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The devil is in the details - contracting out of winding up a Cayman company

03 June 2024

In the Cayman Islands ('Cayman') the Companies Act (2023 Revision) ('Act') Section 95 (2) states as follows:
"The Court shall dismiss a winding up petition or adjourn the hearing of a winding up petition on the ground that the petitioner is contractually bound not to present a petition against the company."
The judgment of His Honour Justice Segal dated 31 May 2024 in In the Matter of KES Power Limited (Unreported FSD 193 of 2023 (NSJ)) looked at this section of the Act where a petition for winding up had been presented by a shareholder on the grounds that it was just and equitable that the company be liquidated. An application was made to strike out the petition as it was asserted that a shareholders agreement (the 'SHA') prohibited the petitioning shareholder from initiating the winding up by presenting a petition on the just and equitable basis.
HHJ Segal's decision was that, based on the construction of the relevant wording of the SHA, the petitioning shareholder was not prevented from initiating the winding up by presenting a just and equitable petition. The main takeaways from the decision are:

  • if it is intended that a contract prevent a shareholder from initiating a just and equitable winding petition against a company, that contract should specifically and unequivocally state that. We think that this decision makes clear that drafters of such provisions should not use generic words but list all the exact things the shareholder is prohibited from doing that could lead to winding up of a company, e.g. voting for winding up, presenting a petition on grounds of failure of substratum, presenting a petition on just and equitable grounds, seeking a winding up by the court etc.
  • if an agreement not to wind up a company may be unenforceable (e.g. based on the governing law of that contract), that does not mean the parties cannot have made that agreement.
  • although not necessary to decide in this case HHJ Segal commented that:
    • he did not think that section 95(2) of the Act was restricted only to creditor petitions and that the unqualified wording of the section does encompass agreements by shareholders not to initiate a winding up of a company by presenting a petition.
    • the judgment of Rix JA in Re: Rhone Holdings L.P. [2016 (1) CILR 273] makes it clear that an agreement not to present a winding up petition is not contrary to the public policy of Cayman, as was argued by the petitioners.

This judgment provides good guidance for those drafting corporate governance documents and those interpreting the rights of stakeholders in a company to petition to wind it up. In addition, HHJ Segal's comments on the scope and applicability of section 95(2) of the Act emphasise that the Grand Court, if it was required to do so to reach a decision on the section, will follow the position taken by the Cayman Islands Court of Appeal in Re: Rhone Holdings L.P.  and Re: China CVS (Cayman Islands) Holding Corporation et al [2020 (2) CILR 201].

Whether you need to draft a contract precluding the right to wind up a Cayman company or whether you want to know if your contract already precludes winding up by creditors or shareholders, we at Bedell Cristin can help you get that right.


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