Whilst this was a pragmatic interpretation of Cayman Islands law that resulted in the logical commercial outcome in that particular case (in which there was no shareholder opposition), the ruling in China Milk was criticised for giving directors a wider discretion than was intended by the legislation. In a carefully considered judgment handed down on 25 November 2015, Mrs Justice Mangatal disagreed with Mr Justice Jones’s construction of the statutory provisions and struck out a winding up petition brought by the directors of an insolvent company who did not have the requisite authority from the shareholders to petition for the company’s winding up.
The decision, as has been widely anticipated would occur in an appropriate case, has removed the ability of directors to unilaterally petition for the winding up of an insolvent company in circumstances where the shareholders do not support their proposal. This absence of this alternative will inevitably cause difficulty for directors’ who owe fiduciary duties to the company, and must take into account the needs of creditors in considering these duties, when the company enters the “zone of insolvency”. Directors may then be left in the difficult position of being forced to resign rather than carry on as stewards of an insolvent company without the power to petition the Court to place the company in liquidation. The legislative intent of the relevant Companies Law provision in the Cayman Islands is to permit a winding up of insolvent companies by creditors. This decision highlights that the law as drafted prevents the directors from acting directly in the interests of creditors when the shareholders are apathetic or act in their own self-interests and highlights the need for consideration of further legislative reform.
