The Law

Under section 92(e) of the Companies Act, a company may be wound up “if the Court is of the opinion that it just and equitable to do so.”

Although it is well established that the words of the just and equitable clause are not to be constrained by particular categories from previously decided cases – as to when it will be just and equitable for the Court to wind up a company [4] – there are a series of well-recognised types or categories of cases where winding up may be ordered by the Court exercising its jurisdiction under section 92(e).

They include:

  1. fraudulent promotion of a sham or bubble company; [5]
  2. loss of the company’s ‘substratum’ where continuing the business of the company consistently with the expectation of members is, in a practical sense, impossible, [6] or (perhaps only in the case of open-ended investment funds) “impractical, if not impossible”; [7]
  3. deadlock in management; [8]
  4. constitutional vacuum (e.g. lack of any director or anyone willing to act as such, the lack of a quorum, among the members, to hold meetings as required, the bankruptcy of sole directors and members who could not be traced); [9]
  5. justifiable loss of confidence in management on grounds of lack of probity; [10]
  6. need for an investigation (in Cayman, but not English, law); [11] and
  7. failure to run the company in accordance with legitimate expectations, even though those expectations are not reflected in the constitutional documents of the company – including cases of ‘quasi-partnership’ – where there has been found to be a mutual relationship of trust and confidence of a personal character, and the relationship has irretrievably broken down. [12]

The Virginia case was concerned mainly with issues of ‘quasi-partnership’, [13] and disregard of legitimate expectations. [14] A further ground of deadlock was not determined in light of the Court’s other findings. [15]

While the respondent to the Petition argued that a winding up order should only be made against a solvent Cayman captive insurer in “truly exceptional” or “truly egregious circumstances”, having regard to public policy and public interest in the Cayman Islands promoting itself as an attractive jurisdiction for the establishment of captive insurers, the Court disagreed that such considerations were relevant to its inherent discretion to grant the order, in the circumstances.[16]

The presiding Judge, the Hon. Justice Ramsay-Hale, emphasised, applying the leading case-law, that the Cayman Courts “should not be too timorous” in giving the words of the Companies Act their “full force”. [17]

The Case

Virginia Solution SPC Ltd (Virginia or the Company) is a captive insurance company of two large US-based not-for-profit health care system providers (referred to herein as Valley Health and Augusta).

Valley Health and Augusta had co-operated since becoming the two remaining members of the Company in 2014. However, a dispute arose in or around 2017, when Augusta refused to approve a dividend recommended by the Company’s Actuary who had followed a pre-agreed process set out in the Company’s Dividend Policy. Augusta formed the view that $6.3 million of the retained earnings should not be allocated according to the dividend formula but, instead, shared equally between Valley Health and Augusta. [18] This issue formed a wedge between the parties and led to three years of dispute and an impasse in the distribution of dividends, culminating in Valley Health issuing the Petition.

An unusual feature of this case – on the law of ‘quasi-partnership’ – was that there were two corporate shareholders. They were not simply SPV companies formed for individual investors, [19] but were ‘not for profit’ companies with no private shareholders or owners at all. [20]

There is a certain irony, therefore, in the relationship between two ‘not for profit’ companies irretrievably and entirely breaking down over how to distribute the substantial retained profits of the captive insurance company in which they were both members.

Be that as it may, Augusta’s Defence to the Petition was, in essence, that:

(a)     The Company was not a quasi-partnership as it was comprised of two large community healthcare systems which were impersonal; [21]

(b)     The disagreements between the parties were intermittent and capable of resolution through the contractual mechanisms in the Company’s governing documents; [22]

(c)     If the Court did find that the Company was a quasi-partnership and that there was an irretrievable breakdown in mutual trust and confidence, then Valley Health did not have clean hands; [23] and

(d)     There was an alternative remedy for Valley Health as it could withdraw from the Company. [24]

The Court was not persuaded by Augusta’s arguments.

The argument that the disagreements between the parties were capable of resolution was not supported by the underlying evidence. It was held that the parties were in “violent agreement” that they did not get on and did not trust each other to manage the affairs of the Company. [25]

It was held that Augusta had acted in bad faith in adopting its 2017 position, having been driven by the nefarious motive of driving Valley Health out of the captive in order to remain as the “last man standing”. This had led to a justifiable loss of confidence by Valley Health that Augusta was willing to abide by the Dividend Policy going forward. [26]

This motive had been outlined in an internal Augusta document prepared by its CEO and which had been produced on discovery. The Court ruled that the document “laid bare the insincerity of [the CEO’s] evidence-in-chief” that Augusta had not been “guided by greed”. Contrary to evidence given by three other Augusta senior employees, the Court held that Augusta’s decisions with respect to dividends after March 2017 were motivated by an overarching goal to gain unfair leverage over Valley Health. [27]

It was held that Valley Heath had a legitimate expectation that:

