The Grand Court’s recent decision in Re Asia Private Credit Fund Limited (In Voluntary Liquidation) (unreported, 19 March 2019) considered a successful application under section 131 of the Companies Law to bring the voluntary liquidation of a company under the Court’s supervision notwithstanding the company’s solvency.
The statutory regime for liquidating Cayman Islands companies reflects the public policy interest that prevails in common law jurisdictions in favour of tasking the winding up of insolvent companies to properly qualified and independent liquidators who exercise statutory powers under the Court’s supervision. A solvent company, on the other hand, may be wound up by any person so appointed by the company – there are no qualifications or independence requirements.
The threshold consideration of (in)solvency does not, however, always reflect the merits in favour of Court supervision and independent investigation into a company’s affairs, and the Courts have long recognised that a winding up order may be made on the application of a shareholder in respect of a solvent company where such an investigation is warranted.
What avenues are open to a shareholder where the company is already in a voluntary liquidation? This question is more likely to arise in the mutual funds context. Companies that operate as mutual funds may not be rendered insolvent by reason of significant loss causing events (for example, a fraud at the hands of the investment manager, or the negligence of its directors) because capital has been injected into the company by way of investment by shareholders rather than loans by creditors. Typically, investors will have limited (or no) rights under the constituent and investment documents to information or to effect changes in management. Investor agitation may be met with a pre-emptive appointment of a voluntary liquidator before the investor has the opportunity to petition the Court for appointment of official liquidators on the just and equitable ground.
In those kinds of circumstance, an application to the Court under section 131 is a powerful tool by which a shareholder can seek Court supervision of the liquidation, and appointment of independent and qualified liquidators, on the basis that supervision will facilitate a more effective, economic or expeditious liquidation in the interests of contributories and creditors.
In Asia Private, on the application of the fund’s sole shareholder, the Court was satisfied that the substantial decrease in the company’s net asset value warranted the granting of the supervision order. In doing so, the Court confirmed that the wording of section 131 was broad and should be interpreted purposively.