The Companies Act (2022 Revision) and Seahawk China Dynamic Fund
| Jurisdiction | Cayman Islands |
| Judge | David Doyle |
| Judgment Date | 16 February 2022 |
| Court | Grand Court (Cayman Islands) |
| Docket Number | CAUSE NO. FSD 23 of 2022 (DDJ) |
The Hon. Justice David Doyle
CAUSE NO. FSD 23 of 2022 (DDJ)
IN THE GRAND COURT OF THE CAYMAN ISLANDS
FINANCIAL SERVICES DIVISION
Determination of ex parte on short notice application for the appointment ofjoint provisional liquidators — section 104 of the Companies Act (2022 Revision) — the four hurdles
Sebastian Said, Conal Keane and Zacharie Caudeiron of Appleby on behalf of the Applicant Lau Chun Shun
Paul Smith and Lachlan Greig of Harneys on behalf of the Company and Hao Liang
There is before the court an ex parte on short notice application dated Thursday, 3 February 2022 by Lau Chun Shun (the “ Applicant”) for the appointment of joint provisional liquidators (“ JPLs”) in respect of Seahawk China Dynamic Fund (the “ Company”) which was registered in the Cayman Islands on 21 August 2017 as an exempted limited company.
Sebastian Said appears on behalf of the Applicant. At short notice Paul Smith appears on behalf of the Company and Hao Liang (“ Mr Liang”). I am grateful to counsel for their helpful assistance to the court.
I confirm I have considered the skeleton argument dated 8 February 2022 in detail. I have also considered the oral submissions presented to the court today and they form part of the court record.
Over the last few days, I have considered the contents of the seven hearing bundles which were filed on Tuesday including the summons for the appointment of JPLs, the petition and the evidence in support.
I have considered the correspondence between Harneys and Appleby which was brought to my attention this morning namely:
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(1) Harneys letter dated 8 February 2022;
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(2) Appleby letter dated 9 February 2022;
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(3) Harneys letter dated 10 February 2022 together with enclosures; and
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(4) Appleby letter dated 10 February 2022.
I record that I have considered yesterday the affidavit of Conal Keane sworn on 9 February 2022 in respect of the short notice given of today's hearing. I note that the Company, Mr Liang and the Hong Kong lawyers (the well known firm of Woo Kwan Lee & Lo) were provided on Monday, 7 February 2022 with short notice of this hearing which is taking place today Thursday, 10 February 2022.
Mr Smith for the Company and Mr Liang referred to the voluminous material recently made available upon which he is still taking instructions. Mr Smith suggested an adjournment and referred to the recent suggestions of his clients namely that the position be dealt with by way of undertakings and the appointment of Inspectors.
Mr Smith indicated that he was not in a position to engage today with the substance of what has been said on behalf of the Applicant. Suffice to say his clients feel ambushed by the ex parte proceedings in Hong Kong and by these ex parte on short notice proceedings in the Cayman Islands and they strongly dispute the evidence and suggest that what this case is really about is the Applicant's desire for early redemptions.
Mr Smith stressed that there was no real risk of dissipation. Moreover, he says that Mr Liang has offered “full transparency” and is content for an independent director to be appointed or, failing that being agreed, for the individuals proposed as JPLs to be appointed as Inspectors instead. Mr Smith referred to the undertakings offered by his clients.
Mr Smith submitted that the balance of convenience does not lie in favour of appointing JPLs and that such an appointment would adversely impact on the reputation of Mr Liang who Mr Smith described as a leading fund manager.
I refer now to some brief background to the matter.
The Applicant says that Mr Liang holds 100% of the management shares, which are non-participating voting shares (and the only voting shares) of the Company. The Company's investment manager is stated to be Gold Dragon Worldwide Asset Management Limited, a company incorporated with limited liability in Hong Kong (the “ Manager”).
The Applicant says that Mr Liang has used his role as director of the Company (and his control of the Company by virtue of his shareholding) to seek to manage the Company in place of the Manager. Mr Liang was until 29 December 2021 the CEO and CIO of the Manager but was suspended by the board of the Manager with effect from that date.
