Maples Group - CaseClosed - March 2026

CaseClosed is the new publication from the Cayman Islands Dispute Resolution and Insolvency team providing summaries of key court decisions affecting Cayman Islands law and practice.

Insolvency and Restructuring

While there have been fewer Cayman Islands court implemented restructurings recently, the usual trend of the jurisdiction generating high value and often contentious insolvency and restructuring matters continues at a pace.

Key decisions provide guidance on: (i) when to use restructuring provisional liquidators and when to use restructuring officers in Re Asia Television Holdings Ltd (with case law continuing to develop the evidential bar required to be met for both the appointment of restructuring provisional liquidators and restructuring officers); (ii) the insolvency of segregated portfolio companies in In the Matter of ICM SPC; (iii) security enforcement in In the matter of Yeung Ka Man; (iv) where claims for shareholder misrepresentation sit

Authors

Nick Herrod +1 345 814 5654 nick.herrod@maples.com

Christian La-Roda Thomas +1 345 814 5577 christian.la-rodathomas@maples.com

Caroline Moran +1 345 814 5245 caroline.moran@maples.com

in the liquidation waterfall in In the matter of HQP Corporation Ltd and In the matter of Direct Lending Income Feeder Fund Ltd; (v) the consequences of submitting a proof of debt in Cayman Islands liquidation proceedings and whether certain clawback claims have extraterritorial effect in Conway & Others v Air Arabia PJSC; (vi) whether arbitral awards, judgment debts or court orders can form the basis of a statutory demand or winding up petition in In the matter of SIN Capital (Cayman) Ltd; and (vii) fee applications (both officeholders generally in CL Financial and restructuring officers in Re Holt SPC). Outside of the Cayman Islands the United States Bankruptcy Court (District of Delaware) considered the principles that would be applied to pre-action discovery applications by Cayman Islands liquidators in Farfetch

Mehreen Siddiqui +1 345 814 5394 mehreen.siddiqui@maples.com

Alasdair Munro +1 345 814 4437 alasdair.munro@maples.com

Marit Hudson +1 345 814 5416 marit.hudson@maples.com

Court appointed officeholders and restructuring

In the matter of Asia Television Holdings Limited1 – when will the Court appoint provisional liquidators for debt restructuring purposes?

IN A NUTSHELL

In declining to appoint provisional liquidators for debt restructuring purposes (“RPLs”), important guidance was given on: (i) the evidence the Grand Court (the “Court”) may require in support of such an application; and (ii) the parameters that may be applied as to whether restructuring officers or RPLs are the appropriate officeholder to appoint. Urgency must also be genuine. Comity and recognition (or any potential non-recognition) of Cayman Islands proceedings in the jurisdiction of the debtor’s centre of main interests (“CoMI”) may also weigh against a Cayman appointment where parallel proceedings exist.

The guidance provided will be useful when considering applications for both RPLs and restructuring officers and, in particular, the evidence required in support of those applications. While every case turns on its own facts, where there is no form of restructuring plan at all before the Court (and particularly where there is a failed plan with no consideration of how that plan could be taken forward), then the applicant may have a high bar to meet to persuade the Court to make the relevant appointment – whether that is for the appointment of restructuring officers or RPLs.

The question of when it may be appropriate to appoint restructuring officers or RPLs is one the Court continues to give guidance on and remains a space to watch.

BACKGROUND

The amendments to the Cayman Islands Companies Act which came into force in August 2022 bought two important developments to Cayman Islands restructuring law. First, the new restructuring officer regime. Secondly, the ability of the company to appoint provisional liquidators was considerably widened –with the Court given the ability to appoint provisional liquidators on the application of the company where it is appropriate to do so (the amended section 104(3) of the Companies Act (2023 Revision)(“Section 104(3)”) (click here for high-level guidance on the Cayman Islands insolvency regimes).

Following the above amendments to the law, where a court appointed officeholder may be beneficial for restructuring purposes there are now two options: (i) restructuring officers; or (ii) provisional liquidators. The decision in Asia Television considers when the Court may appoint provisional liquidators for restructuring purposes (restructuring provisional liquidators or RPLs) although some of the guidance may also be relevant to applications to appoint restructuring officers.

FACTS

Asia Television Holdings Ltd (“Asia TV”), incorporated in the Cayman Islands was insolvent. Prior restructuring efforts had failed due to lack of shareholder approval, statutory demands had been served on the company, secured creditors had appointed a receiver and a winding up petition had been presented in Hong Kong. This was against a backdrop of a dispute as to who the valid directors of the company were (the “Director Dispute”). The Director Dispute was the subject of legal proceedings in Hong Kong and those proceedings were expected to be determined at a hearing in Hong Kong a week after the hearing of the application to appoint RPLs in the Cayman Islands. The application to appoint RPLs was made on an urgent basis given the pending winding up petition in Hong Kong.

Guidance on company RPL applications

The Court refused to appoint RPLs, primarily for the following reasons.

• The evidence of the nature of the proposed restructuring was thin – it was “completely opaque” to the Court as what Asia TV’s plan was to salvage the currently dire financial position (particularly as no steps had been taken to progress the prior restructuring proposals that foundered on lack of shareholder approval).

• While there was substantive written creditor support for the appointment of an officeholder to promote a restructuring – this was not, in of itself, sufficient; particularly as it was apparent that the creditors did not have any idea what form the restructuring was intended to take.

• While not an overriding consideration: (i) given there may be a lack of utility in appointing RPLs because of the uncertainties around recognition of such officeholders in Hong Kong (it was not disputed that the Asia TV’s CoMI was in Hong Kong); and (ii) the outstanding Hong Kong proceedings, taken in the round considerations of comity meant that it made more sense for action to be taken in Hong Kong rather than the Cayman Islands.

In reaching this decision the Court gave the following useful guidance.

• Section 104(3) is intentionally broad, the Court has a wide discretion to appoint provisional liquidators on the application of the company where it is appropriate, including for the purpose of pursuing a debt restructuring.

• It may be appropriate to appoint RPLs rather than restructuring officers where wider powers could be granted to the RPLs than could under the restructuring officer regime. While the Court did not set out what these wider powers may be, it may be the case, for example, that it would be more appropriate to appoint RPLs where a company’s affairs required investigating (for example where there were allegations of internal fraud).

• The discretion of the Court to appoint provisional liquidators on the application of a company is a broad and flexible one and the list of factors the

Insolvency of a segregated portfolio company (“SPC”)

In the matter of ICM SPC2 – can an SPC be liquidated where one or more portfolios are insolvent?

IN A NUTSHELL

In refusing to restrain the presentation of a winding up petition based on an unpaid shareholder call owed by a segregated portfolio of an SPC, the Grand Court (the “Court”) provided further indication that it has the jurisdiction to appoint liquidators to an SPC as a whole on the cash flow insolvency of a single portfolio. Therefore, distress in one portfolio may affect the SPC as a whole. Whether the Court would exercise its discretion to wind up the SPC where one or more portfolios are cash flow insolvent and other portfolios are cash flow solvent remains to be seen and much will turn on the facts of the case at hand.

BACKGROUND

An SPC is a company which is permitted to create one or more segregated portfolios in order to segregate the assets and liabilities of: (i) each segregated portfolio from the assets and liabilities of any other segregated portfolio in the SPC structure; and (ii) the assets and liabilities of the SPC which are not held within any

Court may consider will depend on the facts. That said, the following factors are likely to be of significance: (i) the wishes of creditors (without simple head counting); (ii) whether refinancing/ restructuring is likely to be more beneficial than a winding up; (iii) whether there is a real prospect of refinancing or a going concern sale for the general body of creditors; and (iv) the considered views of the board as to the best path forward.

• Applicants should not seek to list applications as urgent without sound and robust reasons for doing so. Here there was no explanation for the late timing of the application (the last restructuring foundered some four months previously) and the Court was sceptical as to why the application needed to be heard prior to the hearing to determine the Director Dispute in Hong Kong (particularly where those proceedings would have been carved out of the stay on legal proceedings that would have arisen upon the appointment of RPLs).

segregated portfolio of the SPC (called the general assets of the SPC).

The SPC is the legal entity. While each of its segregated portfolios operates as statutorily segregated distinct and individual economic units (effectively internally segregated pools of assets and liabilities) they are not separate legal entities and sit under the umbrella of the SPC. A segregated portfolio does not have separate legal personality.

SPCs are becoming a more common Cayman Islands vehicle – particularly in the insurance sectors. Given the SPC structure of a single legal entity with distinct portfolios that could be pursuing different objectives from each other, a number of questions have arisen as to how the insolvency of SPCs operate. For example, when is an SPC insolvent and when may the Court wind up the SPC as whole where some portfolios are solvent and some are insolvent?

While the Court is yet to make a winding up order over an SPC on the basis that one or more of its portfolios are insolvent (unable to pay its debts as they fall due) over recent years there is a line of authority that has made it clear that the Court could make a winding up order against the SPC where only one segregated portfolio is unable to pay its debts and other segregated portfolios are solvent. This is on the basis that the Court has accepted that, if a segregated portfolio is unable to pay its debts, the legal entity, the SPC, is unable to pay its debts (the segregated portfolio being a segregated economic unit of the SPC)3

DECISION

The Court dismissed an application by a Cayman Islands incorporated SPC for an order restraining joint voluntary liquidators (“JVLs”) of a BVI incorporated entity from causing the BVI entity to present a winding up petition against the SPC based on a statutory demand. The SPC sought the order on the basis that the relevant debt was disputed on substantive and bona fide grounds. The Court disagreed, holding there was no bona fide dispute on substantive grounds.

The statutory demand was based on a debt owed pursuant to a shareholder call due to the BVI entity from a segregated portfolio of the SPC. The statutory demand provided that the JVLs would apply to wind up the SPC as a whole on the basis that the segregated portfolio was unable to pay its debts. Although the Court did not have to determine whether the SPC

Security enforcement

In the matter of Yeung Ka Man4 –enforcement of equitable share mortgages

IN A NUTSHELL

The Grand Court (the “Court”) has confirmed that the authority of the individual that has executed the undated share transfer form, commonly provided with the equitable share mortgage, is to be considered at the date the share transfer form was executed and not when the mortgage comes to be enforced. A director’s later resignation does not invalidate the transfer form (unless the mortgage says otherwise) and so board changes should not ordinarily require fresh authority.

The reliability of the self-help nature of Cayman Islands equitable share security has been reinforced. Secured lenders and receivers should be more confident that pre-signed transfer forms will be effective on enforcement despite later corporate changes.

BACKGROUND

In Cayman Islands finance transactions, it is common for lenders to take security over the shares in a Cayman Islands entity through a Cayman Islands law governed equitable mortgage. These equitable

should be wound up based upon the inability of a single segregated portfolio to pay its debts (and the point does not appear to have been raised), the judgment is another in the trend following the Oakwise decision in 2024 which indicates that the Court does have jurisdiction to wind up an SPC due to the cash flow insolvency of a single portfolio. Whether the Court would exercise its discretion to do so, particularly where other segregated portfolios are cash flow solvent, is another matter.

The Court refused to restrain the presentation of the winding up petition on the basis that the debt was not disputed on bona fide substantive grounds –however, the hearing of the winding up petition has been stayed due to an appeal before the BVI courts in relation to the underlying debt claim. Hence the matter remains to be determined.

mortgages are typically designed to make enforcement over the shares a smooth process with no need for any further cooperation by the mortgagor and no Court involvement. In particular, the secured lender will usually have received undated share transfer forms signed by the mortgagor, giving the secured lender (and any receiver appointed by them) express authority to complete the forms upon an enforcement event.

FACTS

A borrower defaulted on a loan extended to it by Hongkong and Shanghai Banking Corporation Limited (“HSBC”). The security for the loan included a Cayman Islands law governed equitable mortgage over shares in the defendant Cayman Islands company, OP Multi Strategies Investment Fund (“OP Fund”) owned by Glory Class Ventures Limited (the “Mortgagor”). Under the terms of the equitable mortgage, the default triggered an enforcement event, and the security became immediately enforceable by HSBC who appointed Yueng Ka Man of Alvarez & Marsal (with another) as joint and several receivers over the shares (the “Receiver”). The Receiver subsequently completed the undated share transfer form that had been presigned by the Mortgagor to transfer the shares into the Receiver’s name and requested OP Fund’s register of members to be updated accordingly. OP Fund did not update the register of members, leading to the Receiver making an application to the Court seeking an order for rectification of OP Fund’s register of members.

The legal issue was whether the undated share transfer form executed by a director of the Mortgagor, who subsequently resigned, remained valid for enforcement

purposes. OP Fund raised objections, arguing that the director who signed the undated transfer form was no longer a director duly authorised by the Mortgagor to sign the form at the time the Receiver sought to rely on the document.

DECISION

The undated share transfer form was valid since the director’s authority should be considered at the time the transfer document was signed, not when it was enforced. On the proper construction of the equitable mortgage and its commercial purpose, although the

Liquidation waterfall

In the matter of HQP Corporation Ltd and In the matter of Direct Lending Income Feeder Fund Ltd5 – ranking of shareholder misrepresentation claims

IN A NUTSHELL

In settling conflicting first-instance decisions and providing clear distribution rules for Cayman Islands liquidations, the Cayman Islands Court of Appeal (“CICA”) held that the rule in Houldsworth6 (which prevents shareholders’ misrepresentation claims after a company enters liquidation) remains good law in the Cayman Islands. The important gloss provided is that once “external creditors” are paid such misrepresentation claims may be admitted, ranking behind ordinary unsecured creditors (and potentially ahead of pure equity claims) subject to the articles of association. This is particularly important in the funds context where shareholder claims of different guises can dwarf external creditor claims.

