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06 September 2018
In Delco Participation BV v Green Elite Limited (2018) the Court of Appeal considered the test for appointing liquidators to a company following an alleged loss of substratum.
Green Elite was a BVI company with no objects prescribed in its memorandum and articles of association. Green Elite had two shareholders – Delco Participation BV and HWH Holdings Limited – and held shares in metal company Chiho Tiande Group Limited, which it sold to a third party.
In March 2017 Delco applied to appoint liquidators to Green Elite on a just and equitable basis. Delco argued that Green Elite had lost its substratum, as the object for which it had been incorporated – holding shares in Chiho Tiande – was no longer achievable. Green Elite and HWH opposed the application, arguing that Green Elite had the continuing business of dealing with the proceeds of sale. HWH also contended that Green Elite's purpose was to hold the Chiho Tiande shares on trust.
At first instance, the court dismissed the application to appoint liquidators and held that Green Elite maintained the ancillary function of dealing with the sale proceeds. The court did not accept HWH's argument that there was a trust. Further, it found that even if there was a loss of substratum, Delco was acting unreasonably in not pursuing alternative remedies.
The Court of Appeal held as follows:
The case provides insight on the principles of loss of substratum, particularly in a case where a company's object is not prescribed by its memorandum and articles of association. The judgment also sets out Green Elite's novel submissions as to the alternative remedies that Delco could have pursued.
This is the latest in a line of BVI cases in which the courts have been proactive in appointing liquidators on just and equitable grounds, both where investigation into a company's affairs was necessary and where there were instances of fraud.
For further information on this topic please contact Andrew Thorp or Lucy Hannett at Harney Westwood & Riegels' Tortola office by telephone (+1 284 494 2233) or email (firstname.lastname@example.org or email@example.com). Alternatively, contact William Peake at Harney Westwood & Riegels' London office by telephone (+44 20 7842 6080) or email (firstname.lastname@example.org). The Harneys website can be accessed at www.harneys.com.
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