The Applicant is an individual investor holding shares in the Company with a net asset value (“ NAV”) of approximately US$306,156,549.47 representing approximately 70.30% of the total NAV of the Company as at 30 November 2021. Approximately 18.46% of the Company's NAV is held by the Applicant's wife and relatives who he says are supportive of the winding up petition. The remaining 11.24% of the NAV is held by investors, including those associated with or referred to by Mr Liang.
The Applicant says that on or about 19 November 2021 he became aware of conduct on the part of Mr Liang in respect of the Company which the Applicant considers dishonest, in particular what he refers to as (1) the Unauthorised Scheme and (2) the Late Trade Allocations.
Certain legal proceedings were commenced in Hong Kong by the Manager and on 30 December 2021 an ex parte injunction was made against Mr Liang. I note the terms of the prohibitory injunction granted by the High Court in Hong Kong in HCA 1935/2021. Mr Liang was restrained from directing or causing the Company (1) to carry out or act upon (a) purported amendments made on 9 August 2021 to the Investment Management Agreement and/or (b) the purported Supplementary Agreement dated 16 November 2021; (2) to pay any performance fees and/or allocate any performance allocation to Mr Liang and/or issue any further performance shares to him. Mr Liang was also restrained from dealing with any purported Performance Allocation Shares and/or any dividends or other distributions arising therefrom. I note that Mr Liang “intends to vigorously oppose the grant of the injunction” but sensibly had no obj ection to the continuation of the Order made on 30 December 2021 until the substantive hearing. It is stated that he will in due course “apply for the discharge of the injunction and fortification” (paragraph 3 of his proposed directions dated 6 January 2022). The date of the substantive hearing in Hong Kong has not yet been set. I have considered the two volumes of papers filed in respect of the proceedings in Hong Kong.
The Applicant in early February 2022 presented a winding up petition in the Cayman Islands and he now seeks the appointment of JPLs on an urgent ex parte short notice basis.
I remind myself of the relevant law in respect of ex parte applications and ex parte applications for the appointment of JPLs as briefly outlined in my judgments in Cathay Capital Holdings III L.P (24 August 2021) and Principal Investing Fund I Limited (17 September 2021) and Parker J's judgment in Al Najah Education Limited (9 August 2021). I have also considered the other authorities referred to in the skeleton argument.
I accept that a court must be especially careful when allegations of dishonesty are made at a hearing on an ex parte or ex parte short notice basis.
Section 104(1) of the Companies Act (2022 Revision) (the “Act”) provides as follows:
“ Subject to this section and any rules made under section 155, the Court may, at any time after the presentation of a winding up petition but before the making of a winding up order, appoint a liquidator provisionally.”
Section 104(2) of the Act provides as follows:
“(2) An application for the appointment of a provisional liquidator may be made under subsection (1) by a creditor or contributory of the company or, subject to subsection (6), the Authority, on the grounds that —
(a) there is a prima-facie case for making a winding up order; and
(b) the appointment of a provisional liquidator is necessary in order to —
(i) prevent the dissipation or misuse of the company's assets;
(ii) prevent the oppression of minority shareholders; or
(iii) prevent mismanagement or misconduct on the part of the company's directors'.”
I am satisfied, in the somewhat exceptional circumstances of this case, that it is appropriate to proceed on an ex parte short notice basis.
If further notice was given to Mr Liang it may well defeat the object of the application.
I accept the Applicant's position that it is appropriate to proceed on an urgent ex parte short notice basis as to provide further notice to Mr Liang would increase the immediate risk of dissipation of assets and the risk of concealment or destruction of documents and records and to a significant extent defeat the purpose of the application before the Court.
I note the concerns that Mr Liang appears to be in control of the Company and could transfer the Company's assets out of the Company's control at any time. I note the serious allegations of dishonesty and concealment. There is something in the Applicant's point that now that Mr Liang has knowledge...
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