BACKGROUND

The CICA resolved two competing judgments from the Court7 considering whether the rule in Houldsworth is still good law in the Cayman Islands.

The rule in Houldsworth originates from 19thcentury English law and prevented shareholders’ misrepresentation claims after a company entered liquidation on the basis that such claims would amount to an impermissible return of capital (capital needed to be maintained to protect non-shareholder creditors).

Mortgagor was to provide further authorisation if one of its directors were replaced, this did not mean that any documents previously signed by a duly authorised officer would be invalidated if such further authorisation was not obtained. At the time that the mortgage was executed, the Mortgagor had passed a unanimous board resolution authorising the signing of the undated transfer document. The fact that the director who signed the document later resigned therefore did not affect its validity. As a result, the Court ordered the register to be updated to show the Receiver as the registered holder of the shares.

Houldsworth has been criticised and removed by statute in England and other jurisdictions, but its status in the Cayman Islands remained unsettled.

ISSUES

The CICA addressed two questions:

1. Whether, in the Cayman Islands, after the presentation of a winding up petition, claims for damages for misrepresentation inducing a subscription for shares in a company can be admitted to proof in a liquidation or whether such claims are barred by the decision of the House of Lords in Houldsworth (the “Bar on Proof Question”); and

2. Where, if such claims are provable, they rank in a liquidation in relation to other claims made by members, former members and external unsecured creditors (and specifically, do such claims fall within section 49(g) of the Companies Act (2023 Revision) (“CA”)8 so that the claims of members and former members are subordinated to the claims of external unsecured creditors) (the “Priority Question”).

DECISION

Bar on Proof Question

1. The rule in Houldsworth remains a part of the common law in Cayman. It bars a shareholder from proving in a winding up for damages for a misrepresentation which induced him to subscribe

5[2025] CICA (Civ) 19

6 Houldsworth v City of Glasgow Bank (1880) 5 App Cas 317

7In re Direct Lending Income Feeder Fund Ltd. [2024(1) CILR 171] and In re HQP Corp. Ltd. [2023 (2) CILR 203]

849. In the event of a company being wound up every present and past member of such company shall be liable to contribute to the assets of the company to an amount sufficient for payment of the debts and liabilities of the company, and the costs, charges and expenses of the winding up and for the payment of such sums as may be required for the adjustment of the rights of the contributories amongst themselves: Provided that …(g) no sum due to any member of a company in that person’s character of a member by way of dividends, profits or otherwise, shall be deemed to be a debt of the company, payable to such member in a case of competition between that person and any other creditor not being a member of the company; but any such sum may be taken into account for the purposes of the final adjustment of the rights of the contributions amongst themselves.

for shares in the company. However, the CICA held that the purpose of the Houldsworth rule is to protect external creditors and therefore, the rule should only apply to prevent shareholders from competing with external creditors. Once external creditors are paid, Houldsworth serves no practical purpose. This was particularly the case in the Cayman Islands given the prevalence of openended funds where external creditor debts are typically small compared to shareholder claims.

2. Following the approach of Segal J in Direct Lending (which the CICA noted to be compelling), the CICA therefore adopted a modified approach and held that shareholders can prove for misrepresentation damages, but only after all external (non-member) creditors have been paid or provided for.

Priority Question

1. The CICA found that section 49(g) CA applies to misrepresentation plaintiffs, which states that

Clawback claims

Conway & Others v Air Arabia PJSC9consequences of submitting a proof of debt and reach of Cayman Islands fraudulent trading claims

IN A NUTSHELL

Cayman Islands fraudulent trading claims have extraterritorial reach and lodging a proof in Cayman Islands liquidation proceedings (even if the proof is unadmitted and no dividend paid) amounts to submission to the jurisdiction of the Cayman Islands Court (the “Court”) for all purposes connected to the liquidation. Cayman Islands liquidators can pursue foreign entities for fraudulent trading claims and serve out of the jurisdiction without leave of Court.

This means that foreign creditors should carefully consider the pros and cons of lodging a proof of debt in Cayman Islands liquidation proceedings, as lodging a proof of debt may open that party itself up to claims against them.

For Cayman Islands liquidators, the clarification from the Court should streamline the process for bringing claims against overseas defendants and help curb skirmishes around service.

no sum due to a member of a company in that person’s character of a member shall be paid in competition with other creditors. This is because a claim for damages for being induced into buying shares is inextricably linked to the plaintiff’s status as a member. It is essentially a claim for the return of capital contributed. Consequently, these claims fall within the scope of section 49(g) and are statutorily subordinated. They rank behind ordinary unsecured external creditors but potentially ahead of other shareholders claiming only for the return of equity (depending on the relevant provisions of a company’s articles of association).

2. The CICA’s judgment also endorsed the approach that Houldsworth is targeted at subscription claims; open market purchase claims stand differently because satisfying them does not undermine capital maintenance. As such, open-market purchase claims are permitted to rank alongside unsecured creditors.

BACKGROUND

The case arose from the collapse of the Abraj group of companies and involved claims by the joint official liquidators (“JOLs”) against a foreign creditor, seeking a contribution to the insolvent estate under section 147 of the Companies Act (2023 Revision) (the fraudulent trading provision). The claim was based on a series of short-term loans, totalling nearly US$1 billion, allegedly used to conceal Abraaj’s cashflow insolvency and delay its collapse, to the detriment of creditors. The JOLs were seeking a declaration that Air Arabia PJSC (“Air Arabia”) is liable to contribute to Abraaj Holdings’ assets on the basis that it was knowingly a party to the company’s business being carried on with intent to defraud creditors.

The defendant, Air Arabia, had submitted two proofs of debt in the liquidation of the company. The first proof of debt was adjudicated for the purpose of voting for and constituting the liquidation committee. However, neither proof of debt had been adjudicated or admitted for any other purpose. The JOLs commenced the claim by writ and served the proceedings on the Air Arabia by email and courier at the address listed on the proofs of debt.

This Court was asked to consider whether lodging a proof of debt by a foreign creditor constitutes submission to the jurisdiction for a fraudulent trading claim and the extraterritorial effect of section 147. It was also required to consider the procedural requirements for the JOLs’ claims, including validity of service and ability to serve proceedings outside of the jurisdiction without leave.

SUMMARY OF ARGUMENTS

The JOLs argued that by submitting proofs of debt, Air Arabia had submitted to the jurisdiction of the Court for all matters connected with the winding up, including section 147 claims. They further contended that section 147 has extraterritorial effect, allowing claims to be brought against persons outside the Cayman Islands and that the methods of service used were valid.

Air Arabia disputed the Court’s jurisdiction, arguing that submission of a proof of debt does not extend to section 147 claims, which it characterised as creating a new statutory liability rather than unwinding prior transactions. The defendant also challenged the extraterritorial effect of section 147, seeking to distinguish it from other insolvency claims and the validity of service, contending that the plaintiffs had used the wrong procedural form and that service should have been personal.

SUBMISSION TO JURISDICTION BY LODGING PROOF OF DEBT

The Court held that lodging a proof of debt in a Cayman liquidation amounts to a submission to the jurisdiction for all matters connected with the winding up, including claims under section 147. This principle applies regardless of whether the proof has been admitted or a dividend paid. In considering a line of decisions of the English courts, the Court rejected the argument that fraudulent trading claims are fundamentally different from other insolvency claims (such as voidable preferences or transactions at undervalue) for jurisdictional purposes.

The Court approved and adopted the principles summarised in English case law, holding that the court supervising the liquidation of a company has jurisdiction to decide “all questions of whatever kind, whether of law, fact, or whatever else the court may think necessary in order to effect complete distribution of the company’s estate.” Further, liquidation is a mode of collective enforcement of claims arising under the general law. There is often no relevant difference between the claim for which a party may submit a proof (e.g., debt arising from its redemption notice) and a claim for which it does not prove (e.g., misrepresentation) if that arises under the general law. They are both capable of being proved in the liquidation. If they are proved, the courts will have subject matter jurisdiction to adjudicate on them. And so far as a party has submitted by proving for anything in the liquidation, it has submitted to a statutory regime which precludes it from acting to prevent the assets subject to the statutory trust from being distributed in accordance with it. In this respect the Court confirmed

that submission to the jurisdiction of the court of the insolvency constitutes submission to “any order” of the court in connection with the insolvency procedure, including orders for injunctive relief.

EXTRATERRITORIAL EFFECT OF SECTION 147

Drawing on English and Cayman Islands authority, the Court held that section 147 has extraterritorial effect. The provision is intended to allow liquidators to pursue claims against persons located outside the Cayman Islands, reflecting the international nature of Caymanincorporated companies and the need for effective remedies in cross-border insolvencies. In construing the language of section 147, it was not possible to identify any limitation which represented the presumed intention of the legislature. The words therefore had to be given their literal unrestricted meaning, and section 147 should therefore be understood as having extraterritorial effect so that the Court had jurisdiction to make an order under section 147 against a foreigner resident abroad.

SERVICE OUT WITHOUT LEAVE

The Court concluded that, where section 147 applies, claims can be served out of the jurisdiction without leave under the relevant procedural rules. This ensures that the remedy is not rendered ineffective by the location of the respondent.

PROCEDURAL FORM

The Court confirmed that claim should have been brought by summons within the liquidation proceedings, not by separate writ. However, the plaintiffs’ use of the wrong form did not confer any improper advantage, and the Court exercised its discretion to waive the irregularity, treating the proceedings as if commenced by summons within the liquidation.

VALIDITY OF SERVICE

The Court held that service by email and courier to the addresses provided in the defendant’s proofs of debt was valid, given the defendant’s submission to the jurisdiction. There was no requirement for personal service or for leave to serve out in these circumstances.

Foreign judgments and commencement of liquidation proceedings

In the matter of SIN Capital (Cayman) Ltd10 - recognition of foreign arbitral awards and court orders in the context of winding up proceedings

IN A NUTSHELL

The English Court of Appeal held in Servis-Terminal LLC v Drelle11 that a bankruptcy petition (an application to commence personal insolvency proceedings) could not be based on a foreign judgment that had not been recognised in England. It was also held that the reasoning applied to liquidation proceedings. The question therefore arises whether a foreign judgment needs to be domesticated in the Cayman Islands before the debt which the judgment created could be used to form the basis of a statutory demand or winding up petition? In an unopposed application and having considered Drelle the Grand Court (the “Court”) followed usual prior practice and held that domestication was not required.

The Court has reaffirmed its approach to the recognition of foreign arbitral awards and court orders in the context of winding up proceedings, confirming that domestication of the foreign award is not first required. It remains to be seen if the Court will take the

BACKGROUND

The Court issued a judgment ordering the winding up of SIN Capital (Cayman) Ltd, following a petition by a creditor on the grounds of the company’s inability to pay its debts. The proceedings were unopposed, with no appearance or evidence filed by the company. The petition was supported by a statutory demand referencing a Singapore International Arbitration Centre award and a subsequent enforcement order of the Singapore High Court. Neither the arbitral award nor the order of the Singapore High Court had been registered in the Cayman Islands.

GROUNDS FOR WINDING UP

The Court was satisfied that the petition had been served and advertised in accordance with the applicable statutory requirements and court rules. The company did not file any evidence in opposition, nor did it appear at the hearing. The petitioner relied on a statutory demand which referenced both the arbitral award and the Singapore court order. The Court having considered relevant authorities, including the Servis-Terminal LLC v Drelle and Obertor Ltd v Gaetano Ltd12, confirmed that a foreign judgment or award need not be registered in the Cayman Islands before being relied upon in support of a statutory demand.

The Court accepted the evidence that the company was unable to pay its debts and exercised its discretion to grant a winding up order.

Officeholders’ fees and expenses

CL Financial13 - liquidators’ fees and expenses

IN A NUTSHELL

The Privy Council (“PC”), having surveyed guidance from the courts across the common law world, set out important guiding principles in relation to applications to approve the remuneration of liquidators, together with guidance on the information that should be provided to the court to support such applications. This guidance is also likely to be of wider application to all court appointed insolvency officeholders generally.

Usefully the PC confirmed that: (i) it is acceptable for liquidators to appoint themselves or colleagues to subsidiary boards when exercising shareholder rights; and (ii) government creditors have no special standing over others.

While the PC was determining an appeal from the Court of Appeal of Trinidad and Tobago, given the wide review of common law authority undertaken by the PC it is difficult to see why the guidance provided would not be applied by the Cayman Islands courts. Impact wise, while any outcome of a remuneration application will necessarily be fact sensitive insolvency officeholders should take care to ensure that their record keeping in support of remuneration charged ordinarily clearly identifies: (i) the task that the time relates to; (ii) why that task was undertaken; (iii) the time spent on each task; and (iv) the seniority of the person performing each task. While courts will not audit line by line, proportional but sufficiently detailed narratives will be essential, especially in more complex cases. Failure to do so carries the risk that when the court comes to approve the remuneration charged that it is unable to tick the necessary boxes to approve the remuneration. In short, adequate record keeping as to work undertaken is fundamental to insolvency officeholders getting paid.

