Culross Global SPC Limited v Strategic Turnaround Master Partnership Limited (Cayman Islands)

Whether redemption has occurred, and whether redemption proceeds may be withheld, depends on the proper construction of the articles and any documents incorporated by them. There is no general rule that membership continues until payment or removal from the register.

Under the Companies Law, any power to withhold redemption proceeds must be authorised by or pursuant to the articles. Here, the redemption price crystallised on the Redemption Date and became a company liability. The suspension provisions affected future valuation or redemption and did not permit retrospective suspension after the Redemption Date. The CEM could not enlarge the articles, and the company could not rely on its own misdescription.

Culross subscribed for shares in Strategic Turnaround and served notice to redeem them. The parties agreed 31 March 2008 as the Redemption Date. The fund later suspended redemptions, calculated the redemption value, and failed to pay it. Culross presented a winding-up petition.

The fund sought to strike out the petition as an abuse of process, arguing that Culross was only a prospective creditor without standing. The Grand Court did not accede to the application. The Court of Appeal held that the articles and the CEM permitted suspension of payment after the Redemption Date, although it left open whether the power had been validly exercised. The central issue before the Privy Council was whether that power existed on the proper construction of the contractual documents.

The Board, in judgment delivered by Lord Mance, allowed the appeal.

1. Construction of the articles. The status of a redeeming shareholder and the point at which redemption takes effect depended on the articles and any documents incorporated by them. The Board rejected any a priori rule that a shareholder necessarily remains a member until payment or removal from the register. The reasoning in Walton v Edge (1884) 10 App Cas 33, Reese River Silver Mining Company Ltd v Smith (1869) 4 HL 64 and Michaels v Harley House (Maylebone) Ltd [1997] 2 BCLC 166 supported that approach.
2. Statutory authority. Section 37 of the Companies Law required the manner of redemption, including any power to withhold payment, to be authorised by or pursuant to the articles. A general reference to the CEM in the Subscription Agreement could not independently create that power.
3. Effect of the redemption provisions. Articles 31, 38 and 53 showed that the Redemption Price crystallised on the Redemption Date and became a liability of the company from the close of business on that date until payment. Article 38 allowed payment within a period determined by the directors, but not beyond a reasonable time. Article 37 authorised withholding only in specified anti-money-laundering circumstances.
4. Suspension. Articles 32 and 55–56 concerned a suspension affecting future valuation and future redemptions, including an outstanding notice which had not yet expired. They did not contain clear words permitting retrospective alteration after a valid notice had expired and the Redemption Date had passed. The Board also observed, obiter, that article 33’s temporary suspension power was unavailable after the Redemption Date.
5. CEM. Article 17 referred to CEM terms concerning subscription, not to its description of redemption and suspension powers. Any CEM description which purported to confer powers beyond the articles had no legal effect against investors. The company could not rely on its own misdescription in its own favour.
6. The order was amended to record that the company had no relevant power after 31 March 2008, or at the petition date, to suspend payment. The relevant words were deleted from the Court of Appeal’s order, and costs were ordered in favour of Culross, subject to written representations within 21 days.

• Privy Council: In [2010] UKPC 33, the appeal was allowed. The Court amended the order to record that the company had no relevant power to suspend payment after the Redemption Date.
• Court of Appeal of the Cayman Islands: On 12 December 2008, the court held that the articles and CEM permitted suspension of payment after the Redemption Date, but refused to strike out the petition pending determination of valid exercise of the power.
• Grand Court of the Cayman Islands: The Court of Appeal disagreed with the Grand Court’s construction of the relevant provisions. No citation for the Grand Court decision was stated.