other two directors took no part in the company's management.

In the proceedings before the Grand Court, it was common ground that Trikona should be regarded as what is known as a "quasi-partnership" company.2 The Privy Council has described quasi-partnership companies as "[c]ompanies where the parties possess rights, expectations and obligations which are not submerged in the company structure".3 The Court went on to note that a feature of such companies is that "the legal, corporate and employment relationships do not tell the whole story... behind them there is a relationship of trust and confidence similar to that obtaining between partners, which makes it unjust or inequitable for the majority to insist on its strict legal rights."

In 2008 and 2009 a number of disputes arose, and the Judge found that by the end of 2009, the relationship between Mr Kalra and Mr Chugh had broken down. In December 2011 one of the registered shareholders through which Mr Kalra held his beneficial interest in Trikona ("Asia Pacific") commenced proceedings in Connecticut against Mr Chugh alleging breaches of fiduciary duty. Asia Pacific alleged that Mr Chugh had sabotaged Trikona and had stolen assets from the company and it sought damages of US$210 million.

Shortly after the commencement of the Connecticut proceedings, the director of Trikona nominated by Mr Chugh resigned and Mr Kalra and the director...