BACKGROUND

CL Financial, a company incorporated in Trinidad and Tobago, was in compulsory liquidation. It applied to the court for the approval of the remuneration of its liquidators for the calendar year 2019 and the application was opposed by the Government of Trinidad and Tobago, the largest single creditor of the CL Financial.

The High Court approved the remuneration, with the Court of Appeal reversing the decision. CL Financial appealed to the PC.

GUIDANCE FROM THE PC

General principles that apply to officeholder remuneration and expenses

• Officeholders appointed to administer an insolvent estate occupy a fiduciary position and they may not apply assets of the estate for their own benefit without proper authority.

• The burden is on officeholders to justify any remuneration for which they seek approval.

• If considering the evidence and having regard to the guiding principles there remains any element of doubt, such doubt should be resolved by the court against the officeholder.

• However, weight should be given to the fact that the officeholder is an officer of the court and, where applicable, is a member of a regulated profession and is subject to rules and guidance as to professional conduct. It may be assumed, unless the evidence suggests otherwise, that the officeholder is behaving with integrity. It does not, however, follow that the work undertaken by the officeholder was reasonable and proportionate on an objective basis. That is an issue to be decided by the court, the creditors’ committee or others responsible for approving the remuneration.

• The remuneration fixed by the court should be fair and reasonable for the work properly undertaken.

• There should not be unnecessary duplication in work and the information provided should be sufficient so the court can verify this point.

• The court will apply its own judgement and is not a rubber stamp but importantly the court’s role is not to engage in a line-by-line analysis of the officeholder’s claim.

• Officeholders do not need to seek approval for the payment of third-party expenses (such as legal fees). However, those expenses may be challenged by a creditor (or where there may be a surplus) a shareholder.

Sufficiency of information

While each case will be determined on its own particular circumstances the guidance below is likely to be applicable to most cases.

• As a starting point, there must be sufficient information to enable the court to have a clear view of what the officeholder has done and the information should be proportionate to the size of the insolvency and to the cost of preparing the information. The court should not be burdened with an overwhelming amount of detailed evidence, nor should the estate be burdened with the cost of producing it. More detail is, or is likely to be, required in a complex liquidation.

• At least in large insolvencies, time spent is usually the starting point and there is an overriding requirement that remuneration should be fair and reasonable. The officeholder must establish that the time costs were reasonably incurred – the officeholder must explain the nature of each main task undertaken, the considerations which led him or her to embark upon that task and why it was decided to persevere in it (what did the officeholder do and why did they do it). The time spent should be linked to this explanation so it can be seen what time was devoted to each task.

• The officeholder must establish, through sufficient information provided to the court, that the time costs were reasonably incurred which will involve looking at whether the work was: (i) reasonably undertaken; and (ii) performed by a person of appropriate seniority.

Whether work was reasonably undertaken will depend on a number of factors: (i) was there a statutory obligation to carry the work out; (ii) were other legal obligations being met by carrying out the work; and (iii) the steps taken to deal with the assets forming part of the estate must be reasonable (whether any particular action is reasonable will depend on the particular circumstances, but in general terms where the liquidator has a discretion as to the action taken, it means taking those steps which make commercial sense in terms of potential return for the benefit of the estate).

• An officeholder is expected to behave as a prudent person looking to their own commercial interests. For example, it may be reasonable to investigate possible claims. It does not follow that because in due course they fail or are abandoned that it was not reasonable to commence or pursue them (although an officeholder will have to re-examine periodically

whether it remains reasonable to continue with them). This is an enquiry into proportionality – it is usually the reasonableness of the step when it was taken, rather than the actual outcome, which will be relevant.

• Appropriate seniority is dependent on the circumstances, but in essence it means the simpler or more routine tasks should be undertaken by the more junior staff, leaving the more senior members of team to deploy the important supervisory role over the process as a whole.

A final and additional useful point of clarification from the PC is that governmental authorities occupy the same position as all other creditors of equal standing to them –therefore such authorities do not have special standing or rights to challenge officeholder remuneration.

DECISION

Applying the guidance above the liquidators’ remuneration report did not provide enough evidence to support the fee application. The description of the work undertaken was too general and brief. Generally, it was impossible to identify most of the tasks undertaken and therefore impossible to assess whether those tasks were reasonably undertaken and how long was spent on the task in question. The liquidation in question was complex with many workstreams (particularly involving subsidiary entities) which required more detailed information on the remuneration charged than would be the case in a smaller more straightforward liquidation. There was also no breakdown of the grades of partners and staff working on a task – so it was not possible to assess whether the tasks (at least those which could be identified) were undertaken by persons of the right level.

In the matter of Holt Fund SPC14

– discharge and remuneration of restructuring officers

IN A NUTSHELL

The Grand Court (the “Court”) has considered for the first time the principles that apply to applications for the discharge of and remuneration of joint restructuring officers (“JROs”). Confirming that JROs may recover reasonable fees for proper work undertaken even if the restructuring fails. The approach of the Court when determining liquidators fees provides a useful guide to JRO fee applications.

BACKGROUND

This decision of the Court addresses the application by the JROs of Holt Fund SPC for approval of their remuneration and for discharge of their appointment. The JROs, had been appointed in in respect of two segregated portfolios (SP02 and SP03) of Holt Fund SPC, an investment fund regulated by the Cayman Islands Monetary Authority (“CIMA”). The appointment was made under section 91B of the Companies Act (2023 Revision) (the “Companies Act”).

Following agreement between the JROs and the company’s management that the restructuring proposal could not be implemented, the JROs applied for approval of their fees and for discharge of their appointment. Notice of the application was given to stakeholders and CIMA. Only two responses were received: Individual A raised queries that were addressed, while Individual B objected to the discharge on the basis of a need for further investigation into the company’s affairs. To protect confidentiality, the Court granted a sealing order over certain documents containing personal details of the respondents, in line with the Companies Winding Up Rules (2023 Consolidation) (“CWRs”).

LEGAL PRINCIPLES - FEE APPROVAL

The Court considered the statutory framework under the Companies Act, and the CWRs. Section 91D(6) of the Companies Act requires the Court to fix the remuneration of restructuring officers, and section 109 provides that such remuneration, if properly incurred, is payable out of the company’s assets with priority in the event of a subsequent winding-up. CWR Order 1A rule

10 and the application of the Insolvency Practitioners’ Regulations (2023 Consolidation) inform the process and standards for fee approval. It also found that the approach taken by the Courts to liquidations serves as a useful guide to JRO remuneration applications.

The Court emphasised that restructuring officers are entitled to be compensated for their work, even where the restructuring does not succeed, provided the fees are properly and reasonably incurred. The Court’s role is to ensure a prima facie case for approval is made and that there is nothing “eyebrow-raising” about the level of fees and expenses, particularly where there are no substantive objections from stakeholders.

LEGAL PRINCIPLES – DISCHARGE OF JROS

Section 91E of the Companies Act provides that the company, the restructuring officers, creditors, contributories, or CIMA may apply for variation or discharge of the order appointing restructuring officers. The Court has broad discretion, save that it may not order liquidation on such an application. The purpose of the restructuring officer regime is to facilitate restructuring; where a consensual restructuring is no longer viable, discharge is appropriate. Any need for investigation into mismanagement is a matter for a liquidator in winding-up proceedings, not for restructuring officers.

DECISION

The Court approved the JROs’ remuneration for requested period, to be paid out of the assets of the relevant portfolios. The application for discharge of the JROs was also granted. The Court found that the restructuring proposal was not viable, the JROs had acted properly and reasonably, and the application was supported by management and stakeholders with standing. The objection by Individual B was dismissed on the basis that the matters raised fell outside the scope of the JROs’ duties and would be more appropriately addressed in winding-up proceedings, should stakeholders wish to pursue that route. The Court noted that discharging the JROs would end the statutory moratorium on proceedings against the company, thereby facilitating any future winding-up petition or investigation by a liquidator if required.

Chapter 15 and discovery by foreign officeholders

In re Farfetch Limited (in Official Liquidation)15 - the scope of permissible pre-litigation discovery by Cayman Islands liquidators under Chapter 15

IN A NUTSHELL

The Delaware Bankruptcy Court confirmed that the wide ambit of Federal Rule of Bankruptcy Procedure 2004 (“Rule 2004”) discovery in a Chapter 15 context can be limited by the applicable foreign law and the terms of the order appointing the foreign representative in the foreign proceedings. Here, the Delaware Bankruptcy Court held that it would not make an order that was hostile or inconsistent with the Cayman Islands discovery regime.

The ruling underscores the comity-driven limits on Chapter 15 discovery. In practice, this means Cayman Islands liquidators may obtain the company’s own books and records and property, but broader third-party discovery may require direction from the Grand Court (the “Court”)whose orders the Delaware Court has indicated it will respect and enforce

BACKGROUND

Farfetch Limited (In Official Liquidation) (“Farfetch”) was the ultimate holding company of the online fashion platform Farfetch Group. The group was in financial difficulty and sold its operating assets by way of a UK administration to Surpique LP (“Surpique”) leaving Farfetch to be wound up on an insolvent basis. The creditors of Farfetch proceeded to appoint joint official liquidators (“JOLs”) in the Cayman Islands. The JOLs obtained Chapter 15 relief in Delaware and commenced various discovery actions in the US against third parties, including Surpique, with a view to challenging the administration sale.

ISSUE

The JOLs had obtained permission from the Court to commence the Chapter 15 proceedings. The JOLs however had not obtained permission to commence proceedings to compel the production of documents, nor had they addressed the permissible scope of the JOLs’ information-gathering powers beyond their (orthodox) ability to collect Farfetch’s property.

The Court has consistently held that the information gathering powers afforded to liquidators are to put themselves in the shoes of the company i.e. to reconstitute the knowledge of the company prior to the liquidation. Liquidators will not be permitted to use their information gathering powers to obtain pre-litigation discovery of non-company documents thereby giving themselves an advantage in litigation that would not have been available to the company itself.

Despite the limits to the appointment order, and their powers under Cayman Islands law, the JOLs sought broad discovery from Surpique in the Chapter 15 proceedings under Rule 2004. Rule 2004 applies in Chapter 15 and functions as the procedural “vehicle” for discovery which permits “examination of witnesses, taking of evidence, or delivery of information” to assist the recognised foreign proceeding. Discovery under Rule 2004 would not have been limited to recovering Farfetch’s property and instead would have resulted in the JOLs obtaining broad pre-litigation discovery against Surpique.

Surpique challenged the JOLs’ Rule 2004 application in Delaware on the basis that the discovery sought was too broad for Chapter 15 purposes, and much of it conflicted with Cayman insolvency law and policy.

DECISION

The Delaware Court significantly narrowed the scope of the discovery to documents constituting the books and records of Farfetch and its subsidiaries.

The Delaware Court emphasised the broad investigative purpose of Rule 2004 to allow inquiry into a debtor’s affairs, assets, and potential claims. However, at the same time, made clear that Rule 2004 in Chapter 15 is applied with comity-based tailoring: U.S. law governs the Rule 2004 application, but the Delaware Court considers whether the proposed discovery would be hostile or inconsistent with the foreign (in this case Cayman) discovery regime and law generally.

Accepting Surpique’s submissions, the Delaware Court declined to compel Surpique to produce third-party documents. The Delaware Court considered that there was a genuine dispute as to whether compelling such production would aid the Cayman Islands proceedings or be inconsistent with Cayman Islands law, and the Delaware Court would not purport to resolve that question. The Judge made clear that the appropriate forum to decide whether third-party documents should be produced was in the Cayman Islands before the Court.

Commercial Disputes & Arbitration

For commercial litigation, the courts provided significant appellate guidance. Firstly from the Privy Council (“PC”) on the limits of the Duomatic principle in Fang Ankong v Green Elite and on the just and equitable winding up of exempted limited partnerships in Aquapoint LP (in Official Liquidation) v Xiaohu Fan. The Cayman Islands Court of Appeal (“CICA”) also delivered significant judgments concerning exempted limited partnerships. In Abraaj General Partner VIII Ltd v Abraaj AOB IV SPV Ltd, the CICA provided guidance on limited partner information rights and in One Thousand and One Voices Africa Fund I, LP addressed the replacement of the general partner as liquidator of the partnership. In IGCF SPC 21 Ltd v Al Jomaih Power Ltd, the PC confirmed the submission to foreign jurisdiction test in the Cayman Islands and, at first instance in Target Global Growth Fund II, SCSPRAIF v Liu Xun, the Grand Court (“the Court”) provided

Authors

Luke Stockdale +44 20 7466 1724 luke.stockdale@maples.com

Caroline Moran +1 345 814 5245 caroline.moran@maples.com

Christian La-Roda Thomas +1 345 814 5577 christian.la-rodathomas@maples.com

Quentin Cregan +1 345 814 4415 quentin.cregan@maples.com

Matthew Freeman +1 284 852 3011 matthew.freeman@maples.com

Allegra Crawford +1 345 814 5401 allegra.crawford@maples.com

a useful summary of the legal principles relevant to the grant of worldwide freezing and proprietary injunctions. Last year also saw the Court hand down its comprehensive judgment following the well-known Abraaj trial, dismissing the deceit claims in connection with loans of approximately US$350m made to the Abraaj group before its collapse.

