Following an unprecedented course of events in a Cayman Islands case under section 238 of the Companies Law (2016 Revision) ("Law" and "Fair Value Proceedings") the Grand Court of the Cayman Islands ("Court") has held that (a) a consent order for an interim payment entered into between the company and the dissenters is binding upon the company when made; and (b) the dissenters were acting reasonably in presenting a winding up petition following a failure by the company to make payment pursuant to that consent order and having no bona fide dispute on substantial grounds that the debt was due and payable.
In In the matter of Trina Solar Limited Walkers, with the assistance of leading counsel Robert Levy QC, acts for the dissenters, which are all funds managed by Hong Kong based fund manager Maso Capital, which had their shares cancelled as part of a management buy-out that was completed by way of statutory merger under Part XVI of the Law and exercised their statutory right to dissent from the merger.
Background
In this case, the company and the dissenting shareholders had agreed by way of a consent order that the company would make an interim payment of the merger consideration paid to shareholders whose shares were expropriated as part of the merger. This consent order had been approved as to form and content by Walkers (acting for the dissenting shareholders) and the attorneys acting for the company, executed by the Judge, The Honourable Justice Segal, and sealed by the Court.
On the eve of the payment date required by the consent order, the company sought an extension of time to pay, stating that certain "internal issues" had arisen relating to the payments. The dissenters sought further information as to the reasons for the delay. No explanation was provided, and the dissenters made demand for payment after the date for payment had passed.
The company then alleged that it was not required to make payment pursuant to the consent order due to a variety of purported legal bases, and, in the evidence in support of an application for the consent order to be set aside, explained that the reasons that the company did not want to make the payments were that:
- it had received legal advice that the consent order was defective because interim payment applications could not be made by consent;
- a jurisdictional challenge to the power of the Court to make an order for interim payments was being run in two other cases under section 238 of the Law (which was known to the company before giving instructions to sign the consent order), and the company, and certain unnamed stakeholders in the company, had decided that they did not want to pay pending the outcome of those challenges; and
- those same unnamed stakeholders in the company had not consented to the payment being made (even though the consent order had been signed on behalf of the company).
Effectively, the company had had a change of heart with respect to the making of the interim payments and no longer wanted to make payment as agreed.
Following the company's refusal to pay the interim payment on what the dissenters considered were unsustainable technical grounds, and that, as a result, there was no bona fide dispute on substantial grounds as to the obligation on the company to make payment of the interim payments pursuant to the consent order which were then due and payable, the dissenters filed a winding up petition against the company in reliance upon, inter alia, the ground of insolvency.
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