Vol 13 (2016) - Issue 1

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A New Approach to Striking-out Just and Equitable Winding Up Petitions

Introduction
In its judgment in Asia Pacific Limited v ARC Capital LLC the Cayman Islands Court of Appeal ('CICA') has explained the approach that the Court takes when considering an application to strike-out a contributory’s just and equitable winding up petition based on an offer to purchase the petitioner’s shares at fair value.
The CICA has distinguished the approach in such cases from that which is followed where the petition is sought to be struck-out on the grounds that the petitioner is acting unreasonably in pursuing winding up proceedings rather than an alternative remedy which is available to it.
The decision also confirms the principles to be applied when awarding indemnity costs in Cayman Islands proceedings where it is argued that a party has conducted the proceedings improperly, unreasonably or negligently.

Factual background
Trikona Advisors Ltd ('Trikona') was a Cayman Islands company which acted as investment advisor to an Isle of Man investment fund, Trinity Capital Plc ('Trinity').
Both the ultimate beneficial ownership and management of Trikona were split 50/50 between two individuals, or members of their families, Aashish Kalra and Rakshitt Chugh. Mr Kalra and Mr Chugh were both directors of Trikona and each had nominated one further director to Trikona’s board. However, the Court found that Trikona’s affairs were managed solely by Mr Kalra and Mr Chugh and that the other two directors took no part in the company’s management.
In the proceedings before the Grand Court, it was common ground that Trikona should be regarded as a quasi-partnership company. As is well-known, a quasi-partnership company is a company where 'the parties possess rights, expectations and obligations which are not submerged in the company structure'. A feature of such companies is that 'the legal, corporate and employment relationships do not tell the whole story … behind them there is a relationship of trust and confidence similar to that obtaining between partners, which makes it unjust or inequitable for the majority to insist on its strict legal rights.'
In 2008 and 2009 a number of disputes arose, including a dispute which led to Trinity terminating its portfolio management agreement with Trikona which resulted in arbitration proceedings between Trikona and Trinity. The judge found that by the end of 2009 the relationship between Mr Kalra and Mr Chugh had irretrievably broken down. In December 2011, one of the registered shareholders through which Mr Kalra held his beneficial interest in Trikona ('Asia Pacific') commenced proceedings in Connecticut against Mr Chugh alleging breaches of fiduciary duty. In the proceedings, Asia Pacific alleged that Mr Chugh had sabotaged and stolen money from Trikona and it sought damages of USD 210 million.