Meanwhile, in the arbitration sphere – decisions in Golden Meditech v Nanjing Yingpeng Huikang Medical Industry Investment Partnership highlighted the proper procedure and Court’s powers to give effect to interim injunctive orders out of foreign arbitral tribunals, whilst the CICA in Suning International Group Co Limited & Suning.com Co Ltd v Carrefour Nederland set out how alternative service may be ordered outside the Hague Convention when dealing with the enforcement of foreign arbitral tribunal awards.

Adam Bristow +1 345 814 5455 adam.bristow@maples.com

Alasdair Munro +1 345 814 4437 alasdair.munro@maples.com

St. John Howard-Brown +1 345 814 5140 stjohn.howard-brown@maples.com

Samantha Hollingworth +1 284 852 3007 samantha.hollingworth@maples.com

Marit Hudson +1 345 814 5416 marit.hudson@maples.com

Investor disputes concerning the winding up of an Exempted Limited Partnership (“ELP”)

In the matter of One Thousand and One Voices Africa Fund I, LP16- jurisdiction to remove and replace general partner as liquidating agent in voluntary liquidations

IN A NUTSHELL

The identity of the party that will act as liquidator and control the liquidation process can be an important consideration and is sometimes an area of dispute between investors and management. In the context of voluntary (solvent) liquidations of ELPs, the Cayman Islands statutory provisions provide for a flexible framework that permits the parties to agree the identity of the liquidator in advance in the partnership agreement (“LPA”). It is common practice to specify in the LPA that the general partner (the “GP”) will act as liquidator. The Cayman Islands Court of Appeal (“CICA”) considered when the Grand Court (the “Court”) has the jurisdiction to step in and remove and replace the liquidator specified in the LPA, holding that the Court could appoint someone else an alternative liquidator where it is just and equitable to do so.

In this decision, the CICA rejected a number of jurisdictional arguments raised by the GP to challenge the decision of the Court in the proceedings. The decision therefore leaves undisturbed the important principle applied by the lower court that, when determining the identity of a liquidator, significant weight will be placed upon the views and wishes of the parties with an economic stake in the liquidation process. For a solvent voluntary liquidation of an ELP, that will normally be the limited partners.

BACKGROUND

By way of reminder ELPs are commonly used by the Cayman Islands investment funds industry, particularly as the legal structure for closed ended and private equity funds. Therefore, guidance from the Court in relation to end of life matters for these vehicles is highly relevant in the fund context.

The CICA addressed the scope of the jurisdiction of the Court to remove and replace the GP as liquidating agent of an ELP during its voluntary liquidation. This was in the context of the voluntary winding up of an ELP named One Thousand & One Voices Africa Fund I, L.P., where limited partners holding approximately 97% in interest resolved to wind up the partnership. The petitioner, a limited partner, sought the removal of the GP as liquidating agent and the appointment of independent third parties in its place. The GP challenged the Court’s jurisdiction to make such an order, relying on the terms of the LPA and the Exempted Limited Partnership Act (2021 Revision) (“ELPA”).

STATUTORY AND CONTRACTUAL FRAMEWORK

The ELP was governed by the LPA, which provided that the GP would act as liquidating agent and could only be removed upon the occurrence of a “Cause Event” and a supermajority vote of the limited partners. The ELPA, and section 36, sets out the statutory regime for the winding up of ELPs. Section 36(1) provides that a voluntary winding up shall be conducted in accordance with the LPA. However, section 36(13) provides that, following the commencement of winding up, the affairs of the ELP shall be wound up by the GP or other person appointed pursuant to the partnership agreement “unless the court otherwise orders on the application of any partner, creditor or liquidator” pursuant to section 36(3)(g), which empowers the Court to make orders and give directions for the winding up and dissolution of an ELP as may be just and equitable.

THE GP’S CHALLENGE

The GP argued that the Court had no jurisdiction to remove a contractually appointed liquidating agent in a voluntary liquidation, contending that section 36(1) of the ELPA gave primacy to the LPA and that section 36(13) did not confer a power of removal, but only of appointment in limited circumstances (e.g., where the LPA was silent or the agreed mechanism was unavailable). The GP further submitted that the Companies Act provisions relating to removal of voluntary liquidators were expressly disapplied to ELPs in voluntary liquidation, and that to allow the Court to intervene would undermine contractual autonomy.

DECISION

The CICA rejected the GP’s arguments, dismissing the appeal, holding that section 36(13) of the ELPA confers a broad jurisdiction on the Court to appoint a person other than the GP to wind up the affairs of an ELP, even where this is inconsistent with the terms of the LPA.

Aquapoint LP (in Official Liquidation) v Xiaohu Fan17just and equitable winding up

IN A NUTSHELL

The Privy Council (“PC”), addressing how equitable considerations may constrain the exercise of contractual rights, upheld a decision to wind an exempted limited partnership (“ELP”) up on just and equitable grounds in circumstances where the general partner (“GP”) had invoked an unfettered discretion in the limited partnership agreement (“LPA”) to block the withdrawal of a limited partner (“LP”). It was not equitable to rely on such contractual provisions where representations had been made to the LP that he would be entitled to withdraw his investment six months after an IPO took place.

While the PC stressed that the application of equitable principles that cut across contractual rights will be fact-specific and not confined to rigid categories, the guidance provided will likely be important in the context of ELP disputes and applications to wind up an ELP on just and equitable grounds. GPs may not be able to rely on the LPA to defeat reasonable expectations that they have created. The decision could also be seen as strengthening investor protection by recognising that meaningful informal assurances can trigger equitable rights including to have the ELP wound up on just and equitable grounds.

BACKGROUND

Aquapoint LP (“Aquapoint”) was an ELP formed to hold shares in Legend Biotech Corporation (“Legend Biotech”), a Nasdaq-listed company involved in developing treatments for cancer. Dr Fan held a majority limited partnership interest in Aquapoint, which equated to approximately 10% of the shares in Legend Biotech.

Dr Fan had previously entered into an agreement entitling him to a 10% shareholding in the business of Legend Biotech. When the corporate structure was reorganised to use Legend Biotech as the listing vehicle for a future initial public offering (“IPO”), the GP of Aquapoint gave Dr Fan assurances that his entitlement to the 10% interest would be preserved and that he would be entitled to withdraw his investment six months after any IPO took place. In reliance on these assurances, Dr Fan agreed to become an LP in Aquapoint.

Following the IPO and the expiry of the six months lock up period, Dr Fan requested access to the 10% shareholding in Legend Biotech held by Aquapoint. The GP refused this request and sought to rely upon a provision in the Aquapoint LPA, which provided that the GP could withhold its consent to the withdrawal of an LP “for any reason (or no reason at all) in the sole and absolute discretion” of the GP. Following this refusal, Dr Fan petitioned to wind up Aquapoint on just and equitable grounds.

ISSUE ON APPEAL

The central question was whether the just and equitable winding up jurisdiction could be invoked where the parties had entered into a comprehensive contractual framework to govern their relationship, namely the LPA and related agreements, which expressly governed the matter complained of by Dr Fan. Aquapoint argued that its refusal of the withdrawal request was not subject to any equitable constraints because it had an unfettered contractual right to refuse any such request.

The PC rejected that argument, upholding the winding up order against Aquapoint. It concluded that the relationship between Dr Fan and the GP and its representatives was “a personal relationship of a type that brings equitable considerations into play”. Given the assurances that had induced Dr Fan to become an LP, it was inequitable for the GP to refuse its consent to the withdrawal.

KEY GUIDANCE

The nature of the just and equitable jurisdiction: The PC reaffirmed that the just and equitable winding up jurisdiction is not constrained by rigid categories, noting that “[i]t would be impossible, and wholly undesirable, to define the circumstances in which these considerations may arise”. Thus, the existence of a relationship which can lead to the imposition of equitable constraints on the exercise of legal rights will be a fact sensitive enquiry and the court is entitled to look at all the circumstances of the case.

Quasi-partnership not essential: The PC rejected the argument that equitable considerations only apply where a “quasi-partnership” exists i.e. a business which is closely held by a small number of parties and is operated on the basis of mutual trust and informal understandings like a traditional partnership. The normal indicia of a quasi-partnership – personal relationships involving mutual confidence, agreements for participation in management, and restrictions on share transfers – are examples, not prerequisites.

Contractual rights not always decisive: While acknowledging that in most cases contractual arrangements will exhaustively define the parties’ rights, the PC held that contractual provisions (including entire agreement clauses) are highly relevant but not decisive in determining whether equitable considerations apply.

Alternative remedies: The PC rejected arguments that alternative remedies were available instead of a winding up order. A breach of contract claim was unavailable to Dr Fan given Aquapoint’s position that there was no such breach, and a derivative action would not provide any personal remedy for Dr Fan.

Informal shareholder consent and Duomatic

Fang Ankong and another v Green Elite Ltd (In Liquidation)18 - the Privy Council reaffirms Duomatic19 principles

IN A NUTSHELL

The Duomatic19 principle in broad terms provides that in a matter which is intra vires a company and lawful, the company’s shareholders can give their consent not only by a formal resolution at a general meeting but also by unanimous informal consent.

The Privy Council (“PC”) reaffirmed the Duomatic principle; reinforcing that shareholder consent must be unanimous and that the extent of that consent must be certain - shareholders must give specific consent for a company to enter a particular transaction. A general purpose of intent to enter a transaction is not sufficient.

BACKGROUND

This was an appeal to the PC from the British Virgin Islands (“BVI”).

Green Elite Ltd (“Green Elite”) was incorporated in the BVI as a vehicle jointly owned by HWH Holdings Ltd (“HWH”) (controlled by Mr Fang) and Delco Participation BV (“Delco”), to implement an employee share incentive scheme for three intended beneficiaries in connection with an IPO vehicle (“CT”). Green Elite held shares in CT to this end. All intended beneficiaries and Mr Fang were directors of Green Elite.

CT paid dividends to Green Elite, which it transferred to its directors and HWH but not to Delco. Green Elite also later sold its CT shares, but the proceeds of sale were paid to Mr Fang’s personal bank account and onwards to the intended beneficiaries. Delco was not told the purchase price and there was no board meeting to approve it. Delco applied to the BVI Court to wind up Green Elite and liquidators were appointed.

PROCEEDINGS

Green Elite’s liquidators issued proceedings against the former directors and HWH seeking an account of the sale proceeds of the CT shares and any dividends. The liquidators claimed that the former directors had breached their fiduciary duties to act in good faith in the best interests of Green Elite, not to act for a collateral purpose and not to act in a way as to place themselves in a position of conflict between their personal interests and the interests of Green Elite. The liquidators also claimed against HWH for knowing receipt.

The central issue of fact was what was agreed between HWH and Delco as to the basis on which Green Elite would hold its shares in CT for the purpose of the employee incentive scheme. The defendants argued that there was no breach of duty, and the payments were properly made to implement Green Elite’s purpose to provide an employee share incentive scheme (which was approved by Delco and HWH as the shareholders of Green Elite). Although the alleged approval/arrangement was not reflected in the articles or memorandum nor in a formal resolution of the shareholders at a general meeting, the defendants, relying on Duomatic principles, claimed that the approval was given by Delco and HWH informally when it agreed that Green Elite would act as a vehicle for the employee share incentive scheme. In Duomatic, Buckley J said at p373:

“I proceed on the basis that where it can be shown that all shareholders have a right to attend and vote at a general meeting of the company assent to some matter which a general meeting of the company could carry into effect, that assent is as binding as a resolution in general meeting would be”.

Despite this argument, the judge found that only two key elements of the employee share incentive scheme were agreed between the owners of HWH and Delco; the intended beneficiaries would pay for the shares in CT and there would be a lock-up period before they qualified to receive them. However, neither the price nor the length of the lock-up period was agreed. Further, the judge found that Delco and HWH had not given their assent to the payments that had been made and ordered that they be returned. The judge found that there had been no ‘meeting of minds’ between the shareholders

which could, through the application of the Duomatic principle, authorise the manner in which Mr. Fang had dealt with the sale proceeds and dividends.

The Court of Appeal of the Eastern Supreme Court (BVI) dismissed the appeal by Mr. Fang and HWH upholding the decision at first instance. Mr. Fang and HWH appealed to the PC.

DECISION

The PC dismissed the appeal and upheld the Court of Appeal’s decision.

In reaffirming the existence of the Duomatic principle, the PC held that while the assent given in accordance with the principle need not have the features of a binding contract, the shareholders should intend to bind themselves legally as if they had passed a formal resolution. Therefore, if it could be shown that the shareholders have all assented to a particular matter, their assent will take effect as if it were a formal resolution. This was not the case on these facts as the specific terms of the employee incentive scheme had not been confirmed and agreed.

Limited partner information rights

Abraaj General Partner VIII Ltd v Abraaj

AOB IV SPV Ltd20 - guidance on information rights under statute

BACKGROUND

The CICA considered the scope of the statutory right of a LP to information concerning the state of the business and financial condition of an exempted limited partnership (“ELP”) in section 22 of the ELPA. This provision can often become an area of dispute between LPs and a GP in a contentious scenario where the right has not been modified or excluded by the partnership agreement. Several first instance decisions in recent years had generally taken an expansive view on the extent of the information that a GP could be compelled to provide under section 22, but this decision now represents the authoritative current guidance on the application of the statutory right.

