Harneys Cayman Secures First Strike Out Of A Winding Up Petition Under Section 95(2) Of The Companies Law

On 16 September 2015 the Grand Court of the Cayman Islands handed down its written reasons for striking out a winding up petition under Section 95(2) of the Companies Law (2013 Revision) (the Law). This is the first time the Grand Court has decided the fate of a petition based on the application of Section 95(2), which provides as follows:

"95 (2) The Court shall dismiss a winding up petition or adjourn the hearing of a winding up petition on the ground that the petitioner is contractually bound not to present a petition against the company.".

Based on the applicability of Section 95(2), the Court, following a two day hearing, found that the Petitioners were contractually bound not to present a winding up petition, and ordered that the Petition be struck out as an abuse of the process of the Court with indemnity costs being awarded to the Respondents, represented by Harneys.

The Facts

A winding up petition (the Petition) was presented on 22 July 2015 by Reservoir Capital Master Fund II LP and three related entities (Reservoir) who are the limited partners of Rhone Holdings, LP (the Partnership), a Cayman Islands exempted limited partnership. The grounds for the Petition, presented on the just and equitable ground, included allegations of dissipation or misuse of the Partnership's assets and mismanagement by its investment manager, RCM Capital Management LLC and Ritchie Capital Management Ltd (RCM), which also controlled Rhone Capital (GP) Ltd, one of the two general partners of the Partnership (collectively the Respondents), the other controlled by Reservoir. Following an ex parte hearing, the Court appointed provisional liquidators to the Partnership. By way of response, the Respondents sought orders that the Petition be struck out as an abuse of process and that the provisional liquidators be discharged.

The Respondents' Arguments

Aside from a strenuous rebuttal of Reservoir's allegations, there were four main grounds under which the Respondents argued that the Petition should be struck out as being an abuse of process of the Court. These were essentially as follows:

It was an abuse of process to present a petition when the Petitioners were precluded from doing so under the Partnership's Limited Partnership Agreement (LPA); There were alternative reliefs or remedies to winding up available to Reservoir in the circumstances; Reservoir lacked any tangible interest in the winding up, and thus had no standing to present a winding up...