The need for an investigation: a freestanding basis to wind up a company?
In a recent decision of the Grand Court in Seahawk China Dynamic Fund, Justice Doyle considered whether the need for an investigation can be a self-standing ground for winding up a company. In dismissing the petition, Justice Doyle recorded his preliminary view that the need for an investigation may be a sufficient ground for winding up a company by itself, but he left the issue open for determination, suggesting that this position is not settled law in the Cayman Islands, notwithstanding prior cases on the issue. Harneys acted for the successful respondent to the petition.
A petition to wind up a company brought on a just and equitable basis may (or, indeed, may not) be premised on the need to investigate that company’s affairs. In this particular case, the need to investigate the affairs of Seahawk China Dynamic Fund was among the reasons underlying a contributory’s petition to the Grand Court to wind up a solvent company.
It was argued by minority shareholders who opposed the petition that there was no fully reasoned authority in the Cayman Islands regarding whether the need to investigate the affairs of a company could satisfy the just and equitable standard in isolation. While the Grand Court in GFN Corporation Limited 2009 CILR 135 stated that the authorities have clearly established that the court has jurisdiction to wind up a company on the basis that an investigation into its affairs is necessary, the minority shareholders submitted that the Court of Appeal in GFN 2009 CILR 650 overturned part of the Grand Court’s judgment in that case.
Justice Doyle did not accept the argument advanced by the minority shareholders, but acknowledged that the Court of Appeal in GFN left the specific issue as to whether the need for an investigation stands in isolation open for further consideration when the need arises. His Lordship referred to a number of Cayman Islands judgments which concluded that the need for an investigation can in fact stand by itself. Accordingly, His Lordship held that if he was going to depart from that line of reasoning, he would need to be satisfied that the other first instance judges were “plainly wrong”. His Lordship was not convinced that they were. Like the Court of Appeal in GFN, Justice Doyle was not required resolve the issue in the circumstances of the case before him. Fundamentally, the issues that the petitioner claimed required investigation in this case had already been addressed in the course of the proceedings (not least by way of two reports completed by joint provisional liquidators appointed on an ex parte basis pending the hearing of the petition).
From a legal standpoint, the door may remain ajar (albeit not wide open) to argue that an independent investigation is not sufficient to take the “drastic step of making a winding up order and in effect killing the Company”. From a practical perspective, a company facing a winding up petition may consider welcoming an open independent investigation into its affairs by JPLs or by other means in order to nullify any concerns, such that the court may conclude, as Justice Doyle did, that “another investigation is simply not necessary”.