GUIDANCE ON SECTION 22

Under section 22, LPs are entitled to a broad range of information and documents, but this is not without limitation. The Court applies a functional test to determine whether the documents and information sought are “properly required to allow the LP a comprehensive understanding of the state of the business and of its investment in it, and of the risks attaching to that investment.”

In applying this test, the Court will take account of the following considerations:

• If properly kept, the ELP’s financial accounts should in most cases provide at least a substantial part of the necessary information, albeit the right in section 22 is broader than accounts alone.

IN A NUTSHELL

The Cayman Islands Court of Appeal (“CICA”) held that while the information rights of a limited partner (“LP”) under section 22 of the Exempted Limited Partnership Act (2021 Revision) (“ELPA”) are broad, the information to be provided to a limited partner (“LP”) must be proportionate.

This means that the Cayman Islands Court (the “Court”) will take a balanced approach to applications under section 22. It will scrutinise LP demands for extensive disclosure to ensure that the statutory right serves its intended purpose whilst not being used to apply pressure on a general partner (“GP”) as part of a broader dispute. The guidance provided will be key to GP/LP information disputes.

• Once a GP provides information about what documents exist, the onus shifts to the LP to explain why those documents are insufficient, or to identify other documents that exist and would be just as material as those identified by the GP. The LP cannot simply identify a particular document and demand all other documents falling within the same category. A factspecific investigation is required as to what else is necessary to comply with the statutory obligation. This will depend on “the nature of the partnership business, its mode of conduct, and the terms of the governing documents read in the light of current business practice”

• To grant relief under section 22, the Court must be satisfied that the information sought is appropriate to address real and substantial issues and will have practical effect.

• The provision of information must be proportionate. The GP is not required to provide information if doing so would require it to incur unreasonable expense, although it can be required to obtain information from other parties where it is within the GP’s power to do so.

DECISION

The CICA allowed the appeal and determined that the judge at first instance had been wrong to grant summary judgment in favour of the LP without sufficiently engaging with the arguments raised by the GP that it had satisfied the statutory obligation through the documents and information already provided.

Submission to a foreign jurisdiction

IGCF SPC 21 Ltd v Al Jomaih Power Ltd21 - Privy Council confirms approach to submission to foreign jurisdiction

IN A NUTSHELL

The Privy Council (“PC”) considered the legal test for determining when a party will be held to have submitted to the jurisdiction of a foreign court by taking a step in foreign proceedings. It confirmed that the test as a matter of Cayman Islands law for an anti-suit injunction is the same as that which applies for the enforcement of a foreign judgment and reflects the position in other common law jurisdictions. That is, a party submits to a foreign court’s jurisdiction if it takes a step in the foreign proceedings that is only necessary or useful if an objection to jurisdiction has been waived or never existed. In other words, a step that is not consistent with or relevant to challenging jurisdiction or seeking a stay of the foreign proceedings will constitute a submission.

This confirms that Cayman Islands law on when a party will have submitted to the jurisdiction by taking a step in foreign proceedings is aligned with that of other leading common law jurisdictions. The guidance provided will be the first port of call when considering such questions.

BACKGROUND

The parties were shareholders in KES Power Ltd (“KESP”), a Cayman Islands company that held a majority interest in the Pakistan utility company, K-Electric Limited (“KEL”). A dispute arose relating to the appointment of directors to the boards of KESP and KEL. In proceedings in Pakistan, the appellants obtained an ex parte interim injunction preventing any changes to the board of KEL. The respondent brought an application in the Pakistan proceedings challenging the jurisdiction of the Pakistan court and seeking a stay of the proceedings in favour of

arbitration and an application seeking to vary the terms of the interim injunction. The respondent then obtained an anti-suit injunction from the Grand Court (the “Court”) to restrain the appellants from continuing the proceedings in Pakistan, relying on the exclusive Cayman Islands jurisdiction clause in the shareholders agreement between the parties.

ISSUE

In determining whether the respondent had submitted to the jurisdiction of the court in Pakistan, which would be a strong factor against the Court granting anti-suit relief, the PC had to consider whether the rule in Henry v Geoprosco International Ltd22 (“Geoprosco”) is part of the law of the Cayman Islands. In Geoprosco it was held that a defendant who voluntarily appears in foreign proceedings to invite the foreign court not to exercise its jurisdiction will be deemed to have submitted to that jurisdiction. The appellants argued that by making applications in Pakistan – particularly the application to vary the interim injunction – the respondent had submitted to the jurisdiction of the Pakistan court.

DECISION

The PC undertook a detailed review of the historical development and criticism of the Geoprosco rule, ultimately concluding that it is not part of Cayman Islands law. The PC agreed with longstanding academic and judicial criticism that Geoprosco rests on an illogical and unrealistic distinction between challenging the existence of jurisdiction and challenging the exercise of an admitted jurisdiction. If the substance of an application is to resist a foreign court taking jurisdiction, it should not matter how that application is characterised.

The PC held that Cayman Islands law reflects the approach in Rubin v Eurofinance SA23. That is, a party submits to a foreign court’s jurisdiction if it takes a step in the foreign proceedings that is only necessary or useful if an objection to jurisdiction has been waived or never existed. In other words, a step that is not consistent with or relevant to challenging jurisdiction or seeking a stay of the foreign proceedings will constitute a submission. An application to stay foreign proceedings in favour of arbitration or an exclusive jurisdiction clause will not amount to a submission. Accordingly, the same approach governs whether there has been a submission to foreign jurisdiction for the purposes of recognising and enforcing a foreign judgment in the Cayman Islands and for the grant of an anti-suit injunction by the Court.

On the facts in this case, the steps taken by the respondent in Pakistan, including applying to vary the interim injunction, were in substance part of resisting the Pakistan court’s assumption of jurisdiction, so did not amount to a submission to the jurisdiction of that court.

Interim injunctive relief in support of fraud claims

Target Global Growth Fund II, SCSP-RAIF

v Liu Xun24- guidance on injunctive relief in the cryptocurrency

context

IN A NUTSHELL

In granting a worldwide freezing order the Grand Court (the “Court”) provided a clear and convenient summary of the legal principles relevant to the grant of worldwide freezing and proprietary injunctions in support of fraud claims. The guidance will be particularly useful in the context of crypto specific dissipation risks.

BACKGROUND

The plaintiffs alleged that their investment of US$31.5 million into XanGroup Holdings Corp, a Cayman Islands company, had been induced through the defendant’s fraudulent misrepresentations and the defendant intended to divert the funds from the company’s business as a decentralised payment network operator for his personal use. Among other alleged misconduct, the plaintiffs claimed the defendant had signed a false share repurchase agreement on behalf of XanGroup to disguise payment transfers into his own account. The defendant maintained that there had simply been a failed commercial investment.

The plaintiffs had previously obtained a temporary worldwide freezing order in Singapore in aid of the anticipated Cayman Islands proceedings. At a very late stage immediately before the hearing, the defendant had attempted to resolve matters by offering an undertaking to the plaintiffs in lieu of the injunctions sought. The matter was heard on notice to the defendant, and he was represented at the hearing.

WORLDWIDE FREEZING ORDER

The Court noted that a worldwide freezing order is “a very big step to take” and that it must “scrutinise the basis for such an injunction with the utmost care”. Nevertheless, an application for an injunction should not be treated as a mini-trial and the court will not have the benefit of witness examination or discovery. Such injunctions are granted to avoid a judgment that a plaintiff may ultimately obtain going unsatisfied because of an unjustified dissipation of assets.

The Court applied the accepted common law test for freezing orders, which requires the applicant to show:

• A good arguable case on the merits: this is equivalent to a “serious issue to be tried” and does not require a better than 50% chance of success;

• A real risk of dissipation of assets: which is defined as “something which is more than fanciful”. Solid evidence of a risk of dissipation is needed, albeit there is no requirement to show a high probability or that dissipation is more likely than not; and

• That it would be just and convenient to grant the injunction.

The key question was whether the real risk of dissipation requirement was met. In finding that it was, the Court considered the totality of the circumstances, including:

• The defendant admitting to using company funds in his personal name to make high-risk cryptocurrency trades resulting in substantial losses;

• The defendant’s numerous worldwide connections. He gave an address in China, appeared to have residency and employment rights in Singapore, had dual nationality in the Netherlands and Hong Kong and was for a time stranded in Vietnam when his passport was confiscated;

• The speed with which the defendant could transfer assets, particularly cryptocurrency, with the Court noting that digital wallets can be “completely anonymous and untraceable to the owner and can be easily dissipated and hidden in cyberspace”;

• The defendant’s apparent temporary disappearance whilst his passport was confiscated and during which he failed to keep in contact with the plaintiffs, who were major investors; and

• The defendant’s use of false documentation and false declarations when conducting the KYC process with a cryptocurrency exchange.

PROPRIETARY INJUNCTION

The Court noted that “where a plaintiff seeks to trace a beneficial interest in assets it is well established that the court can grant a proprietary injunction for the purpose of preserving the assets so that they can be made over to the claimant as his property if the claim succeeds.” The purpose of such an injunction is to preserve the status quo until the plaintiff’s substantive claims are determined. The requirements to be satisfied are:

• A serious issue to be tried in respect of facts which, if proven, would afford the plaintiffs a proprietary remedy;

• The balance of convenience favours the grant of a proprietary injunction; and

• It must be just and convenient to grant such relief.

The Court found that these requirements were met in the present case.

KEY TAKEAWAYS

• The list of factors considered when assessing the risk of dissipation was noteworthy in the cryptocurrency context. The ease with which this class of assets can be anonymously transferred in a short timeframe was a relevant factor in the grant of injunctive relief.

• An undertaking is not necessarily a complete answer to an applicant’s concern that assets may be dissipated. The defendant’s conduct and the specific terms of the undertaking offered will be assessed by the Court when considering the weight to be placed on it.

• The mere fact that a fraud claim is brought, even when the allegations reach the standard of good arguable case/serious issue to be tried, does not automatically satisfy the threshold for establishing a real risk of dissipation. If evidence of fraud and dishonesty is relied upon to establish the risk of dissipation, the Court will typically have to draw inferences from that evidence and so should be satisfied that the dishonesty alleged is relevant to the risk of dissipation.

• The fact that another court had found that the requirements for worldwide freezing relief were met on the same facts can provide assurance to the Court in considering granting such relief in this jurisdiction.

Deceit claims

Abdulhameed Dhia Jafar v Abraaj Holdings (In Official Liquidation) & Ors25Grand Court dismisses US$232 million claim relating to the Abraaj Group

IN A NUTSHELL

The Grand Court (the “Court”) dismissed the plaintiff’s claims for deceit under Cayman Island law and unjust enrichment under UAE law. The extensive judgment summarises legal principles relating to the Court’s approach to the assessment of witness evidence, the drawing of adverse inferences from a party’s failure to call a witness, the law of deceit, admissibility and application of expert evidence regarding foreign law, and the law of attribution and vicarious liability.

BACKGROUND AND CLAIM

The liability judgment relates to the high-profile collapse of the Abraaj Group, a prominent United Arab Emirates (“UAE”) based private equity group founded by Mr Naqvi. The plaintiff (“Mr Jafar”) loaned approximately US$350 million to Abraaj Investment Management Limited (“AIML”) and Abraaj Holdings (“AH”) — via three separate loans. The loans were rapidly passed from AIML and AH to two private equity funds in the Abraaj group (the “Funds”).

Following Abraaj Group’s collapse, AIML and AH went into insolvent liquidation and therefore Mr Jafar needed to establish claims directly against the Funds to recover his losses in respect of the loans. Mr Jafar had made the loans at Mr Naqvi’s request following a few meetings and conversations with Mr Naqvi in December 2017. Mr Jafar claimed that Mr Naqvi had made fraudulent misrepresentations that induced him to make the loans. Mr Jafar brought claims against the Funds’ general partners and an Abraaj Group company that one of the Funds made investments through (the “Fund Parties”) seeking US$232 million plus interest:

• The first claim was in deceit based on the Funds being liable for the fraudulent misrepresentations allegedly made by Mr Naqvi.

• Secondly, Mr Jafar made a claim against the Fund Parties under the UAE law of unjust enrichment based on the Fund’s receipt of payments made by AIML and AH out of the monies advanced by Mr Jafar.

DECISION

Mr Jafar’s case was based on conversations with Mr Naqvi that were never documented in writing, and Mr Jafar was forced to rely on his own recollection of conversations that took place many years ago in circumstances where he was largely unable to recall the precise words used. Mr Naqvi did not give evidence (he was on remand in the UK, awaiting extradition to the United States), and Mr Jafar’s son, Badr (a director of AH and close to Mr Naqvi), was not called as a witness— which the Court concluded was a significant omission on Mr Jafar’s part. The Court also found that Mr Jafar was aware of aspects of Mr Naqvi’s misconduct and turned a blind eye to it.

The Fund Parties were indirect recipients of the loans Mr Jafar advanced to AIML and AH. Mr Jafar had to argue that Mr Naqvi was formally acting on behalf of the Fund Parties when they were not assuming any liability to Mr Jafar and did not need to engage with him. The Court noted that this was an uphill struggle that Mr Jafar couldn’t meet.

The Court ultimately dismissed Mr Jafar’s claims. The deceit claim failed because:

• Mr Jafar did not prove that Mr Naqvi said what Mr Jafar claimed;

• Mr Jafar did not understand (and a reasonable lender in his position would not have understood) that Mr Naqvi was making the express or implied representations claimed; and

• Mr Jafar was not induced by, and did not rely to any material extent on, any representations made by Mr Naqvi.

