Cayman Court appoints Provisional Liquidators
In the matter of Bona Film Group Limited (In Provisional Liquidation) McMillan J, 13 March 2017
In a recent case before the Grand Court of the Cayman Islands ("Court") Walkers, along with Robert Levy QC as leading counsel, has successfully argued that a dissenting shareholder in proceedings commenced under section 238 of the Companies Law (2016 Revision) ("Law" and "Fair Value Proceedings") is a contingent creditor and has standing to petition the Court for the winding up of the target company in a merger (the "Company") and that, in the circumstances of the case, it was appropriate for provisional liquidators to be appointed to the Company.
In this case, the dissenting shareholders, which are all funds managed by Hong Kong based fund manager Maso Capital, 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.
In the first case of its kind in a section 238 case, and following the presentation of a winding up petition by the dissenters, the Court was asked to exercise its discretion to appoint provisional liquidators to the Company. At the same time, the Company sought orders that the winding up petition be struck out on the basis that inter alia the dissenters did not have standing to present it.
Standing as Contingent Creditors
The dissenters' expert had opined that the value of the shares was US$49,987,521.76 (US$61.72 per ADS), which was well in excess of the US$11.1 million (US$13.70 per ADS) which the Company had paid the dissenters. As a result of certain directions made by the Court in the Fair Value Proceedings, the Company's leave to adduce expert evidence had been revoked which the dissenters argued meant that the Company was unable to adduce a positive case in the Fair Value Proceedings.
In relation to the question of whether the dissenters had standing to present the petition, the Court held that "the Company is unable to demonstrate that it contests the amount itself bona fide on substantial grounds, as distinct from grounds which are merely either non-existent or of the most tenuous nature. The Company's failure to adduce evidence when it had ample opportunity to do so is strongly indicative of that conclusion." 
As a result, the Court held that "The Court finds that in law and in fact the Petitioners are contingent creditors of the Company and as previously indicated that the debt in question is not bona fide disputed on substantial grounds." 
The Court went on to consider whether provisional liquidators should be appointed in the circumstances, and held that:
- there was a prima facie case for a winding up order to be made, as the dissenters had a reasonable apprehension that the Company would not be able to pay a judgment debt in the future;  and
- the appointment of provisional liquidators was necessary to prevent both the dissipation of the Company's assets and mismanagement or misconduct on the part of the Company's directors. 
The Company's application seeking that the winding up petition be struck out accordingly failed.