A Dispute With The Company Or Between Shareholders? The Characterisation Of Just And Equitable Winding-up Petitions
|25 August 2022
|Corporate/Commercial Law, Corporate and Company Law, Directors and Officers, Shareholders
|Ms Gemma Lardner and Corey Byrne
The Grand Court of the Cayman Islands has provided welcome guidance to Cayman Islands-incorporated companies and their shareholders on the question of when a contested petition to wind up a company on the just and equitable ground will be considered a dispute between the petitioning member and the company which is the subject of the petition, and when it will be considered a dispute between the petitioner and other members of the company (i.e. an inter partes proceeding).
The decision of Re Madera Technology Fund (Madera) follows the 2021 judgment of Segal J in Re China Shanshui Cement Group1 and outlines a number of principles for the court to apply when considering whether to join other shareholders to a just and equitable winding up petition proceeding.
Subject matter or participant?
A member or shareholder of a Cayman Islands-incorporated company may present a petition seeking orders that the company be wound up on the basis that, in the opinion of the court, it is just and equitable to do so.2 Once a petition has been presented, the petitioner must file a Summons for Directions seeking directions on the conduct of proceedings, including as to whether the proceeding should be treated as a proceeding against the company, or as an inter partes proceeding between one or more members of the company as petitioner and one or more members as respondent.3 If the court determines that the petition should be an inter partes proceeding, the participating shareholders must be joined as respondents, with the company continuing to participate on a nominal basis only (such as for the purposes of giving discovery).4
An order that a winding up petition is an inter partes proceeding will determine, among other things, whether the company's assets may be used to fund the defence of the petition, and the extent to which other shareholders in the company will participate in the proceedings.
In some cases, such as in tightly held companies or where the board of the company is deadlocked, it may be readily apparent to the court that the company is unable to participate and the dispute should properly be characterised as an inter partes proceeding. However, in other cases, such as Madera, it is less clear cut.
Facts in Madera
Madera Technology Fund (CI) Ltd (the company) is an exempted limited company incorporated in the Cayman Islands which operates as a feeder fund. At all relevant times, the company had two directors who collectively held 6.4% of shares in the company...
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