While these conclusions meant that it was not strictly necessary for the Court to consider the UAE deceit claim under the double actionability rule, it also concluded that Mr Jafar failed to prove his case in deceit under UAE law. As to Mr Jafar’s UAE unjust enrichment claim, the Court concluded based on expert evidence on UAE law that Mr Jafar was unable to maintain a claim in enrichment without cause when he affirmed and did not rescind the loans.

KEY TAKEAWAYS

In considering the claims, the Court summarised various legal principles as follows:

• When assessing witness evidence, the Court will focus on objective evidence and inherent probabilities, treat witness recollections with caution, and require strong proof to substantiate serious allegations such as fraud.

• The Court will consider drawing adverse inferences from the absence of a witness in justified circumstances. However, the Court will do so carefully by considering all relevant factors and explanation, and it will give reasons for doing so. In this case, the Court drew an adverse inference from Mr Jafar’s failure to call a witness because that decision was found to be deliberate and self-serving.

• The double actionability rule imposes an additional requirement in cases of civil wrongs based on acts done in a foreign jurisdiction that a plaintiff must satisfy, namely, to show that they could maintain their tort claim in the foreign jurisdiction. The double actionability rule must apply unless clear and satisfying grounds are shown why it should be departed from and what solution should be preferred. While there is a flexible exception to the double actionability rule, that exception should not be applied lightly.

• When applying foreign law, the Court must not apply Cayman Islands (or English) common law patterns of thought and must instead focus and rely on the expert evidence regarding the foreign legal system. The task of a trial judge when

Domestic enforcement of foreign interim awards

Golden Meditech Stem Cells (BVI) Company Limited v Nanjing Yingpeng Huikang Medical Industry Investment Partnership (Limited Partnership)26 –interim relief in support of arbitration

IN A NUTSHELL

Foreign arbitral injunctive interim measures can be given domestic effect to preserve the status quo.

BACKGROUND AND CLAIM

The plaintiffs and the defendant were parties to arbitration proceedings in Beijing, administered by the China International Economic and Trade Arbitration Commission (“CIETAC”). The plaintiffs had transferred shares in a Cayman Islands company (“GCBC”) to the defendant but part of the purchase price remained outstanding. The subject matter of the arbitration included the parties’ rights and obligations under the agreements effecting the share transfer and the shares’ beneficial ownership.

During the arbitration, the CIETAC tribunal issued an interim measure restraining any dealings in the shares of GCBC or any change in its shareholder structure to preserve the status quo and avoid prejudice to the arbitral process and the enforceability of any final award (the “Interim Measure”). The Hong Kong Court granted leave to enforce the Interim Measure in Hong Kong, and the deadline for challenging that order had expired. The plaintiffs applied ex parte for leave to enforce the Interim Measure in the Cayman Islands as a judgment of the Grand Court (the “Court”).

As an added wrinkle, GCBC had been in provisional liquidation in the Cayman Islands for several years, and so the Court also had to consider the interaction between the Interim Measure and the powers of the joint provisional liquidators (the “JPLs”).

LEGAL FRAMEWORK

The plaintiffs applied pursuant to both the Arbitration Act 2012 (the “Arbitration Act”) and the Foreign Arbitral Awards Enforcement Act (1997) (the “FAAEA”). Under the Arbitration Act:

• Section 52 provides that interim measures issued by arbitral tribunals are to be recognised and enforced by the Court regardless of the issuing jurisdiction, subject to limited grounds for refusal. This section also empowers the Court to order the requesting party to provide appropriate security, if the arbitral tribunal has not already determined the issue or if necessary to protect the third party rights.

• Section 53 sets out the exclusive grounds on which enforcement may be refused. This includes grounds substantially mirroring those set out in the New York Convention (such as incapacity, invalidity of the arbitration agreement, lack of proper notice or inability to present one’s case, excess of mandate, irregularity in composition or procedure, subject matter is not arbitrable, or enforcement is against public policy), failure to provide security in connection with an interim measure, termination/suspension of an interim measure or incompatibility of an interim measure with the Court’s powers.

• Section 54 confirms the Court’s power to issue interim measures in support of both domestic and foreign-seated arbitrations.

The FAAEA similarly provides for the recognition of foreign arbitral awards, other than in limited specific circumstances – largely the same grounds as set out in the Arbitration Act.

In Al Haidar v Rao [2023] 1 CILR 170, the jurisdiction’s first decision on the enforceability of interim awards, Kawaley J considered the interplay between the FAAEA and section 52 of the Arbitration Act, finding that:

• The FAAEA is the “umbrella” statute governing the enforcement of foreign arbitration awards and that, following the introduction of the Arbitration Act, the FAAEA fell to be construed as implicitly extending to include foreign interim awards capable of enforcement as “awards” under the Arbitration Act.

• Alternatively, section 52 of the Arbitration Act creates a freestanding regime for recognition and enforcement of interim measures, irrespective of the jurisdiction in which they were issued.

• In any event, the Court has jurisdiction to grant leave to enforce a foreign interim measure, subject to the limited grounds for refusal (set out above).

Kawaley J also emphasised the pro-enforcement policy underlying the New York Convention and the Arbitration Act, and that the grounds for refusing enforcement should be construed narrowly.

DECISION

In considering whether any of the limited grounds for refusal applied, the Court had to be satisfied on the evidence before it that there was no obvious basis to refuse recognition or enforcement (and the defendant would have an opportunity to resist recognition and enforcement on the return date).

In this case, there was no basis under section 53 of the Arbitration Act to refuse recognition or enforcement of the Interim Measure. Of note:

• In relation to the provision of security, the Interim Measure did not require the plaintiffs to provide security, but the tribunal noted that the questions of security might arise. The Court decided it was not necessary or appropriate to require security in circumstances where the Interim Measure only preserved the status quo (but without prejudice to any future on notice application for security).

• The Interim Measure was compatible with the Court’s powers, as asset-preservation and orders maintaining the status quo by restraining dealings in shares pending the determination of rights are familiar forms of relief to the Court, both in arbitration related and insolvency contexts.

• Recognition of the Interim Measure would not be incompatible with the prior appointment of JPLs. While the order appointing the JPLs partially disapplied section 99 of the Companies Act (avoiding dispositions of property and transfer of shares after commencement of winding up), the order did not confer a free-standing right to implement changes to GCBC’s share register in circumstances where beneficial ownership of the shares was disputed. Maintaining the status quo pending determination by CIETAC did not constrain the JPLs’ powers or conflict with their appointment order. The Court retained full supervisory jurisdiction over the JPLs.

• There was no issue of arbitrability or conflict with public policy – this was a contractual dispute, the Interim Measure was a standard form of relief, CIETAC was a reputable international arbitral institution, and the tribunal had granted the Interim Measure following contested proceedings in which the defendant fully participated.

As there was no basis to refuse recognition or enforcement, the Court concluded that, consistent with the pro-enforcement policy, the Interim Measure should be recognised and enforced in the Cayman Islands.

KEY TAKEAWAYS

• The Cayman Islands has a pro-enforcement policy in relation to arbitration, and exceptions to enforcement are construed narrowly.

• Interim measures to preserve assets and maintain the status quo pending resolution of a dispute are entirely standard forms of relief in the Cayman Islands.

• The Court has the power to grant recognition and enforcement not only in relation to final arbitral awards, but also in relation to interim measures granted by a foreign tribunal.

• The Court has discretion to require the provision of security as a condition of any such order.

• Existing insolvency proceedings are not necessarily a bar to recognition and enforcement of interim measures.

Guidance on service of arbitral enforcement orders

Suning International Group Co Limited & Suning.com Co Ltd v Carrefour Nederland27- departure from Hague Convention service channels

IN A NUTSHELL

The Cayman Islands Court of Appeal (“CICA”) has clarified the circumstances in which the Cayman courts will order service in a manner which departs from that envisaged under the Hague Convention for service of proceedings to enforce a foreign arbitral award28

DECISION

The Grand Court (the “Court”) granted Carrefour an ex parte order giving it leave to enforce an arbitral award against Suning in the Cayman Islands, directing that service be effected on Suning by delivering the court documents (including the ex parte order) to Suning’s arbitration counsel in Hong Kong. Suning applied to the Court to set aside the order on various grounds. The main ground was that the order had not been validly served because the method of service authorised by

the Court was irregular and not in accordance with the Hague Convention. The Court dismissed Suning’s application but granted leave to appeal on the basis that this issue was a matter of public importance.

THE APPROACH TO SERVICE

GCR Order 73, rule 31(6) provides that an order giving leave to enforce an arbitral award may be served personally, by sending to the respondent’s usual or last known place of residence or business, or “in such other manner as the Court may direct, including electronically”. The CICA considered that the wording of rule 31(6) confers a wide discretion on the Court.

As for the exercise of that discretion, the CICA confirmed that the provisions of the Hague Convention (where applicable) must be considered. This raises a question of when a court can order service in a manner which departs from that envisaged under the Hague Convention. To answer that question, the CICA adopted the approach of the English Commercial Court in M v N29.

M v N establishes that, where the Hague Convention is applicable, the court must be satisfied that there is ‘good reason’ to depart from Hague Convention service channels before ordering an alternative method of service. However, if the destination state has made an objection under Article 10 of the Hague Convention, a further requirement is imposed: the court will only order an alternative method of service in ‘exceptional’ or ‘special’ circumstances. At paragraph 16 of his judgment in M v N, Foxton J30 identified various factors that have been held sufficient to satisfy the ‘exceptional’ or ‘special’ circumstances requirement, including the need for speedy finality in the case of the enforcement of an arbitration award, and the fact that the respondent had engaged fully in the arbitration process giving rise to the award.

The CICA recognised it would be contrary to the public interest if enforcement of arbitral awards were to become slow and protracted because of a requirement to effect service through Hague Convention channels. Accordingly, the CICA indicated the Cayman courts will readily order alternative service where it is appropriate to do so: “if an application contains all the necessary information and if the matter is then considered by the court in the light of the specific facts of the case, I see no reason why, as set out in M v N, the court should not… ‘usually’ or ‘routinely’ decide that good reason or exceptional circumstances, as the case may be, are made out so as to justify an order for service other than through the relevant Central Authority”

27 [2025] CICA (Civ) 11.

28 The Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters (the “Hague Convention”).

29 [2021] EWHC 360 (Comm).

30 As he then was.

THE REQUIRED EVIDENCE

In light of the above considerations, the CICA made clear that any application seeking an order for service which departs from the Hague Convention service channels must be supported by appropriate evidence addressing the following issues:

• the practicalities of effecting service on the relevant party in accordance with the Hague Convention, including the expected timeframe for, and reliability of, the relevant service channel(s);

• any urgency regarding service, and which of the factors described by Foxton J at paragraph 16 of his judgment in M v N are in play;

• whether the destination country has made an Article 10 objection (to confirm whether ‘exceptional’ or ‘special’ circumstances are required); and

• the reasons why alternative service is appropriate in the circumstances.

DECISION

The CICA dismissed Suning’s appeal and held that while the first instance judge (and the CICA) had not been

provided with the necessary information to properly apply the Hague Convention considerations above (such as how long service via the Central Authority would take), this was to be treated as an irregularity under GCR Order 2, rule 1 that did not require setting aside the Order. The CICA noted that these were unusual circumstances where the appropriate procedure to be followed in relation to GCR Order 73, rule 31(6) had not previously been clarified until the CICA’s present judgment.

KEY TAKEAWAYS

This case is a helpful statement of the relevant procedure. The guidance in relation to evidence should be closely followed: the CICA noted that having now clarified the proper approach, failure to follow it in future cases “is likely to result in any service being treated as ineffective”

The case also emphasises the pragmatic and proenforcement approach of the Cayman Islands to service in arbitration enforcement proceedings, and the Cayman courts’ readiness to depart from the Hague Convention service channels where appropriate. This will be welcome news to award creditors seeking to take enforcement action in the Cayman Islands.

Merger Appraisal Disputes

Section 238 (“s.238”) merger dissent actions in the Cayman Islands are court proceedings in which shareholders who dissent from a statutory merger or consolidation under the Companies Act seek a judicial determination of the “fair value” of their shares, rather than accepting the merger consideration. They have become significant because many international take private transactions involve statutory mergers of Cayman incorporated companies from which experienced merger arbitrage funds dissent and the resulting appraisals often turn on complex valuation evidence (including management projections, market data, merger process issues and expert discounted cash flow analyses).

There have been several recent developments in the ever-evolving s.238 disputes space. In September, the Privy Council (the “PC”), the highest appellate court for the Cayman Islands provided useful and

Authors

Malachi Sweetman

+1 345 814 5233

malachi.sweetman@maples.com

Caroline Moran

+1 345 814 5245

caroline.moran@maples.com

wide-ranging guidance on the comparative reliability of valuation methodologies in Trina Solar, while in the space of three days in November, Parker J and Doyle J in the Grand Court of the Cayman Islands (the “Court”), gave judgments in Sina Corporation and 51job which represented different approaches to the key valuation methodologies and led to diametrically opposed fair value figures. Both these judgments are being appealed so it will be important to see how the appeal courts apply the PC’s principles set out in Trina Solar XingXuan provided a warning to companies that do not engage with the Court process, showing that the Court can and will determine the fair rate of interest that applies to the fair value award without representations from the company itself or even expert evidence. Meanwhile the PC in Jardine, in the context of a Bermudan merger appraisal dispute, abolished the rule that a company could not claim privilege against its shareholders in litigation with those shareholders.

