By section 104(2) of the Companies Act, a creditor, contributory or the CIMA may apply for the appointment of a PL on the grounds that: (a) there is a prima facie case for a winding up order; and (b) the appointment of a PL is necessary to prevent the dissipation or misuse of company assets, prevent the oppression of minority shareholders, or to prevent mismanagement by the company’s directors.

Given that the appointment of a PL is frequently terminal and ousts management pending the winding up hearing, the appointment of a PL requires the most anxious consideration (Rimer LJ in Revenue and Customs Commissioners v Rochdale Drinks Distributors Ltd).

In line with the anxious approach, Justice Doyle was not persuaded on the evidence to exercise his discretion to press the nuclear button and appoint a PL. The judgment summarises the law in the Cayman Islands and the key findings are:

1. There are four main hurdles that an applicant must jump:
   1. The presentation of the winding-up hurdle
   2. The standing hurdle
   3. The prima facie case hurdle
   4. The necessity hurdle

2. Given the consequences, there is a heavy burden on applicants and clear and strong evidence is required

3. Notice should be given to the respondent unless exceptional circumstances apply

4. If a lesser remedy can protect the applicant, then a PL should not be appointed

5. A prima facie case is established if the allegations are supported by evidence and have not been disproved

6. The applicant must prove the appointment is necessary and the Court will decide on the evidence before it

7. Whilst prior mismanagement is relevant, the Court is concerned with future mismanagement

8. The power to appoint a PL is discretionary and each case will be determined by its own facts and circumstances

Economic downturns have traditionally led to an increase in fraudulent activity. Given the current macro-economic climate and global uncertainty, this is a timely reminder that a PL will be appointed in the Cayman Islands, in the appropriate circumstances. The suspicion and/or discovery of fraud by stakeholders necessitates immediate and urgent action to ensure that their interests are adequately protected pending the determination of the underlying dispute. The appointment of a PL is a key tool in the armoury of creditors or shareholders if it is deployed in appropriate circumstances and where the applicant can satisfy the heavy burden of necessity.