Taking A Closer Look At The Law Relating To The Appointment Of Inspectors

• Law Firm: Walkers
• Subject Matter: Corporate/Commercial Law, Corporate and Company Law, Directors and Officers, Shareholders
• Author: Mr Barnaby Gowrie, Siobhan Sheridan and Luke Petith
• Published date: 06 February 2023

Synopsis

In the matter of Avivo Group (Cause No. FSD 145 of 2022 (RPJ)), Walkers, instructing Ms Clare Stanley KC of Wilberforce Chambers, acted as Cayman Islands counsel to Avivo Group (the 'Company') in respect of its successful opposition to Agricultural Development Fund's ('ADF') motion for the appointment of inspectors pursuant to Section 64 of the Cayman Islands Companies Act (as amended) (the 'Companies Act').

Introduction

By Notice of Originating Motion dated 1 July 2022, ADF (in its capacity as shareholder, holding approximately 20% of the issued shares of the Company) sought the appointment of inspectors to examine the affairs of the Company pursuant to Section 64 of the Companies Act (the 'Motion') on the grounds of certain purported concerns regarding the conduct, management and operation of the Company (for example, the role of the investment manager).

As at the date of the hearings in respect of the Motion, In the matter of Fortuna Development Corporation was the only reported Cayman Islands case law authority concerning Section 64 of the Companies Act: Henderson J stated that 'the power to appoint inspectors is used rarely in the Cayman Islands'. In that case, inspectors (having been appointed in lieu of provisional liquidators) sought directions, amongst other things, regarding the scope of their investigation; the decision did not, therefore, address the grounds and circumstances in which the Grand Court of the Cayman Islands (the 'Grand Court') will be satisfied that it is appropriate to appoint inspectors pursuant to Section 64 of the Companies Act.

Analysis

Parker J, accepting the submissions made by Leading Counsel to the Company, held that a number of 'basic matters' may be derived from a plain reading of Sections 64 to 68 of the Companies Act, as follows:

(i) the Grand Court (or the company by special resolution) has the statutory power to appoint inspectors to examine into the affairs of a company upon the application of the holders not less than 1/5th of the issued shares of a company;

(ii) following the inspectors' examination, inspectors are required to prepare a report of their opinions to the Grand Court (not the applicant), and the 'default rule' is that the report shall not be open to public inspection;

(iii) the inspectors' report is admissible in legal proceedings as evidence of the 'opinion' of the inspectors in relation to the matters the subject of the report (Parker J referred to the English case of Gasco [1984] 1 WLR 271, in which Gibson J held that an inspectors'...