Daniel Johnstone

+1 345 814 5174

daniel.johnstone@maples.com

Marit Hudson

+1 345 814 5416

marit.hudson@maples.com

Courts continue to consider the right approach to company valuation

IN A NUTSHELL

Trina Solar provided authoritative guidance from the Privy Council (“PC”) that Cayman fair value appraisals are case specific, and the methodologies used and their weightings will vary on the facts and circumstances of each case. The PC held that the reliability of any individual valuation methodology is not binary, but existing on a spectrum, and that regard must be had to the comparative reliability of other relevant valuation methodologies before a fair value conclusion can be reached. The PC ruled that Delaware jurisprudence is helpful while not binding and re-stated that appeal courts should be slow to overturn the conclusions of trial judges who were immersed in the detailed evidence.

Shortly afterwards, the judgment in Sina Corporation, which did not refer to the PC ruling in Trina Solar, rejected any reliance on adjusted market trading price (“AMTP”) or merger price in favour of exclusive reliance on a sum of the parts analysis (“SOTP”) on the basis that the flaws in the AMTP and merger process made them wholly unreliable.

This outcome is contrasted with the judgment in 51job, which had specific regard to the PC’s guidance, and concluded that the AMTP evidence in that case was the most reliable indicator of fair value, and the merger process evidence, while not perfect, was a ceiling on fair value. By contrast, the discounted cash flow (“DCF”) evidence in that case was found, on the facts, to be wholly unreliable.

Both Sina Corporation and 51job are being appealed to the Cayman Islands Court of Appeal (“CICA”) and it remains to be seen how the appeal courts will apply the Trina Solar guidance to these starkly different fair value outcomes.

In re Trina Solar31 – comparative reliability of valuation methodologies

BACKGROUND AND FACTS

Trina Solar was a PRC-based solar panel company listed on the Nasdaq and registered in the Cayman Islands and was taken private by way of statutory merger in 2017. At the hearing of the fair value petition, the dissenters’ expert relied solely on a DCF valuation of the company. The company’s expert opined that fair value should be determined based on a blend of a 40% weighting on the market price on the last trading day before the signing of the merger was announced (the ATMP); 40% weighting on the merger price; and 20% weighting on her DCF valuation which was significantly lower than the dissenters’ expert’s DCF valuation. The first instance judge in the Grand Court (the “Court”) largely accepted the evidence from the company’s expert including as regards the deficiencies or weaknesses in the marketbased methodologies but allocated different weightings – 30% on AMTP; 45% on merger price and 25% on a DCF.

On appeal by the dissenters, the CICA upheld the trial judge’s reliance on the AMTP but found that he was wrong to place any reliance on the merger price, which the CICA found was not a conclusion that was reasonably open to him on the evidence. In particular, the CICA found that the trial judge had failed to have due regard to the deficiencies in the merger process (in particular the lack of a robust market check) that made it, in the view of the CICA, wholly unreliable as an indicator of fair value. In the circumstances, the CICA ordered that the 45% weighting placed on the merger price be allocated to the DCF valuation. The CICA also ordered that two inputs into the management projections needed to be adjusted, resulting in an uplifted DCF valuation. The company appealed to the PC.

GENERAL GUIDANCE FROM THE PC

• When determining fair value in merger disputes, a variety of valuation methods may be used, either individually or on a blended basis, with no set preference for any one approach - the choice depends on the case’s specific facts with each method being assessed for its strengths and weaknesses based on extensive evidentiary support.

• The individual reliability of each method exists on a spectrum. Uncertainties in any method may exist but, aside from when the Court may draw adverse inferences or find that a party has not met its evidential burden, the Court must determine the impact of these uncertainties as opposed to dismissing the methodology entirely.

• Reliability is comparative between different methods. The Court may assign different weights to methods or use one as a cross-check for another, but significant divergence between methods may limit the utility of any cross-check. The Court may place pre-dominant weight on a valuation methodology even if the Court is not convinced that it is more reliable than not. Ultimately, the Court must qualitatively assess both the individual and comparative reliability of the valuation methods under consideration.

• The factors provided in the Delaware cases which have been adopted by the Court in many respects offer helpful but non-determinative factors.

• The trial judge’s role in determining valuation is highly fact-sensitive and requires nuanced judgment, especially given hypothetical scenarios and uncertainties. Ultimately, the weight given to any method depends on the circumstances of the case and relative reliability.

The PC restated the settled legal position that an appellate court should not interfere with a trial judge’s decision unless it was plainly wrong, and observed that this applied with particular force to a case such as this, where the trial judge’s conclusion was based on extensive cross-examination, their familiarity with the whole case, and the complexity of the issues involved.

DECISION

The PC found that the CICA had wrongly substituted its own view for that of the trial judge and therefore re-instated his conclusion on fair value. The trial judge had considered the strengths and weaknesses of the merger price evidence holistically as opposed to the binary assessment by the CICA, which appeared to treat the presence of a robust market check as an absolute requirement as opposed to a relevant factor to be considered. For the same reason, the PC overturned the changes made by the CICA to the DCF inputs.

CONCLUSION

The PC’s guidance in relation to reliance on merger process is welcome, as the CICA judgment seemed to apply a “checklist” of features, that would likely have been difficult if not impossible to comply with and created increased deal uncertainty. The comments about comparative reliability are also helpful with other methodologies such as AMTP and comparable companies, meaning that some uncertainty about an aspect will not preclude them from being relied upon.

In re Sina Corporation32 – fair value is 2.4 times greater than merger price

BACKGROUND AND FACTS

A Nasdaq-listed company, Sina’s primary asset was a controlling interest in Weibo Corporation (“Weibo”), a microblogging platform (known as the Chinese Twitter), also listed on the NASDAQ, together with long-term investments, the most significant of which at the time of the merger was TuSimple Holdings Inc. (“TuSimple”), an autonomous trucking start-up which was privately held at the time of the merger but which went through an IPO shortly after. Sina also had an online media content business and a micro-lending business (referred to as its standalone business).

After a prolonged period of declining market price for both Sina and Weibo, on 6 July 2020 a consortium led by New Wave MMXV (“New Wave”) a company controlled by Sina’s CEO and chairman, which had 61.6% of the company’s voting power, offered $41 per share to take Sina private. After period of negotiation, on 28 September 2020, Sina’s special committee accepted New Wave’s best and final offer of $43.40 and at an EGM held on 23 December 2020 (which was the valuation date for the purposes of the appraisal), the merger was approved and closed on 21 March 2021.

EXPERT EVIDENCE

At the trial in February and March 2025, Sina’s valuation expert opined that the fair value of the dissenters as at the valuation date was US$40.15/share. This was based on his use of a blended approach: 45% weighting on the ATMP (US$37.20), 10% weighting on merger price (US$43.30), and a 45% weighting on a SOTP analysis (US$42.41). His SOTP analysis comprised:

• DCF valuations of Weibo and Sina standalone;

• TuSimple valued based on its most recent funding found before the valuation date;

• Long-term investments valued on market prices with discounts for lack of marketability; and

• A holding company discount (“Holdco Discount”) to his SOTP valuation to reflect the fact that investors in Sina were primarily indirectly investing in Weibo and that Sina’s market price had historically and consistently under-performed Weibo’s.

The dissenters’ expert valued the dissenters’ shares in Sina at US$137.42/share based solely on a SOTP valuation. His SOTP comprised:

• Weibo valued based on AMTP (with a DCF cross-check).

• Sina standalone valued based on revenue multiples.

• TuSimple valued based on comparable companies/ revenue multiples assuming an 80% likelihood of an IPO at the valuation date.

• Long term investments valued based on market prices with smaller discounts for lack of marketability.

• No reliance on the merger price for lack of a robust process and because of concerns he had about the independence of the special committee.

• No reliance on the AMTP due to his conclusion that the market for Sina’s was not semi-strong form efficient including because it was affected by COVID at the relevant time, there was no reliable means of rolling forward the market price, and the presence of material non-public information (“MNPI”).

FAIR VALUE JUDGMENT

The fair value judgment of the Court was circulated to the parties in draft on 14 August 2025 and handed down on 21 November 2025 and did not make any reference to the Trina Solar PC ruling.

The judge found that fair value was $105.26/share, based solely on an SOTP valuation. In particular:

• He agreed that the AMTP of Sina was not a good indicator of fair value, for the reasons given by the dissenters’ expert, and placed no reliance on it accordingly.

• While he recorded that the expert evidence was the market for Weibo was efficient at the relevant times, he refused to use it to value Weibo at the valuation date because it was affected by news of the merger.

• Although he found that the special committee of Sina was competent, independent and not conflicted and that there was no realistic possibility of New Wave paying more than it did or of another bidder paying more because of PRC regulatory issues, he rejected even a 10% reliance on merger price because of what he described as a “fatal flaw” in the merger process –the lack of a market-check. He was also critical of the failure to include a majority of the minority provision in the merger agreement.

• He refused to apply any Holdco Discount to the SOTP valuation of Sina, even though he agreed that it was an “observable phenomenon”, saying that it was not supported by the evidence or the academic materials on valuation, and that applying a Holdco Discount would amount to reverse engineering the SOTP valuation to align with the market-based methodologies.

• He rejected significant parts of the dissenters’ expert’s SOTP, including the valuation of Weibo, the valuation of Sina standalone, while largely accepting others, such as the valuation of TuSimple based on the likelihood of an IPO and the valuation of the LTIs. He also accepted certain of the dissenters’ expert’s inputs on the DCF valuation of Sina standalone.

CONCLUSION

The fair value judgment in Sina is the largest by value in s.238 appraisals and represents the greatest percentage uplift to merger price in any contested appraisal. It is being appealed. The judgment appears to be at odds with the comparative reliability guidance from Trina Solar from the PC and with the approach adopted in relation to AMTP and merger price by the Court in 51job (discussed below). The values attributed by the Court to Weibo and TuSimple as at the valuation date are multiples higher than the value of the firms at the time that the fair value judgment was handing down, inviting questions as to how this hindsight information should be incorporated into a determination of fair value.

In re 51job33 - fair value is 51% of merger price

BACKGROUND AND FACTS

51job was a provider of integrated human resource services in China, with a significant online component. It was de-listed from the Nasdaq on 6 May 2022 after the completion of a take-private transaction by way of a statutory merger which led to the appraisal proceeding under s.238.

The genesis of the take-private was an unsolicited proposal from a private equity firm on 20 September 2020 offering to pay $79.05/share. After a long period of deliberation and discussion with the company’s biggest shareholder, Recruit (holding a blocking stake of 34.8% of the shares), about the potential terms of the transaction, the CEO of 51job decided to join the buyer consortium in May 2021. Another private equity firm joined the buyer consortium, Recruit agreed to rollover its shares in the transaction and after a period of negotiation with a special committee of 51job’s board of directors, a merger agreement was signed on 21 June 2021 for a merger consideration of $79.05/share.

After a go-shop market check that did not elicit any topping bids, in August 2021 the private equity firms in the buyer consortium indicated to 51job that considering the PRC regulatory environment, they considered that they needed to obtain regulatory approval for the transaction. 51job disagreed and for a period through late 2021 progress on the transaction was stalled as regulatory approval was sought. During this time the value of the stocks of PRC internet companies listed on US exchanges plummeted because of regulatory and macro-economic issues.

On 12 January 2022 the buyer consortium submitted a revised bid of $57.25 per share. After taking independent financial and legal advice, the special committee negotiated the price up to $61/share and a further merger agreement was signed on 1 March 2022. Another go-shop market check failed to produce a higher bidder and the merger was approved at an EGM held on 26 April 2022 (the valuation date), with 75% of shareholders who were unaffiliated with the buyer consortium voting in favour of the merger. Between 1 March 2022 and 26 April 2022, the value of PRC internet stocks listed on US exchanges continued to fall, and there was a severe resurgence of COVID in the PRC which impacted 51job’s business.

EXPERT EVIDENCE

51job’s valuation expert opined that the fair value of 51job’s shares on the valuation date was $31.11/share based on the ATMP of 51job’s stock.

• He looked first at the market price of 51job on 16 September 2020 (the last trading day before the first offer of $79.05 was made public) which was $68.12/ share and concluded that, based on the results of his event study, the market was semi-strong form efficient at the date.

• On the undisputed basis that the market price of 51job was affected by the possibility of a merger at $79.05/share from that point until 12 January 2022 (when the revised offer at $57.25/share was submitted) he concluded, based on the evidence, that the $79.05/share offer was affecting 51job’s market price upwards on 11 January 2022, rather than affecting it downwards.

• He did not consider that there was any MNPI which would prevent reliance on the AMTP and accordingly rolled forward 51job’s market price of 11 January 2022 (which was $45.83/share) to the valuation date of 26 April 2022, by looking at the performance of relevant stock market indices during that period. Because of the impact of COVID and the macro-economic issues referred to, the AMTP on the valuation date was $31.11/share.

• He cross-checked his roll-forward by rolling forward the price on 17 September 2020 to the valuation date using the same methodology which produced a slightly lower value.

