Avoiding The Nuclear Option: Buyout Orders In Just And Equitable Winding Up Proceedings
With the Cayman Islands being a preferred jurisdiction for the incorporation of investment vehicles, inevitably cases will arise where non-controlling shareholders complain that they are being unfairly prejudiced by conduct of those in control, and necessarily pursue those complaints by way of proceedings to wind up the subject company on the just and equitable ground.
Where such complaints are well-founded, the outcome will often be an order putting the subject company into official liquidation. But the Cayman courts also have the jurisdiction in such cases to make a range of other orders as alternatives to taking that nuclear option, and are indeed obliged to consider whether any of those alternative orders would provide a more appropriate solution to the complaints.[1]
The Grand Court was recently required to conduct that analysis in the case of Re Position Mobile Ltd SEZC.[2] The petitioning shareholder in that case had satisfied the Court that it would be just and equitable to wind up the company – since it had justifiably lost confidence in the probity of those in control, due to their serious and sustained misconduct and mismanagement – but positively sought a buyout order[3] as an alternative to a winding up. The Court thus proceeded to consider whether the buyout order, or any other alternative order, would be more appropriate than ordering a winding up, and concluded that a buyout order was the fairest and most appropriate form of relief in the circumstances of that case.
The authors will discuss the guidance which the Position Mobile case provides in that regard below, which should be considered together with the guidance provided by Re Madera Technology Fund (CI) Ltd,[4] particularly in respect of the approach that the Cayman courts can be expected to take when setting the appropriate valuation date for a buyout order, with a view to ensuring that the valuation is fair to each side.[5]
[1] See Re Virginia Solution SPC Ltd (unrep. 28 July 2023, CICA) at [61].
[2] [2026] CIGC (FSD) 10
[3] Requiring the respondent shareholders to purchase its shares at a fair price.
[4] (unrep. 21 Aug. 2024, Richards J).
[5] For further detail, see the authors’ article on the Madera Technology case at https://www.applebyglobal.com/publications/no-looking-back-investor-held-to-buyout-at-current-value-of-shares/.
THE JURISDICTION AND DISCRETION TO GRANT ALTERNATIVE ORDERS
Section 95(3) of the Companies Act gives the Cayman courts the power, when determining a just and equitable winding up petition presented by a shareholder, to make the following types of order as alternatives to ordering a liquidation of the subject company:
- an order regulating the conduct of the company’s affairs in the future;
- an order requiring the company to refrain from doing or continuing an act complained of by the petitioning shareholder or to do an act that the petitioner complains the company has omitted to do;
- an order authorising the petitioning shareholder to bring civil proceedings derivatively on behalf of the company, on such terms as the Court may direct (a derivative action); or
- an order providing for the purchase of the shares of any shareholders of the company by other shareholders or by the company itself (i.e. a buyout order).
As the authors previously noted,[1] a buyout order – providing for the purchase of the shares of any shareholders of the company by other shareholders or by the company itself[2] – is perhaps the form of alternative relief that is most commonly granted in such proceedings. Furthermore, as that language indicates, the Court is not confined to making an order requiring that the petitioning shareholder be bought out, but may instead order inter alia that the petitioning shareholder acquires the shares held by the shareholder(s) responsible for the unfair prejudice.
On the other hand, it is difficult to conceive of any circumstance where it would be appropriate in principle for the Court to make an alternative order authorising the pursuit of a derivative action, at least based on the current state of the law, for the following reasons:
- it is firmly established that the Companies Act requires a shareholder to satisfy the Court that it would be appropriate to wind up the company on the just and equitable ground before it can get access to any of the abovementioned alternative remedies provided by s.95(3) of the Act;[3]
- where the Court finds that the petitioning shareholder has available to it, but has unreasonably failed to pursue, an adequate alternative remedy (i.e. one that is available without resort to a just and equitable winding up proceeding),[4] it will usually dismiss the just and equitable winding up proceeding on that basis, which precludes the possibility of any alternative order being granted under s.95(3) of the Act;[5] and
- because a derivative action can be pursued without resort to a just and equitable winding up proceeding, if the Court considers that taking that course could have adequately addressed the petitioning shareholder’s complaints, then it should follow that the just and equitable winding up petition would be dismissed for that reason.
As regards the other types of alternative order, namely (a) regulating the conduct of the company’s affairs in future and (b) requiring the company to refrain from or cease doing something that is the subject of the complaint, or to do something that it has omitted to do, whether either of these alternatives may be more appropriate than a winding up will substantially depend on the facts and circumstances of the particular case.
