Re Fortuna Dev Corporation
| Jurisdiction | Cayman Islands |
| Judge | (Henderson, J.) |
| Judgment Date | 01 January 2004 |
| Court | Grand Court (Cayman Islands) |
| Date | 01 January 2004 |
(Henderson, J.)
A.J. Jones, Q.C. and M.W. Imrie for the petitioner;
W. Trower, Q.C. and N.V.C. Joseph for the company.
(1) Alipour v. Ary, [1997] 1 W.L.R. 534; [1997] 1 BCLC 557, referred to.
(2) Burton & Deakin Ltd., In re, [1977] 1 W.L.R. 390; [1977] 1 All E.R. 631, applied.
(3) J.N. 2 Ltd., In re, [1978] 1 W.L.R. 183; [1977] 3 All E.R. 1104, applied.
Companies Law (2004 Revision) (Laws of the Cayman Islands, 1963, cap. 22, revised 2004), s.156:
‘Where any company is being wound up by the Court or subject to the supervision of the Court all dispositions of property, effects and things in action of the company, and every transfer of shares, or alteration in the status of the members of the company made between the commencement of the winding up and the order for winding up shall, unless the Court otherwise orders, be void.’
Companies-compulsory winding up-disposition of property-criteria listed for validation of proposed disposition of property of company being wound up compulsorily or under court”s supervision
The company sought an order validating the giving of security on a refinancing of its debt and that of its subsidiaries.
The company, which was solvent, decided to refinance its debt when the principal of the contributory petitioning for winding up wished to be relieved of his personal guarantee obligations, which was also pre-requisite to the proposed buyout of one party to the litigation by the other. It therefore sought an order validating the giving of security on a refinancing of its debt and that of its subsidiaries.
The petitioner submitted that the evidence presented was insufficient to permit the court to decide whether the disposition was one which an intelligent and honest director, acting reasonably, might consider to be in the best interests of the company, and should have included, inter alia, financial statements, cash flow projections, documents evidencing the amounts outstanding on the present facilities, and all of the loan documentation and correspondence leading up to the agreement or agreements for the proposed new facility. It therefore sought an adjournment.
Held, granting an order validating the proposed disposition following an adjournment for disclosure of documents:
(1) Before granting an order validating a proposed disposition of property by a company being wound up under court supervision or compulsorily, the court had to be satisfied that: the proposed disposition was within the powers of the directors; the evidence showed that the directors believed the disposition to be necessary or expedient in the interests of the company; the directors had acted in good faith in reaching that decision, the burden of establishing bad faith being on the party opposing the application; and the reasons for the disposition were ones which an intelligent and honest director could reasonably hold. To establish the last ground, the evidence had to show that the decision to arrange, and the terms of the proposed
refinancing, were within the realm of reasonableness. As the evidence presented was insufficient, the application would be adjourned briefly to enable the company to make immediate disclosure of the necessary documents (para. 5; paras. 9–11).
(2) The company had to produce the following documents in support of its application: consolidated financial statements, cash flow projection(s) made in support of the proposed refinancing, particulars of amounts owing under the present facility, a description of any approaches made by the company to the existing lenders for continuation of the present agreement, and the answers received, and details of the proposed refinancing, including interest rates, repayment dates, proposed security-taking, commitment fees...
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