Oct 2024
Frequently obtained, but rarely challenged, dissolution orders are an important final step in the process of liquidation. Dissolution represents the end of an official liquidation and the end of a company’s life.
In a recent judgment in In the Matter of Lung Ming Mining Co., Ltd, the Court of Appeal of the Cayman Islands was asked to consider the conditions which needed to be fulfilled before the Grand Court may order that a company in official liquidation be dissolved.
Background
The appeal of the Grand Court’s order to dissolve Lung Ming Mining Co. Ltd (the “Company”) was brought by a shareholder and former director of the Company (the “Appellant”) on the principal ground that the Grand Court erred in holding that the affairs of the Company had been “completely wound up” under the Companies Act.
The Appellant submitted that the Grand Court was wrong to conclude that the Company had been “completely wound up” in circumstances where it was alleged that the Company owned an asset (in the form of a share) which was alleged to be of more than de minimis value.
Conyers appeared for the former joint official liquidators of the Company (the “Former JOLs”), who were asked by the President of the Court of Appeal to participate in the hearing (albeit that they were functus officio upon the dissolution order made by the Grand Court).
As part of their submissions, the Former JOLs highlighted that dissolution (and the discharge of liquidators) was, as a matter of public policy, an important part of the liquidation process and insolvency practitioners needed a clear path to the termination of their appointment as liquidators and officers of the Court.
Decision
In dismissing the appeal, the Court of Appeal referred to the primary purpose of a winding up when interpreting the meaning of “completely wound up” for the purpose of dissolution:
“…The primary purpose of a winding up… is to apply the available assets in or towards satisfaction of all identified liabilities; and that purpose cannot be achieved in relation to unrealisable or valueless assets. That suggests that a winding up of the affairs of a company as envisaged by the [Companies Act] may be complete even if there are valueless or unrealisable assets in the hands of the liquidator.”
In the circumstances, the Court of Appeal found that the Grand Court rightfully concluded that the Former JOLs had done all that they could to wind up the Company and that the Appellant’s criticisms of the Former JOLs were unwarranted.
In relation to the public policy point, the Court of Appeal further stated:
“It is also pertinent to consider what the consequence would be if the existence in the hands of a liquidator of an unrealisable asset of no value meant that a winding up could not be completed: in such a case, the liquidation would continue and the liquidator would remain in post, continuing to owe duties to the court and the creditors, but without any function to perform or any funds or any ability to bring the liquidation to an end. In my judgment, such an outcome is not consonant with modern conditions; and it is also not consonant with the legislative policy, evinced by the mandatory nature of section 152(1), that a company should cease to exist once its affairs have been resolved.”
The decision of the Court of Appeal provides welcome guidance for insolvency practitioners on the key considerations when determining whether the affairs of a company have been “completely wound up” before applying for dissolution.