It is well-established that the circumstances in which the just and equitable jurisdiction may be invoked are not closed2. The cases typically involve allegations that there is some deadlock in the management of the company, that a constitutional vacuum exists, that the substratum has failed, or that there has been some fraud or mismanagement.
In the case of Bristol Joint Stock Bank, Justice Kekewich held that it was just and equitable for the court to order the winding up of a company if what the company was formed to do can no longer be done or if the company has ceased to carry on its business and the carrying on of the business has become, in a practical sense, impossible. For some years, the courts in the BVI and the Cayman Islands debated the need to show impossibility. InAris v. Quantek3, Justice Bannister took the view that the minority could only overcome the will of the majority if they could show that the further operation of the fund was impossible. In the Cayman Islands, at least in the investment funds context, the view had been expressed that it was only necessary to show that further business was merely impracticable4. At least outside of the investment funds context, that debate appears to have been resolved across the jurisdictions in a manner substantially consistent with the approach of Justice Bannister in the BVI5.
But what of a case where the company concerned is in some form of soft wind-down? With one unreported exception, the BVI courts have mostly resisted the temptation to appoint liquidators in such circumstances. There are two justifications for that refusal: A view that the company’s activities extend to the distribution of assets such that continuing the business, in that sense, was not impossible, and the practical point that if the directors are capable of winding down the affairs, then why appoint a liquidator to do so?
On June 14, 2018, the Court of Appeal delivered a decision in Delco Participation SA v. Green Elite Ltd.,6 which touches upon both of these issues. In that case, Green Elite was an asset holding company that had sold its main asset some years before. The company opposed the application to wind it up on just and equitable grounds on the basis that its business could include dealing with the proceeds of the sale. Green Elite also argued that its commercial purpose could extend to acting as trustee of the assets and that this purpose subsisted. At first instance, the court accepted that the purpose of the company could extend, necessarily, to the process of dealing with the proceeds of sale and thus dismissed the petition on the grounds that continued business had not become impossible.
The Court of Appeal disagreed. In its judgment, the Court of Appeal appears to have accepted that the relevant touchstone was whether the life of the company had come to an end, such that it was “impossible” to carry on the business of the company. The court took the view that the winding-up process was ancillary to the main purpose and that it was far from being part of its business; it held that the judge had conflated the practical need for Green Elite to be wound up with its business purpose.
In practice, companies are frequently wound down without the assistance of liquidators, and sometimes with the assistance of professional directors or chief restructuring officers. The articles of a company specify the waterfall on any distribution, and the BVI Business Companies Act 2004 provides a code for the solvent liquidation of companies outside of a court process. This process is led by the directors and shareholders. At first sight, there is some novelty to the view that the business of the company ceases immediately upon the sale of its asset. If the winding down of a company is necessarily to be divorced from its business purpose, where does that leave the soft wind-down?
Another interesting aspect of the decision in Green Elite is the court’s opinion in relation to alternative remedies. Section 167 of the Insolvency Act 2003 provides that the court should not appoint a liquidator if there is some other remedy available and the applicant is acting unreasonably in not exercising that remedy. The Court of Appeal found that it was reasonable for the applicant not to have pursued unfair prejudice proceedings.
The more significant point for the future is that the court appears to have decided that in principle, unfair prejudice proceedings are not appropriately pursued in a loss of substratum case. On the facts in Green Elite, the court held that “any other remedy would be hampered by time constraints, considerable expense and most significantly an uncertain outcome.” If the winding-up petition was entitled to succeed, it is difficult to understand what the court meant by unfair prejudice proceedings having an uncertain outcome. If a coach and horses has not been driven through the statutory obligation to pursue alternative remedies, it may be that the answer is to be found in the court’s concern that the delay and cost inherent in such proceedings might not have been justified by the particular circumstances in Green Elite.
Whatever view is taken of the decision in Green Elite, it has undoubtedly opened the door further to just and equitable petitions in the British Virgin Islands.
1 See as an example Maxymych v. Global Megatrend BVIHCV 246/2006 in which Appleby appeared. Appleby also represented the defendant in In re Oledo Petroleum Ltd., where the Court of Appeal refused leave to bring a derivative action on the grounds that unfair prejudice proceedings were a sufficient alternative remedy.
2 See Re Davis and Collett Ltd. [1935] Ch 693 at 701.
3 BVIHCM 129/2010.
4 See Re Heriot African Trade Finance Limited (FSD no 87 of 2010) and Re Belmont Asset Based Lending Ltd.
5 See the subsequent Cayman decision of Justice Clifford in Re Harbinger Class PE Holdings (Cayman) Ltd.
6 BVIHCVAPP 2017/0129.