  1. the Company’s affairs would be conducted in a way that maintained mutual trust and confidence as in a partnership; [28] and
  2. that dividends would be declared and paid in accordance with the Dividend Policy. It would be unjust and inequitable to allow Augusta to exercise its strict legal rights not to approve dividends, in order to obtain a greater share of retained earnings than it was entitled to. [29]

The allegation that the petitioner did not have clean hands was also dismissed. While the Court agreed with the sentiments of Lord Briggs that “the applicant should not have been the sole cause of the breakdown in trust and confidence, or of the deadlock”, [30]  it was satisfied that this was clearly the case in this instance. Valley Health was acting on the Actuary’s advice as anticipated by the Dividend Policy. [31]


In all legitimate expectation and quasi-partnership cases, the critical question is: “whether the circumstances surrounding the affairs of a particular company are such as to give rise to equitable constraints upon the behavior of other members going beyond the strict rights and obligations set out in the Companies Act and the articles of association.” [32] Where the circumstances of a case do justify constraints beyond the strict legal rights of the relevant members the just and equitable clause imports appropriate equitable constraints. As Ebrahimi stated, and as cited by Ramsay-Hale J in her Judgment, the clause “does, as equity always does, enable the Court to subject the exercise of legal rights to equitable considerations, considerations, that is of a personal character arising between one individual and another, which may make it unjust or inequitable, to insist on legal rights, or to exercise them in a particular way.” [33]

As mentioned above, the particular aspect of the Judgment which will be of interest to practitioners (in disputes, corporate, and captives), is the in-depth discussion by the Court of the issue of corporate quasi-partnership.

The central pillar of Augusta’s Defence was that the Company was not a quasi-partnership as its corporate shareholders were large healthcare systems which lacked the personal qualities of trust and confidence more easily attributable to individual members involved in similar disputes. They argued that it would be inconsistent with the parties’ and the Company’s express contractual arrangements for the Court to impose equitable considerations on their legal rights. [34]

The Court, however, ultimately found this to be “a paradigm case of quasi-partnership”. [35] On the question of whether it was possible for considerations of a personal character to arise not between individuals, but between companies, the Court held that “a company may be a quasi-partnership company even though members are companies rather than individuals” [36] as:

  1. The principle of attribution (i.e. the principle which seeks to identify the person(s) actually responsible for a company taking action) should not be restricted to formal acts of the Company;
  2. Close regard should be had to “the directing mind and will of the natural person or persons who manage and control [a company’s] actions”; [37] and
  3. Companies act through natural persons who manage and control their actions and through those persons they can create relationships of a personal nature. It follows that there can be a relationship of trust and confidence between the corporate shareholders if one existed between their CEOs who were the active and controlling minds of the corporate shareholders. [38]

The evidence that the Company was established as such by its founding partners was “overwhelming” and the language used by Augusta’s own CEO showed that she viewed the two as partners. [39]  The relative paucity of case-law [40] in the Cayman Islands cementing the principle of corporate quasi-partnership (a fact which was highlighted by counsel for Augusta) failed to dissuade the Court from finding, based on just and equitable principles, that a quasi-partnership existed and that, on balance, a winding up order should be made.

On the question of whether the petitioner was acting unreasonably in not seeking an alternative remedy in the form of voluntary withdrawal from the captive insurance company, the Court held that such a withdrawal would be “massively to Valley Health’s detriment” [41] while unjustly benefitting Augusta.


A notable feature of the narrative of the dispute is that it appears Cayman law advice was obtained very late in the day. Most advice appears to have been provided by onshore Counsel to the US-based shareholders, applying an ordinary language reading of the strict legal position as set out in Virginia’s constitutional documents.  Whether the same dispute would have arisen had there been an early identification of the likelihood of both:

a.       costly and heavily contested petition proceedings in the Cayman Islands; and

b.       the company being wound up if there was an irretrievable breakdown in relations – based on standard Cayman law principles over-laying equitable constraints on the strict legal position as set out in the constitutional documents – is impossible to say.

It is, however, hard to avoid the feeling, reading the Judgment, that early Cayman law advice may well have prevented the fall-out in this case going as far as it did, based on what appears to have been inappropriately aggressive and commercial attempts to gain leverage by one of the members, informed largely by the strict legal position of the parties, in a company which it was always likely would be found to be a ‘quasi-partnership’, based on mutual trust and confidence, and where the Court would reflect that by applying equitable considerations to the dispute – with (i) the ultimate risk of a winding up of a highly solvent captive insurance entity, and (ii) the result of that being that the parties would be forced to either “purchase insurance on the open market as they did before the captive was established,” [42] or to incur the significant time and cost of establishing new – and presumably separate – captive arrangements.

