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CORPORATE DIVORCE—A LIBERAL VIEW

Lloyd's Maritime and Commercial Law Quarterly

CORPORATE DIVORCE—A LIBERAL VIEW

Rita Cheung*

Chu v Lau
English courts have been reluctant to grant winding-up relief on the just and equitable ground. This reluctance conforms with the explicit view that a winding-up is a remedy of “last resort”, and is an “exceptional” remedy.1 The Privy Council has categorically refined and restated the contour of the just and equitable winding-up remedy in Chu v Lau.2 The decision is significant and remarkable, for the Privy Council has revitalised the utility of the remedy by giving a liberal and more vigorous meaning to corporate divorce on the just and equitable ground.
The litigation was essentially a dispute between two discordant equal partners, Mr Lau and Mr Chu, who had formed a British Virgin Islands (BVI) parent company to run a lucrative shipping business. The parent company was purely a holding company at the top of the corporate tree. Its subsidiary was further involved in a joint venture with a Chinese entity. The two men granted loans (via the parent and its subsidiary) to the joint venture company to buy ships. When the orders were cancelled, substantial funds were locked in the joint venture company. Disputes arose between the two men. The corporate thickets had added cruel twists to this “partnership” squabble. Such disputes have spawned a host of litigation in Hong Kong.3
Lau petitioned to wind up the parent company on the just and equitable ground (under the BVI equivalent of s.122(1)(g) of the UK Insolvency Act 1986), complaining deadlock and an irretrievable breakdown of trust and confidence with Chu. When the action came before the Eastern Caribbean Supreme Court, Chu had, in Roger J’s pithy word, effectively “hi-jacked”4 the joint venture business that was intended to benefit the two men.
Roger J unhesitatingly granted the winding-up relief. The Court of Appeal disagreed, in total disregard of the deadlock at the joint venture company level. The Privy Council restored the trial judge’s decision by taking an expansive view of the parties’ broader relationship in a corporate group. Lord Briggs and Lady Arden, based on an erudite review of authorities, have provided some helpful clarifications on just and equitable winding-up. Four points merit discussion.

Deadlock/breakdown divide

First and foremost, Lord Briggs has fundamentally reconceived the deadlock and breakdown grounds for winding-up. He traced the origin of the principles back to the mid-nineteenth century English case law as the “primary source of authority” for winding
Case and comment

211

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