Culross Global SPC Ltd v Strategic Turnaround Master Partnership Ltd
| Jurisdiction | UK Non-devolved |
| Judge | LORD MANCE |
| Judgment Date | 13 December 2010 |
| Neutral Citation | [2010] UKPC 33 |
| Date | 13 December 2010 |
| Docket Number | Appeal No 0045 of 2009 |
| Court | Privy Council |
[2010] UKPC 33
Lady Hale
Lord Brown
Lord Mance
Sir John Dyson SCJ
Sir David Keene
Privy Council
Appellant
Michael Todd QC
Ross McDonough
(Instructed by Alan Taylor and Co)
Respondent
Anthony Akiwumi
(Instructed by Janes Solicitors)
Introduction
This appeal arises from the Respondent's application to strike out as an abuse of the process a petition to wind up the Respondent, Strategic Turnaround Master Partnership Ltd., issued by the Appellant, Culross Global SPC Ltd., on 10 June 2008. Whether the petition was an abuse of the process depends upon whether, at the date of its issue, the Appellant was a current creditor, with standing to issue it, or at best only a prospective creditor, in which case it would have no such standing. The courts below did not accede to the Respondent's application but the Court of Appeal (in disagreement with the Grand Court) limited the basis upon which the petition could proceed in a way with which the Appellant takes issue. Hence, this appeal.
The Respondent is incorporated under the Companies Law and regulated as a mutual fund under the Mutual Funds Law. As such, it was only permitted to offer its facilities to those investing at least US$50,000, and for this purpose, it issued a Confidential Explanatory Memorandum ("CEM") dated May 2006. The monies which it received from investments were in turn largely invested in Strategic Turnaround Equity Partners, L.P. (Cayman) ("the Master Fund"). A Delaware company, Strategic Turnaround Equity Partners, L.P. (Delaware) ("the Onshore feeder") also invested in the Master Fund. The Master Fund itself invested primarily in the US micro-cap turnaround sector.
The Appellant subscribed for shares in the Respondent between November 2006 and May 2007 for a total price of US$1.84 million. On 31 October 2007, it gave notice to redeem all these shares. A redemption date of 31 March 2008 was subsequently agreed (with the Respondent waiving any early redemption fees). On 11 April 2008 the Respondent's administrator, Citi Hedge Fund Services (Cayman) Ltd. ("Citi") confirmed to the Appellant's custodian's nominee, Banco Nominees (Isle of Man) Ltd. ("Banco") that "full redemptions are approved for March 31 2008" and that "90% of the redemption proceeds will be paid within 30 days", with "balance to follow upon completion of the annual audit".
On 17 April 2008 the Respondent's board resolved to suspend all redemptions, having regard to the "extremely volatile and illiquid" state of the US micro-cap turnaround sector; and on 22 April 2008 the board further and more formally resolved that:
"1. It is in the best interests of the Company and all shareholders in the Company that, in accordance with the Articles the calculation of the Net Asset Value of Shares be suspended ("the Suspension");
2. No Shares in the Company be redeemed nor new shares issued until such time as the Directors have lifted the Suspension;
3. All notices of redemption received by the Company be suspended until such time as the Directors have lifted the Suspension, although the Directors note that the relevant redeeming shareholders may revoke his [sic] notice of redemption during the period of Suspension."
Recital 4 to this resolution noted that "the articles of association …. permit the Directors, from time to time and for any reason, to declare a suspension of the determination of the Net Asset Value of Shares and the issue and redemption of shares….". This was a reference to articles 55-56, to be read with article 32, to which the concluding part of resolution 3 above was referring. Recitals 6 and 7 noted that the Directors believed that the Master Fund's portfolio values were temporarily depressed and at a level at which liquidating positions "will negatively impact all investor's interests in the Company", and that "this situation has evolved since several of the Company's shareholders representing approximately 27.5% of the Company's shareholders, as well as several of the limited partners in the Onshore Feeder, concerned by current U.S. market conditions, have given notice to redeem".
On 30 April 2008 the Net Asset Value ("NAV") of the Respondent as at 31 March 2008 was determined, and on 14 May 2008 Citi, as the Respondent's administrator, notified the Appellant that the NAV applicable to its shares as at 31 March 2008 was US$980,508.97. The Respondent's failure to pay any part of this sum led to the Appellant's issue on 10 June 2008 of its petition to wind up the Respondent.