Turning to the question of discretion, as noted above, the Court is obliged to consider whether any alternative order under s.95(3) of the Act would be more appropriate than a winding up order before granting any relief, and has a very wide discretion to make the order that it considers most fair and equitable in the circumstances.
THE JUDGMENT IN RE POSITION MOBILE
The Position Mobile case concerned a just and equitable winding up petition which a 49% minority shareholder of the company had presented, alleging inter alia that it had justifiably lost all trust and confidence in the management of the company by the first and second respondents, who together held the remaining 51% of the shares, and that the relationship of mutual trust and confidence between them had irretrievably broken down. The petitioner necessarily sought an order that the company be wound up on the just and equitable ground for those reasons, but principally desired a buyout order requiring the respondents to purchase its shares.
The Court accepted that, of the various grounds that had been pleaded, the petitioner had established that there had been a lack of probity on the part of the respondents and their appointed directors, involving serious and sustained misconduct and mismanagement, which justified its complete loss of confidence in their management. Accordingly, the Court considered that the petitioner had crossed the threshold to justify a winding up of the company on the just and equitable basis.
The Court further found that the petitioner had not failed to pursue an adequate alternative remedy, concluding that the respondents’ attempts to resolve the petitioner’s complaints – particularly by way of offers made (a) in 2020 to acquire its shares for $5m, with which they had declined to proceed; (b) in 2021 to acquire its shares for $5.5m, which the petitioner considered too low and might not be completed, given the previous failure in respect of the 2020 offer; and (c) in May 2024 and July 2025 to put the company into voluntary liquidation and seek court supervision of that liquidation were each inadequate in comparison to a buyout at a fair price.
The Court thus considered the appropriateness of making a buyout order as an alternative to winding up the company on the just and equitable ground. In that connection, Doyle J considered a number of Cayman, English and other Commonwealth authorities, and observed inter alia that:
- In Scottish Co-operative Wholesale Society Ltd v Meyer,[6] Lord Denning considered that a winding up order would itself unfairly prejudice Dr Meyer and Mr Lucas since, if it were made, they would only recover the break-up (as opposed to the going concern) value of their shares;
- In Ebrahimi v Westbourne Galleries,[7] Lord Cross noted that:
“What the minority shareholder in cases of this sort really wants is not to have the company wound up – which may prove an unsatisfactory remedy – but to be paid a proper price for his shareholding”; and
- In Grace v Biagioli,[8] the English Court of Appeal considered that, in most unfair prejudice cases, the usual order to make would be one requiring the respondents to buy out the petitioning shareholder at a price to be fixed by the Court.
In light of those authorities, and based on the abovementioned findings, the Court concluded that the petitioner was entitled to an order requiring the purchase of its shares in the company, valued as at a date and set at a figure to be determined by the Court, if not agreed, stating that:
“The buyout order is the fairest and most appropriate remedy to meet the circumstances of this case”.
It is appropriate to note, finally and for completeness, that, although the petitioning shareholder in Position Mobile also claimed that the alleged mismanagement and misconduct gave rise to a need for investigation of the company’s affairs, it did not strongly pursue that ground of its complaint at trial, and failed to satisfy the Court that any such investigation was necessary. However, had the Court accepted that an investigation was necessary, then its conclusion regarding the fairness and appropriateness of making a buyout order may well have been different – because the existence of matters requiring investigation may conceivably prevent a fair and reliable valuation from being performed.
CONCLUSION
Where a minority shareholder establishes in a just and equitable winding up proceeding that it is suffering unfair prejudice at the hands of those who control the company, the Cayman courts are not bound to take the nuclear option of ordering a winding up of the company, and can be expected to consider carefully whether a buyout (or other alternative) order can instead provide a fair solution to the complaints.
[1] Ibid.
[2] And, in the case of a purchase by the company itself, a consequent reduction of the company’s share capital: see s.95(3)(d) of the Companies Act (2026 Revision).
[3] See FamilyMart China Holding Co v Ting Chuan (Cayman Islands) Holding Corp. [2023] UKPC 33, at [4] and [80].
[4] And which does not require the petitioning shareholder to “pursue piecemeal a series of actions, by ligation or otherwise, or by a combination of litigation and other steps, that might be capable of redressing some, or even all, of its concerns”: see Tianrui (International) Holding Company Ltd v China Shanshui Cement Group Ltd [2019] 1 CILR 481 (CICA) at [37].
[5] See Asia Pacific Limited v ARC Capital LLC [2015] 1 CILR 299 (CICA), at [39] per Chadwick P.
[6] [1959] AC 324, at p.368.
[7] [1973] AC 360, at p.385.
[8] [2006] BCC 85
