Winding up and Re Greyhound Electromechanical Limited [2021] JRC 249

What can you do if you think the sole director of the company you have a shareholding in has given away all its assets? Is a just and equitable winding up justifiable where there is uncertainty as to a liquidator’s claims and the company’s assets? Can all breaches of director’s duties be ratified?

The recent Jersey Royal Court judgment in Re Greyhound Electromechanical Limited [2021] JRC 249 explores all these questions, and more, in a case involving director misbehaviour and shareholder acquiescence.

The facts were simple. They involved an investment through a Jersey company in a Qatari steel business, jointly owned with a Qatari local business partner. The key transaction was the giving away of the Jersey company’s shareholding in the Qatari company to the local partner, and the writing off of loans owed to the local partner, in 2013. This was orchestrated by the Jersey company’s sole director and majority shareholder.

The minority shareholder in the Jersey company brought a just and equitable winding up claim in Jersey. He was, the court found, kept in the dark about the transaction and misled over the intervening years into believing he still had an interest in the company. When he found out about the transaction, in 2019, the other shareholders, at the instigation of the sole director, purported to ratify it under Jersey’s “whitewash” shareholder ratification provisions.

Somewhat surprisingly, no contemporaneous documentation of the transaction existed. The court had to make its decision based on witness evidence, including cross-examination of the minority shareholder, the sole director, and the Qatari company’s former CEO, who was also a shareholder and a business partner of the sole director. The court emphasised the importance of cross-examination, adjourning the substantive hearing so that witnesses could be examined.

The result was a series of findings by the court which undermined the credibility of the sole director and the CEO. The court built on recent judgments of the Jersey Royal Court and Court of Appeal in ETFS Securities Limited ([2021] JRC 025 and [2021] JCA 176 respectively). The Court of Appeal emphasised three relevant points about the justifiable loss of confidence and partiality basis for a just and equitable winding up order, based on the English case law:

1. That it is based on the principle that any shareholder in a company is entitled to expect its affairs to be managed with probity and in accordance with the basic principles of fair dealing.

2. That probity and impartiality go beyond cases of director dishonesty or actionable breaches of directors’ duties: they are linked to concepts of honest and decency.

3. That whether conduct is sufficient to justify a winding up order is always context-specific: there is no enforceable legal right where there has been a justifiable loss of confidence in the probity or impartiality of a company’s management, but that will be a factor in the court’s decision on whether to order a just and equitable winding up.