Offshore Litigation

Blog

Offshore Litigation

Contributors

Jonathan Addo
Jonathan Addo
  • Jonathan Addo

  • Partner
  • British Virgin Islands
Ian Mann
Ian Mann
  • Ian Mann

  • Partner
  • Hong Kong
Nick Hoffman
Nick Hoffman
  • Nick Hoffman

  • Partner
  • Cayman Islands
Vicky Lord
Vicky Lord
  • Vicky Lord

  • Partner
  • Shanghai
Chai Ridgers
Chai Ridgers
  • Chai Ridgers

  • Partner
  • Hong Kong
William Peake
William Peake
  • William Peake

  • Partner
  • London
Peter Ferrer
Peter Ferrer
  • Peter Ferrer

  • Partner
  • British Virgin Islands
Jeremy Child
Jeremy Child
  • Jeremy Child

  • Partner
  • London
Claire Goldstein
Claire Goldstein
  • Claire Goldstein

  • Partner
  • British Virgin Islands
Jayson Wood
Jayson Wood
  • Jayson Wood

  • Partner
  • Cayman Islands
Phillip Kite
Phillip Kite
  • Phillip Kite

  • Partner
  • London
Stuart Cullen
Stuart Cullen
  • Stuart Cullen

  • Partner
  • British Virgin Islands
Lorinda Peasland
Lorinda Peasland
  • Lorinda Peasland

  • Consultant
  • Hong Kong
Paul Madden
Paul Madden
  • Paul Madden

  • Partner
  • Cayman Islands
Jessica Williams
Jessica Williams
  • Jessica Williams

  • Partner
  • Cayman Islands
Paula Kay
Paula Kay
  • Paula Kay

  • Partner
  • Hong Kong
Andrew Thorp
Andrew Thorp
  • Andrew Thorp

  • Partner
  • British Virgin Islands
Henry Mander
Henry Mander
  • Henry Mander

  • Partner
  • Cayman Islands
Andrew Johnstone
Andrew Johnstone
  • Andrew Johnstone

  • Partner
  • Hong Kong
Nicola Roberts
Nicola Roberts
  • Nicola Roberts

  • Partner
  • Hong Kong
  • Singapore
Julie Engwirda
Julie Engwirda
  • Julie Engwirda

  • Partner
  • Hong Kong
Paul Smith
Paul Smith
  • Paul Smith

  • Partner
  • Cayman Islands

Cayman Islands Court of Appeal recasts the law regarding validation orders in a winding up proceeding

The Cayman Islands Court of Appeal delivered a significant judgment earlier this month on validation orders pursuant to section 99 of the Companies Law in Tianrui (International) Holdings Company Limited v China Shanshui Cement Group Limited (unreported, 18 February 2020).

Section 99 renders void, absent a court order, dispositions of a company’s property or transfers of its shares that take place between presentation of a winding up petition and the making of an order for the company’s winding up. The Court may make an order validating a disposition or share transfer.

The Court of Appeal’s judgment is significant because it rejects the approach that evolved through a series of Grand Court decisions that draws principled distinctions between solvent and insolvent companies and company transactions within and outside of the ordinary course of business. These distinctions had the practical effect of making it easier to obtain a validation order in some circumstances, and shifting the burden of proof onto those challenging the application for such an order rather than those seeking it.

The Court of Appeal held that the fundamental purpose of section 99 is to maintain the company’s status quo pending resolution of the winding up petition and, in relation to share transfers, rejected the previously widely accepted rationale that the objective of the section was to prevent holders of partly paid shares transferring them to those unable to pay the balance owing.

The Court of Appeal’s judgment is of particular significance in the Cayman context because the key remedy for minority shareholder oppression is the just and equitable winding up. The Court of Appeal rejected the presumption that appears to have developed in favour of validating transactions proposed by the company (acting through its majority shareholder appointed directors) merely because the company was solvent. The Court of Appeal held that, regardless of solvency, the court’s task is to ensure that the proposed transaction is consistent with the purpose of section 99 and for the benefit of the company and those interested in the value of its assets.

The decision is also significant for the one thousand or so Cayman Islands companies listed on the Hong Kong Stock Exchange. Legal title to shares in those entities is typically held on behalf of their beneficial owners by the Hong Kong Securities Clearly Company Nominees Limited to facilitate the trading of those shares through the Central Clearing and Settlement System. In Tianrui, the Court of Appeal appeared to accept expert evidence that, by operation of Hong Kong’s Securities and Futures Ordinance, share transfers conducted through CCASS could not subsequently be unwound by a liquidator. 

Cayman Islands Court of Appeal recasts the law regarding validation orders in a winding up proceeding

Leave A Comment