Shareholder Relief: Eastern Caribbean Appeal Court Considers The Just And Equitable Grounds For Winding Up A BVI Company

In Wang Zhongyong -v- Union Zone Management Ltd [BVIHCMAP 2013/0024] ("Wang"), the Eastern Caribbean Court of Appeal ("ECCA") has had its first opportunity to review the legal principles which apply where a shareholder of a BVI company seeks a self-standing order winding up the company on the just and equitable ground under s.162(1)(b) of the Insolvency Act 2003 ("IA"). Hitherto, all the cases considered by the ECCA where such relief has been claimed have been cloaked in an application under s.184I of the Business Companies Act ("BCA"), the "unfair prejudice" provision, to which different considerations apply.

The Court's jurisdiction to appoint a liquidator of a British Virgin Islands ("BVI") company on the application of a member is derived from IA s. 162(1) which permits the Court to make such an appointment either (a) if the company is insolvent (the member first having obtained the permission of the Court to proceed on those grounds under IA s.162(3)), or (b) if the Court "is of the opinion that it is just and equitable that a liquidator should be appointed"1.

The IA does not prescribe the factors to which the Court may look in forming its opinion under IA s.162(1)(b). In the absence of any local legislation or case law to direct its approach, the BVI Court will look to the common law of England2 and in Wang, the ECCA accordingly looked to English case law for guidance as to what constitutes "just and equitable" for the purposes of BVI law.

The ECCA identified the central question in such cases as being the resolution of the interplay between the strict legal rights and obligations of the members of a company, as set out in the company's Memorandum and Articles of Association, any applicable shareholder agreements and the BCA, and equitable principles which superimpose a requirement of "fairness" over and beyond those strict legal rights. In formulating its own approach to this issue, the ECCA echoed the expression of principle in the speech of Lord Hoffman in O'Neill - v- Phillips3, and said this:

"The relationship and rights of shareholders of a company inter se, is a contractual one as set out in the articles of association of the company and any applicable and enforceable shareholders' agreement, supplemented by relevant statutory provisions. It is a fundamental principle of company law that the majority rules. This means that the will of the majority, as expressed by and through the exercise of their voting power in a general...