Appleby’s Cayman Dispute Resolution Practice Group is currently acting on a number of substantial just and equitable petitions, including Seahawk China Dynamic Fund; [43] Wang v Credit Suisse AG [44] and Credit Suisse v. Principal Investing Fund I Limited, Long View II Limited, Global Fixed Income Fund I Limited;[45] having previously acted in the leading Cayman just and equitable authorities, including Washington Special Opportunity Fund; [46]  Freerider; [47] Fortune Nest; [48]  and Fortuna. [49]

[1] Following Virginia, there has been another official liquidation of a captive insurer SPC ordered in Performance Insurance Company SPC – by Supervision Order of Parker J of 6 April 2021- continuing a voluntary liquidation under Court-supervised official liquidation. That case involved both solvent and insolvent segregated portfolios within the SPC: see e.g. the recent Judgment of Parker J of 6 April 2022 appointing an additional joint official liquidator to deal with conflicts arising between the portfolios.
[2] As at 31 December 2021, the Cayman Islands had approximately 700 licensed captive insurance companies, writing premiums of c.US$21.3 billion and holding total assets of US$59.9 billion: and
[3] There have been 11 Petitions issued in Cayman since January 2021 in which the just & equitable ground was the primary ground.
[4] Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 at 374 – 5 (Ebrahimi).
[5] Re London and County Coal Co (1866) LR 3 Eq 355.
[6] In the Matter of Harbinger Class PE Holdings (Cayman) Limited [2015] (2) CILR Note 6.
[7] In the Matter of Belmont Asset Based Lending Limited [2010] (1) CILR 83 at [12], per Jones J.; In the Matter of the Washington Special Opportunity Fund, Inc. FSD 151/2015 – Judgment of Mangatal J. (1 March 2016).
[8] See the Judgment at [244] which cites Lau v Chu [2020] UKPC 24; Re Yenidje Tobacco Co Ltd [1916] 2 Ch 426, CA.
[9] See the leading text of French at 8.294 – 8.296 which refers to inter alia the Australian cases of Lunn v Cardiff Coal Co (No 3) [2003] NSWSC 789, CIC Insurance Ltd v Hannon and Co Pty Ltd [2001] NSWSC 437 and Phelan v Ambridge Corp Pty Ltd [2005] NSWSC 875.
[10] In the Matter of BAF Latam Credit Fund FSD 24 of 2021 (RPJ); Loch v John Blackwood Limited [1924] AC 783
[11] In the Matter of Paradigm Holdings Limited [2004-2005] CILR 542 at [35] (Henderson J.); In the Matter of GFN Corporation Limited [2009] CILR 135 (Smellie CJ).
[12] Ebrahimi – Lord Wilberforce at pp. 379-380.
[13] Judgment at [8].
[14] Judgment at [8].
[15] Judgment at [245].
[16] Judgment at [257].
[17] Judgment at [43].
[18] Judgment at [6].
[19] On which there is previous Cayman authority: see the Chief Justice’s decision in Re Merchantbridge Managers [2012] 1 CILR 120.
[20] Being Virginia Non-Stock Corporations.
[21] Judgment at [11].
[22] Judgment at [12].
[23] Judgment at [13].
[24] Judgment at [248].
[25] Judgment at [202].
[26] Judgment at [185].
[27] Judgment at [189].
[28] Judgment at [216].
[29] Judgment at [9].
[30] Lau at [64] (note 8 above).
[31] Judgment at [232].
[32] Judgment at [26].
[33] Judgment at [24].
[34] Judgment at [11].
[35] Judgment at [215].
[36] Judgment at [35] as summarized in the leading text of French at 8.366.
[37] Judgment at [37] citing AHAB v SAAD – CICA No. 15 of 2018 at [814] (Judgment of Court of Appeal dated 21 December 2021).
[38] Judgment at [38].
[39] Judgment at [213].
[40] There has been at least one previous case in Cayman applying quasi-partnership principles to corporate shareholders, but the issue was not raised and argued – it being assumed, apparently, that the principles would apply to corporate as well as individual shareholders: see In the Matter of GFP Dunas Partners Holdings – FSD 218 of 2010 – Judgment of Henderson J (31 May 2011).
[41] Judgment at [254].
[42] Judgment at [257].
[43] FSD 23 of 2022 (DDJ). The Hon. Mr. Justice Doyle’s Judgment of 16 February 2022 appointing JPLs in that matter is here.
[44] FSD 262 of 2021 (DDJ). The Hon. Mr. Justice Doyle’s Judgment of 8 April 2022 rejecting the challenge to the appointment of JPLs in that matter is here, with our e-alert discussing that matter here.
[45] FSD 268, 269, 270 of 2021 (DDJ). The Hon. Mr. Justice Doyle’s Judgment of 29 September 2021 appointing JPLs in that matter is here.
[46] Washington (note 7 above).
[47] [2010] 1 CILR 486 – Judgment of Foster J (13 May 2010).
[48] FSD 88 of 2012 (PCJ).
[49] [2010] (2) CILR 336.

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