By its judgment delivered on 12 December 2008, the Court of Appeal held that, on the true construction of the Respondent's articles and the CEM dated May 2006, "the Company had power to suspend the payment of redemption proceeds after the Redemption Date but before payment of those proceeds". It followed that, if the power was properly and validly exercised, the Appellant was, at the date of issue of the petition, at best only a prospective creditor. The principal issue on this appeal relates to the correctness of these conclusions. However, the Court of Appeal refused to strike out the petition pending determination of an issue as to whether the power had been properly or validly exercised, permitting its amendment to seek to wind the Respondent up on the ground that winding up was just and equitable.
The legal and contractual framework
It is a basic principle of company law that capital subscribed to a company may not be returned to shareholders otherwise than as prescribed by statute. Section 37(1) of the Companies Law permits the issue by a company of shares liable to be redeemed at the option of the company or shareholder, and section 37(3)(c) goes on to provide that "Redemption of shares may be effected in such manner as may be authorised by or pursuant to the company's articles of association". It is uncontroversial that this means that the manner in which any redemption may be effected must be authorised by or pursuant to the articles of association. As Gower and Davies observe in Principles of Modern Company Law (7th ed) (2003) pages 248 and 250, in relation to similar, albeit not identical, provisions in the English Companies Act 1985, s.160(3), "In order to protect the shareholders whose shares are not to be redeemed, the terms and manner of the redemption must be set out in the company's articles".
Article 1 contains definitions, including:
"Net Asset Value" means the amount determined pursuant to these Articles as being the net asset value of the Company;" ….
"Period of Suspension" means any period of suspension or limitation of, if any, the issue or redemption of Shares, the determination of Net Asset Value, the determination of Net Asset Value per Share, the determination of the value of a Class Account as determined in accordance with these Articles;" ….
"Redemption Date" means generally the last Business Day of each calendar quarter or such other day as may be determined from time to time by the Board of directors in its discretion;" ….
"Redemption Price" means the price at which Shares shall be redeemed as calculated in accordance with these Articles;" ….
"Valuation Date" means the Business Day or Business Days determined from time to time by the Directors to be the day or days on which the Net Asset Value per Ordinary Share is calculated;" ….
Subsequent articles provided as follows:
17. Subject to these Articles, Shares shall be issued on the terms referred to in the [CEM], unless otherwise determined by the Directors.
18. Subject to these Articles, and upon receipt of an application …. the Directors may allot, issue, grant options over and otherwise dispose of any of the Shares on any Subscription Day
…
20. Any issue of Shares made after the initial offer period shall be generally as of the Subscription Day at a price equal to the Net Asset Value per Share of the Class referable to such Share as determined on the Valuation Date and in accordance with the [CEM] and these Articles.
….
31. Subject to any provisions relating to the Shares set out in these Articles, or in any resolution constituting Shares, a Member may redeem all or any of such Member's Shares by serving a Redemption Notice on the Company, to be received by the Company at least 60 Business Days prior to the Redemption Date provided such capital has been invested in the Company for at least 2 years which shall be required to be received on a Redemption Day with respect to such Shares (or such number of Business Days prior to such Redemption Day as may be determined by the Directors), however, if a Member elects to redeem all or any of such Member's Shares within the 2 year period, specified herein, the Directors may in their absolute discretion charge an early redemption fee of 5% for any redemptions made within the first year and 3% for any redemptions made within the second year. Any Member redeeming Shares shall submit to the Directors the share certificate (if any) issued in respect of those Shares. The Company shall redeem such Shares at the Redemption Price being an amount equal to:
1. the Net Asset Value per Share calculated on that Redemption Day (or if the Redemption Day does not coincide with a Valuation Day then on the immediately preceding Valuation Day); less
2. the Redemption Fee calculated on the Redemption Day (or if the Redemption Day does not coincide with a Valuation Day then on the immediately preceding Valuation Day).
32. A Member may not revoke a Redemption Notice once submitted to the Directors unless the Directors shall have declared a Suspension. If a Suspension has been declared by the Directors the right of the Member to have his Shares redeemed shall be suspended and during the period of Suspension he may...
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