Vol 13 (2016) - Issue 3

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In the Matter of China Shanshui Cement Group Limited: Can a Director of an Insolvent Company Present a Winding up Petition?

Sections 94(1) and (2) of the Cayman Islands Companies Law (2013 Revision) (the 'Law') contain an exhaustive list of people authorised to present a winding up petition to the Cayman Court. They are:

1. The company;
2. Any creditor (including any contingent or prospective creditors);
3. Any contributory;
4. Cayman Islands Monetary Authority (pursuant to the Cayman Islands regulatory laws); and
5. The directors of a company where expressly provided for in the articles of association (without the sanction of a resolution passed at a general meeting).

These provisions were considered by Mr. Justice Jones QC in a judgment handed down in In the Matter of China Milk Products Group Limited on 22 July 2011. In that case, Mr. Justice Jones QC held that the intention of the Cayman Islands legislature when enacting section 94 of the Companies (Amendment) Law 2007 was to allow the directors of a company to present a winding up petition even in circumstances where the articles of association contained no express provision to do so and there had been no sanction by the shareholders.
This decision went unchallenged until 25 November 2015 when Ms. Justice Mangatal handed down judgment in In the Matter of China Shanshui Cement Group Limited. The case concerned a winding up petition purportedly presented by China Shanshui Cement Group Limited (the 'Company') on the authority of the directors. The directors did not have an express power to present a winding up petition in the articles of association and did so contrary to the wishes of at least two of the largest minority shareholders, who cumulatively held a majority shareholding (the 'Majority Shareholders').
The directors of the Company unsurprisingly relied on the decision of the Cayman Islands Court in China Milk. However, the Majority Shareholders submitted that China Milk had been wrongly decided and that the Court should not follow that decision.
Ms. Justice Mangatal held that section 94 was clear and unambiguous and that Mr. Justice Jones QC was wrong to interpret section 94 as allowing the directors of a company to petition for its winding up without the sanction of a shareholders’ resolution or an appropriate authority in the company’s articles of association.
This article discusses the status of the Cayman Islands law in relation to section 94 of the Law, the decision in China Shanshui and its likely impact.

The decision In Re Emmadart Ltd.
In order to fully understand the issues raised by China Milk and China Shanshui it is necessary to look back to 5 December 1978 and the judgment of Brightman J. in the English authority In Re Emmadart Ltd.