Shareholder Disputes: When Is Just And Equitable Liquidation Appropriate?

Unfair prejudice claims are commonplace in the British Virgin Islands (BVI) following the introduction of bespoke provisions in the BVI Business Companies Act 2004 and have all but replaced old fashioned just and equitable winding-up petitions. The Court of Appeal, in Wang Zhongyong & Ors v Union Zone Management Limited BVIHCMAP 2013/0024 (Union Zone) however, for the first time considered a standalone just and equitable petition brought under section 162 Insolvency Act 2003 (IA)(liquidation on the just and equitable ground) rather than alongside an unfair prejudice claim (although that was argued at first instance).

The facts in Union Zone were fairly typical. An offshore structure had been put in place to hold the shares in two valuable pharmaceutical companies based in the Peoples' Republic of China (PRC). In 2011 the minority shareholders in the principal BVI company within the structure (Union Zone) brought a claim alleging that the affairs of Union Zone were being conducted in a manner which was unfairly prejudicial to them. The minority shareholders claimed that there had been a common understanding which led to the creation of a quasi-partnership between the shareholders and that the sole purpose for which Union Zone had been created, namely to obtain a public listing, had failed.


Following the English decisions in Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 (Westbourne Galleries) and O'Neill v Phillips [1999] 1 WLR 1092, the Court of Appeal's decision suggests that it will not lightly interfere with commercial transactions and relations by winding companies up on the just and equitable ground. The Court of Appeal noted however that, as in England, the grounds for winding up a company on this basis might include exclusion from the management of the company in circumstances of a quasi-partnership, loss of substratum or deadlock. This list is not, however, exhaustive. The Court of Appeal also quoted with approval Lord Wilberforce's oft cited statement in Westbourne Galleries that 'something more' is required to engage equitable principles. In this regard the mere breakdown in the relationship between shareholders is not normally enough. In order for this to justify winding up the company the breakdown must lead to a deadlock on the board or between the shareholders in a general meeting or constitute a breach of some underlying agreement as to the shareholders' rights of participation in the management of the company. On the...

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