• He considered that the merger process was sufficiently robust to merit reliance, and that considering the falling values of PRC companies listed on US exchanges during the relevant period, the buyer group had paid more than fair value, meaning that it was a ceiling on fair value. If merger price was to be used to determine fair value, he opined that it would have to be adjusted downwards.

• He did not consider that a DCF valuation of 51job would be a reliable indicator of fair value, for several reasons including that the projections on which a DCF would be based were stale, overly optimistic and did not go out to a steady state. He also considered that the DCF inputs applied by the dissenters’ expert were skewed high.

The dissenters’ expert opined that the fair value of the dissenters’ shares in 51job on the valuation date was $111.06/share, based on his DCF valuation using management projections prepared by company management in May 2021.

• As regards the merger price, he considered that it was insufficiently robust to be relied upon as an indicator of fair value, in light of what he considered to be: an insufficient market check; lack of protections in the merger terms for minority shareholders; lack of oversight by the special committee; the downward revision of the merger price from $79.05/share to $61/share; and conflicts within the transaction.

• He discounted reliance on the AMTP on the grounds that his event study did not show adequate evidence of semi-strong form efficiency; what he considered to be the ongoing impact of COVID in September 2020; he identified instances of alleged MNPI that were not taken account of the market price; and he did not accept that the market price could be reliably rolled forward to the valuation date.

• He preferred not to use the company’s management projections from February 2022 because of what he said were overstated costs, and the fact that they were prepared by management who had an interest in the merger with insufficient oversight from the Special Committee or its advisors.

• He extended the explicit forecast period of the 2021 management projections by 7 years and tapered down growth rates. He also made some adjustments to reflect the impact of COVID in 2022 and increased competitive pressure.

FAIR VALUE JUDGMENT

The 51job trial took place in June and July 2025. When the Trina Solar PC ruling was handed down, the judge asked the parties for further submissions and expressly addressed the ruling and its implications in the fair value judgment. The judge fully accepted the evidence of 51job’s valuation expert and rejected the evidence of the dissenters’ expert, concluding that fair value was in fact $31.11/share. Specifically:

• He concluded that the dissenters’ expert’s DCF was fundamentally flawed and unreliable for the reasons given by the company and its expert (including optimistic projections, staleness and steady state issues) and said further that he did not consider that the Court could produce its own reliable DCF either

• He had specific regard to the Trina Solar PC guidance on the comparative reliability exercise to be undertaken and concluded that he could place no reliance on the DCF and could and in this case should place exclusive reliance on the AMTP in accordance with Trina Solar PC and the Delaware cases cited there.

• He concluded that the company’s expert’s AMTP was reliable, supported by credible evidence and withstood a critical judicial analysis on the record.

• As regards the merger price, having considered all the evidence and the criticisms advanced by the dissenters and their experts, he concluded that there was an adequate market check; that the merger process was not perfect but was characterised by many indicia of reliability and there were no substantial deficiencies in the merger process.

CONCLUSION

The dissenters in 51job are appealing the Court’s judgment. How the Cayman Islands Court of Appeal applies the Trina Solar PC guidance to this judgment, not least because the judge specifically stated he had regard to and applied that guidance and given the deference that the PC mandated appellate courts should apply to first instance judge’s rulings, remains to be seen.

Court will provide active case management

In re XingXuan Technology Ltd34 – fair rate of interest determined in an unopposed appraisal

IN A NUTSHELL

The Grand Court (the “Court”) determined the fair rate of interest to be applied to the fair value amount on the application of the dissenting shareholder without any expert evidence and without the company being represented. In doing so a clear message was sent that the Court will actively manage appraisal cases to deliver effective, proportionate outcomes consistent with constitutional and appellate guidance and that non-participation in proceedings can result in serious financial consequences (with indemnity costs being awarded against the company for its improper and unreasonable conduct which undermined the s.238 regime).

The extreme facts are unlikely to be repeated in the future and given that the assessment of interest proceeded on an uncontested basis, without the benefit of expert evidence, the judgment (which in many respects simply applies the reasoning of prior cases) is of limited precedential value to the calculation of a fair rate of interest. Of greater significance is the message that the Court sent to litigants.

FAIR VALUE JUDGMENT

XingXuan Technology Ltd (“XingXuan”) was a food service delivery servicing cities in the PRC, founded in 2014. Originally a wholly owned subsidiary of Baidu Inc. (“Baidu”), in time other investors became shareholders of XingXuan but it was never publicly listed. In a highly competitive sector, XingXuan was always loss making and in 2017, the business was sold to a subsidiary of Ele. me, itself owned by Alibaba Group, giving rise to the appraisal proceeding.

In 2023, XingXuan informed the Court that it could no longer afford to instruct its attorneys and its Cayman counsel came off the record. The Court declined to allow XingXuan participate in the appraisal without legal representation and in 2024 proceeded to determine the fair value of the dissenter’s shares on an unopposed basis, based on expert evidence from the dissenter only.

Following the fair value judgment, the dissenter applied for the determination of a fair interest in accordance with s.238(11) of the Companies Act (As Revised) and the costs of the proceedings to be determined by the Court on the papers without an oral hearing and without expert or factual evidence – i.e. based on written submissions alone. The judge agreed to the proposal reserving the right to request expert evidence, factual evidence and/or an oral hearing if necessary.

The dissenter submitted that in applying the principles from previous s.238 cases where expert evidence was adduced to the facts of this case:

• The established basis to determine the fair rate of interest is the mid-point between the company borrowing rate (being the rate at which the company could have borrowed the fair value of the dissenters’ shares) and the prudent investor rate (being the rate at which prudent investors in the position of the dissenting shareholder could have obtained, if they had had the money to invest).

• The company borrowing rate in this case was 4.35% and the prudent investor rate was 8.43% (using the same asset allocation of 45% equities, 45% bonds and 10% cash, and the same asset class indices (ETFs) for the assumed returns as applied in Re iKang Healthcare Group, Inc35) and therefore the midpoint between the company borrowing rate and the prudent investor rate was 6.39%.

• They were entitled to pre-judgment interest from the date of the company’s fair value offer under s.238(8) to the date of the Court’s order on interest (as no interim payment had been made) and thereafter interest would accrue on the fair value sum at the judgment debt rate of 2.375% per day until paid.

The dissenter submitted that it should be awarded indemnity costs due to the company’s conduct in relation to the proceeding which it submitted was “wholly cynical”.

DECISION

The judge, although sceptical at first, accepted that the fair rate of interest could be determined without expert evidence and by reference to well established principles from previously decided cases. He noted that past cases the general principles concerning the determination of the fair rate of interest were discussed in detail and in, Integra Group36, it was determined without any expert evidence or affidavit evidence. He further noted that in Re iKang Healthcare Group, Inc.37 , the Court stated that the procedure for establishing the fair rate of interest must be conducted in accordance with the overriding objective and must be proportionate and cost-effective.

The judge referred to sections 7 and 15 of the Cayman Islands Constitution and Re Changyou.com Limited38 in support of the conclusion that there was “a positive duty on the Court to seek to make the substantive law effective in an efficient manner.”

Accepting the dissenters’ submissions, the judge held that:

• The fair rate of interest was 6.39% which is the midpoint between the company borrowing rate and the prudential investor rate.

• The judge cross-checked the interest rate against fair rate of interest findings in previously decided cases such as 4.95% in Re Integra Group39 in 2015, 4.295% in Re Shanda Games Limited40 in 2017, and the rates (for various dissenters and various interest periods) ranging between 6.7% and 7.19% in Trina Solar41 in 2021.

• Pre-judgment interest should run from 29 September 2017 (the date of the company’s fair value offer under s.238(8)) until 5 February 2025 at the rate of 6.39% and interest thereafter at the statutory rate of 2.375% on the judgment debt of US$318,690,000. The pre-judgment interest ran from the date of the company’s fair value offer as the company had failed to make the interim payment after being ordered to do so.

• As regards indemnity costs, the improper and/or unreasonable conduct of the company (e.g. failure to make an interim payment and the withdrawal of funding for its lawyers) infected the proceedings as a whole and justified a general award of costs on the indemnity basis.

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Clarity on assertion of privilege against shareholders

Jardine Strategic Limited v Oasis Investments II Master Fund Ltd and 80 others (No 2)42 - “Shareholder Rule” on privilege abolished

IN A NUTSHELL

The Privy Council (“PC”) has abolished the longstanding (but somewhat controversial) rule that a company could not claim privilege against its shareholders (the “Shareholder Rule”) in discovery proceedings. This decision brings welcome comfort to companies and directors who can now obtain legal advice with reasonable certainty that it will be protected by privilege in the event of future litigation with shareholders. This is a significant reshaping of the disclosure dynamics both in shareholder disputes and merger appraisal actions. This decision is binding on the Cayman Islands courts.

BACKGROUND

This decision was from an appeal to the PC from a decision of the Court of Appeal of Bermuda. The appeal arose in the context of appraisal proceedings commenced pursuant to the Companies Act 1981 of Bermuda (the “Fair Value Proceedings”).

The issue on appeal was whether Jardine Strategic Limited (“Jardine”) could assert legal professional privilege against its shareholders over legal advice relating to the take private transaction that formed the basis for the appraisal proceedings. The dissenting shareholders claimed that it could not, relying on the “Shareholder Rule”.

The origins of the Shareholder Rule are found in Gouraud v Edison Gower Bell Telephone Co of Europe Ltd43. The rule was found to exist by analogy to the relationship between trustees and beneficiaries; being that shareholders could be said to have a proprietary interest in the company’s assets, including legal advice obtained from use of company monies.

At first instance, relying on the Shareholder Rule, the Chief Justice of Bermuda dismissed Jardine’s claim for privilege provided that the plaintiffs were shareholders during the relevant time. The Court of Appeal of

Bermuda dismissed Jardine’s appeal, holding that there was no reason for the Shareholder Rule not to apply in Bermuda.

On its appeal to the PC, Jardine not only challenged the transposition of the Shareholder Rule to Bermudan law but also argued that the Shareholder Rule should no longer be recognised as forming part of English law – i.e. that it should be abolished all together.

ISSUES

There were four issues that fell to be considered by the PC:

1. Whether the Shareholder Rule should continue to exist in some form (either in the traditional sense or to provide shareholders with a joint interest in legal advice obtained by the company in Fair Value Proceedings)?

2. Alternatively, whether a former shareholder has a right to rely upon such joint interest privilege in relation to advice obtained during the time when they were a shareholder?

3. Alternatively, whether such joint interest can be relied upon by:

i. a beneficial owner without legal title to the shares; and/or

ii. an individual who acquired shares after the legal advice was obtained.

4. Whether the joint interest ceases to apply from the date when the company can establish a claim to litigation privilege, rather than from the date when the interests between the parties become adverse?

DECISION

The PC abolished the Shareholder Rule. On the issues to be considered it held as follows:

Issue 1: The Shareholder Rule was without justification and should be removed. At [82] Briggs LJ and Rose LJ stated:

“The status-based automatic Shareholder Rule is therefore now, and in truth has always been, a rule without justification. Like the emperor wearing no clothes in the folktale, it is time to recognise and declare that the Rule is altogether unclothed.”

The rule had no proper legal foundation, mistakenly assuming shareholders have a proprietary interest in the company’s documents. The PC endorsed the

reasoning of Nugee J (as he then was) in Sharp v Blank44, concluding that the original justification for the Shareholder Rule was one of proprietary basis, not joint interest. The PC found it untenable to adopt a rule that would automatically deny legal professional privilege in all cases between a company and its shareholders, particularly, as there is not always a clear community of interest between them, whether collectively or, a fortiori, individually. The PC concluded that such a rule should never have existed and allowed Jardine’s appeal, affirming that legal advice privilege applies fully in shareholder disputes, including appraisal litigation.

The PC also considered the scope (if any) of the joint interest privilege enjoyed by shareholders over legal advice obtained by Jardine. It held that the company shareholder relationship does not fall within the general principle of joint interest privilege, which prevents trustees or companies from asserting legal privilege against beneficiaries.

It was noted that, on its own, the company shareholder relationship does not provide a sufficient analogy with other fiduciary relationships (as one of a growing family including principal and agent, trustee and beneficiary, joint venturers and various insurancebased relationships) as to justify its inclusion within the joint interest family of relationships. It reasoned that the mutuality of interest between a solvent company and its shareholders was not exhaustive, on the basis that their aims are not necessarily ultimately aligned, especially among different classes of shareholders or other stakeholders that may have competing interests.

Issue 2: The PC did not make a final determination on Issue 2 because it concluded that the Shareholder Rule did not apply and that the plaintiffs (former shareholders) had no right of access to the privileged documents in this case. The question of whether, (in the absence of the Shareholder Rule), a former shareholder’s right to access privileged documents as a result of joint retainer privilege was left to be determined in the context of joint retainer privilege in a future case.

Issue 3: This issue raised several related questions concerning the scope of joint privilege (citing the Shareholder Rule) in the context of company shareholder relationships. Specifically, the PC was asked whether such privilege could be asserted by (i) beneficial owners lacking legal title and/or (ii) individuals who acquired their shares after the relevant legal advice was obtained. Given the abolition of the Shareholder Rule, these questions no longer required determination.

Issue 4: In light of the above, the question of the relevant cut-off for the application of the Shareholder Rule was rendered “otiose” by the PC.

The PC also made a Willers v Joyce45 direction so that the abolition of Shareholder Rule will be binding across the courts of England and Wales.

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