The Companies Act (2023 Revision) and KES Power Ltd
| Jurisdiction | Cayman Islands |
| Judge | Justice Segal |
| Judgment Date | 31 May 2024 |
| Docket Number | FSD CAUSE NO 193 OF 2023 (NSJ) |
| Court | Grand Court (Cayman Islands) |
The Hon. Justice Segal
FSD CAUSE NO 193 OF 2023 (NSJ)
IN THE GRAND COURT OF THE CAYMAN ISLANDS
FINANCIAL SERVICES DIVISION
Company law – whether the terms of a shareholder agreement should be interpreted as including a covenant by shareholders not to present a winding up petition – section 95(2) of the Companies Act (2023 Revision)
Stephen Rubin KC instructed by Laura Hatfield and Jonathan Stroud of the Bedell Cristin Cayman Partnership for Al Jomaih Power Limited and Denham Investment Limited
Graham Chapman KC instructed by Conal Keane and Niall Dodd of Dillon Eustace Cayman for IGCF SPV 21 Limited
On 11 October 2023 I heard an application by Al Jomaih Power Limited ( Al Jomaih) and Denham Investment Ltd. ( Denham) (collectively the Applicants) made by summons dated 28 July 2023 (the Summons) for declaratory relief and to have the Winding Up Petition (the Petition) dated 11 July 2023 filed by IGCF SPV 21 Limited (the Petitioner) in respect of KES Power Limited ( KESP) dismissed or struck out, or to restrain its further pursuit.
At the hearing the Mr Stephen Rubin KC appeared for the Applicants and Mr Graham Chapman KC appeared for the Petitioner. At the end of the hearing, I informed the parties that the application would be dismissed and gave brief reasons. I said that I would set out my reasons in further detail in due course and I now do so in this judgment 1.
The Petition seeks a winding up order under section 92(e) of the Companies Act (2023 Revision) (the Act) on the basis that it is just and equitable that KESP be wound up. The grounds relied on are breach of legitimate expectations, functional deadlock, breach of legal bargain, breakdown of quasi-partnership and loss of substratum (see paragraph 2 of the Petition).
The Applicants submitted that the Petition had been presented in breach of a term in Schedule 4 of the shareholders' agreement dated 15 October 2008 (the SHA) between the Applicants, the Petitioner and KESP and therefore fell to be dismissed pursuant to section 95(2) of the Companies Act (2023 Revision) (the Act). Section 95(2) of the Act provides that the Court shall dismiss a winding up petition where the petitioner is contractually bound not to present it. The Petitioner disagreed and submitted that the
SHA did not prohibit the presentation of the Petition in this case and that therefore the application should be dismissedThe background to the dispute between the parties is summarised in my judgment dated 20 July 2023 in related proceedings in FSD 269 of 2022 and I therefore do not propose to set that out again here.
The third recital to the SHA states that the parties have entered into the SHA to regulate their conduct in relation KESP and its subsidiary Karachi Electric Supply Company Limited ( KESC). The SHA deals with, inter alia, representations and warranties given by the Applicants and the Petitioner as shareholders; directors and corporate governance; the conduct of KESP's business (in clause 6); the information to be provided to KESP's shareholders; the issue of new shares; the transfer of shares; the sums payable by the Petitioner to the Applicants on Exit (Exit is defined as an exit by the Petitioner from, including various events as a result of which the Petitioner would realise, its investment in KESP); the prohibition on the acquisition of interests in and the regulation of investments in businesses related to, KESC; the termination of the SHA; the relationship between the terms of the SHA and KESP's constitutional documents and states that the former prevail over any conflicting provision of the latter and the governing law of the SHA which is to be English law.
Clause 6 of the SHA is headed “ Conduct of Business” and clause 6.1 deals with reserved matters and stipulates that the provisions of Schedule 4 shall apply.
Schedule 4 provides as follows (note that the SHA refers to the Applicants as the Original Shareholders and to the Petitioner as Abraaj):
“The Company covenants that and each Shareholder undertakes to exercise all his powers as a shareholder or otherwise so as to procure that none of the following matters shall be undertaken without the consent of Abraaj and the Original Shareholders. The Shareholders covenant that the following matters shall not be undertaken without the consent of Abraaj and the Original Shareholders (it being acknowledged by each party that none of the following matters are within the competence of the Board).
