Navigating Shareholder Disputes: Winding Up on ‘Just and Equitable’ Grounds in the Cayman Islands

Shareholder disputes can arise from a variety of causes ranging from mismanagement and lack of transparency to personal fallouts among business partners. These issues are particularly acute in privately held companies, where relationships often blur the line between personal and professional. When such disputes escalate beyond informal repair, the Companies Act (2025 Revision) (the “Act”) offers a critical legal recourse: the ability to petition for the winding up of the company on “just and equitable” grounds.

In this article HSM Partner Kerrie Cox examines the legal framework governing “just and equitable” winding up petitions. Detailing the key principles that courts consider, the procedural steps involved, and the implications for shareholders seeking to exit a deadlocked or dysfunctional business. Understanding this remedy is vital for shareholders facing irreconcilable disputes, offering a clear, albeit final, path toward resolution.

What does ‘just and equitable’ mean?

Section 92(e) allows any contributory – typically a shareholder – to petition the court to wind up a company on the basis that “it is just and equitable that the company should be wound up.” But what does this standard actually entail?

The phrase “just and equitable” is not exhaustively defined in the Act, which gives the Grand Court wide discretion to determine whether it is fair and reasonable to wind up a company in a particular case. While each petition is assessed on its own merits, the courts have recognised several recurring grounds that may justify a winding up on a just and equitable basis:

1. Loss of Substratum

This occurs where the company can no longer achieve the purpose for which it was originally formed. If the core business objective fails or becomes impossible to carry out, a shareholder may argue that continuing the company no longer serves any meaningful purpose.

2. Deadlock

In companies with two or a few shareholders (particularly where each holds equal control), a deadlock may arise if the parties are unable to agree on essential business decisions. If there is no mechanism in the company’s constitution to resolve such disputes, and the impasse paralyses the business, this can justify a winding up.

3. Lack of Probity or Mismanagement

If those in control of the company (typically directors or majority shareholders) act in a way that is oppressive, fraudulent, or in breach of their fiduciary duties, the court may intervene. Examples include diverting business opportunities, misusing company funds, or excluding minority shareholders from decision-making.

4. Loss of Mutual Trust and Confidence

Especially relevant in quasi-partnerships or closely held companies, this ground applies when a breakdown in personal relationships makes it impossible to continue operating the business in the manner initially intended – particularly where mutual trust was a foundational element.

The Companies Winding Up Rules (2023 Consolidation) (“CWR”)

While section 92(e) of the Act sets out the substantive legal basis for winding up a company on “just and equitable” grounds, the CWR govern the procedural mechanics of how that remedy is accessed and adjudicated. In other words, the Act gives the right; the CWR governs how that right is exercised in practice. Without adherence to these Rules, even the most compelling substantive claim may falter and therefore the CWR act as the procedural “gateway” to relief.

The CWR are crafted to ensure that all parties – petitioners, respondents, the company, and other stakeholders – are afforded fair notice, a meaningful opportunity to be heard, and clearly defined timetables. Practitioners must treat the CWR not as a checklist, but as an integral strategic tool – one that shapes not only how a case is fought, but whether it is fought at all.

A Distinctive Procedural Question in Shareholder Petitions

A key procedural feature that distinguishes shareholder winding up petitions is found under Order 12(1)(b)  CWR in the question of how the proceedings should be characterised: should it be treated as a proceeding against the company, or as an inter partes dispute between shareholders?

This issue frequently arises in petitions based on just and equitable grounds, where the substantive conflict lies not with the company as a corporate entity, but between competing shareholder factions – typically, one or more minority shareholders (as petitioners) and the majority (as respondents).

Where the Court makes a direction under Order 12(1)(b) that the proceeding is to be treated as an inter partes dispute, the effect is that the company is excluded from active participation in the litigation. As a result, for the purpose of any subsequent costs orders, the company is not treated as the losing party, and any costs awarded to the successful party will be borne not from company assets, but by the party against whom the costs order is made – subject to the Court’s overall discretion under Order 62 of the Grand Court Rules.

This approach is consistent with the decision in Freerider Limited [1], where the Grand Court held that, because the dispute was in substance between shareholders (Mr. Heinen and Mr. Le Comte), the company should not participate in the proceedings. The Court subsequently ordered  that the company be wound up on just and equitable grounds, and that Mr. Le Comte, as the unsuccessful respondent, pay Mr. Heinen’s costs of the petition and related applications.[2]

Powers of the Court in Winding Up Petitions

Aside from determining whether, on the facts and/or the law, a winding up petition should be granted or dismissed,[3] the Court has additional jurisdiction that is unique to petitions brought by shareholders on just and equitable grounds.

In such cases, the Court may exercise its equitable discretion to make alternative orders in lieu of a winding up order. These may include, among other remedies, an order regulating the future conduct of the company’s affairs, or an order requiring that one or more members purchase the shares of another member.[4]

These powers reflect the underlying principle that winding up is a remedy of last resort, and where appropriate, the Court may instead impose a solution that preserves the company while resolving the underlying shareholder dispute.

Conclusion

A winding up petition on just and equitable grounds offers a vital remedy for shareholders facing irreconcilable disputes within a company. While it is a powerful tool, the process is complex and requires careful consideration of the facts and the legal implications. The court will typically view winding up as a last resort, making it essential for shareholders to have expert legal guidance to assess the viability of such a petition.

Through section 92(e) of the Act and the procedural architecture of the CWR, the Financial Services Division of the Grand Court is equipped with broad powers to assess each case on its merits and craft an outcome that is fair, proportionate, and responsive to the parties’ underlying commercial relationship.

Importantly, the Court’s discretion is not confined to granting or dismissing a petition; it may, where appropriate, fashion alternative relief to protect the interests of shareholders without dissolving the company. The procedural distinction under Order 12(1)(b) CWR – between proceedings against the company and inter partes shareholder disputes – further demonstrates the nuanced approach the Court takes in balancing justice, efficiency, and fairness.

For shareholders navigating serious disputes, understanding the substantive principles and procedural intricacies of just and equitable winding up is critical. Timely legal advice and strategic engagement with the framework set out in the Act and the CWR can often mean the difference between an orderly resolution and prolonged, value-destructive litigation.

[1]               (2009 CILR 604)

[2]               (2010 (1) CILR 486)

[3]               The Powers of the court are contained in section 95 of the Act

[4]               Section 95(3) of the Act