Re Porton Capital: Applications To Set Aside Company Dissolutions Obtained By Fraud

• Published date: 11 April 2022
• Subject Matter: Corporate/Commercial Law, Criminal Law, Corporate and Company Law, White Collar Crime, Anti-Corruption & Fraud
• Law Firm: Collas Crill
• Author: Ms Jennifer Colegate and Mark Burrows

The Grand Court of the Cayman Islands' recent judgment in Re Porton Capital Inc and Porton Capital Limited provides useful guidance on the Court's jurisdiction to set aside company dissolutions obtained by fraud and the burden and standard of proof that must be discharged on such applications.

Porton Capital, Inc. and Porton Capital Limited (Companies) were both voluntarily wound-up and dissolved in 2018. The petitioner applied, some three years after the fact, to have the dissolutions set aside on the basis they were obtained by fraud. The crux of the petitioner's allegation was that the Companies' sole director and beneficial owner made a number fraudulent misrepresentations during the voluntary liquidation process as to the Companies' solvency and ability to pay their debts. Specifically, the petitioner alleged that the former sole director had concealed the existence of contingent claims and liabilities of the Companies. In light of those misrepresentations, the petitioner contended that the dissolutions of the Companies should be set aside as being procured by fraud, the Companies restored to the Register of Companies and official liquidators appointed to investigate the petitioner's claims.

The Court ultimately rejected the application on the basis that the petitioner failed to establish the former director had acted fraudulently. In doing so, it gave the following general guidance on applications to set aside company dissolutions:

1. There is no statutory jurisdiction in the Cayman Islands to set aside a company's dissolution, however the Court has jurisdiction to do so in situations where the dissolution was procured by fraud.
2. The Court should however only exercise that jurisdiction with "great caution"¹. This is especially so as the Cayman legislature has not enacted a statutory scheme by which dissolutions can be set aside, and there are competing policy considerations in regard to certainty and finality that weigh against such a scheme². Relying on previous Court of Appeal authority³, the Court concluded that:

...the local legislature of the Cayman Islands is to be taken to have made a deliberate decision not to introduce a statutory power to restore companies deemed to have been dissolved and to have preferred, in the interests of certainty and at the risk of occasional injustice, that dissolutions once concluded should not be disturbed⁴.

3. The burden of proof is on the petitioner/applicant to make good on the allegations of fraud.
4. The standard...