…
Liquidation The solvent liquidation, winding-up or dissolution of the Company or KESC.”
KESP's articles (the Articles) contain various provisions dealing with Reserved Matters. These are defined as follows:
“ those matters which are not otherwise reserved at [sic] [pursuant to the?] Act [Companies Act] for the Members that shall not be undertaken without the consent of [the Petitioner and the Applicants] (it being acknowledged by each party that none of the following matters are within the competence of the Board) being the following:
………..
(f) the solvent liquidation, winding up or dissolution of [KESC]”
Article 15 states that the directors must obtain the approval of all shareholders before considering any Reserved Matters and under article 93 none of the directors are entitled to act in relation to any Reserved Matter unless previously approved by the shareholders.
Articles 145 and 146 appear under the heading “ Winding-Up.”.
Article 145 provides as follows:
“[KESP] shall be taken to have commenced a voluntary winding up and discussion [sic] [dissolution] upon the passing of a Special Resolution by the holders of the Class O Shares [being Petitioner and the Applicants] to wind up, dissolve liquidate and terminate [KESP].”
A Special Resolution is defined as a resolution:
-
“(a) passed by 100% of …Members as, being entitled to do so, vote in person or where proxies are allowed, by proxy at a general meeting of [KESP] …”
-
(b) approved in writing by all the Members entitled to vote at a general meeting of [KESP] …”
Article 146 deals with how the liquidator is to apply KESP's assets if KESP is “ woundup”
Accordingly, the Articles make provision for the voluntary winding up of KESP. The effect of the requirement to pass a Special Resolution in order to commence such a winding up and the definition of Special Resolution as requiring 100% of Members to vote in favour of the resolution to wind-up, is that such a winding up can only be commenced if all shareholders agree.
The Applicants argued that their application turned on a discrete legal point that could and should be determined summarily. Disposing of the Petition summarily will, in furtherance of the overriding objective, avoid a trial or other proceeding which would plainly be unnecessary and wasteful of costs.
The Applicants said that section 95(2) was in mandatory terms and relied on the judgment of Rix JA in the Court of Appeal in In re Rhone Holdings L.P. 2016 (1) CILR 273 ( Rhone Holdings) at [28]:
“Those sorts of circumstances [where an adjournment is needed to accommodate attempts at settlement, mediation or arbitration] do not detract in any way, in my judgment, from the underlying message of section 95(2), which is that where parties have agreed not to present a petition, then they are not to be permitted to act in breach of that agreement, that the court will uphold that agreement. Of course, if adjournment is necessary for something like mediation or arbitration or potential settlement, that's another matter and the court may wish to adjourn in those circumstances. But, otherwise, section 95(2) compels the court by mandatory terms “shall dismiss” to give effect to the parties' contractual agreement.”
The Applicants said that in English law there may be an issue as to whether an agreement by a shareholder not to present a petition was enforceable. They referred to the English Court of Appeal's judgment in In re Peveril Gold Mine Limited [1898] 1 Ch 122 ( Peveril) where the Court of Appeal dismissed an application by two shareholders for a stay of a winding up petition made on the basis that the petition was presented in breach of the company's articles — which required the permission of two directors or an ordinary shareholders' resolution – holding that the company had been “ formed on the condition that its existence shall not be terminated under the circumstances, or on the application of the persons, mentioned in the Act [of 1862, ss.79 and 82] that is to say that it is formed contrary to the provisions of the Act, and upon conditions which the Court is bound to ignore” (per Lindley MR at 131). The Applicants submitted that subsequent judicial consideration of Peveril in England and Wales had clarified that the Court of Appeal had not decided that shareholders or creditors (as opposed to a company itself) could not fetter their right to present a winding up petition by contractual agreement (citing In Re Colt Telecom Group plc (No 2) [2002] EWHC 2815 (Ch) per Jacob J [74]) and, in any event, Peveril presented no obstacle to the operation of section 95(2) nor the enforceability of Schedule 4 of the SHA because (a) the Court of Appeal in Peveril had made clear that it was not deciding “ whether a valid contract may or may not be made between the company and an individual shareholder that he shall not petition for the winding up of a company” (at 131 per Lindley MR) and the SHA is such a contract, given that KESP is a party; (b) the Court of Appeal did not have section 95(2) before it nor any similar provision and (c) the Court of Appeal's concern was partly with the...
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