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Re Fang Holdings Limited: A reminder of the test for validating the disposition of company assets whilst facing winding up proceedings

Adam Crane, Nicosia Lawson


The recent decision of the Cayman Islands Grand Court in Fang Holdings Limited1 is a helpful reminder of the requirements to be satisfied when seeking an order under section 99 of the Companies Act (as amended) (the Act) approving the disposition of company assets by its directors.


In 2020 Evenstar Master Fund SPC for and on behalf of its segregated portfolios (the Petitioners) filed a petition (on the just and equitable basis) seeking the appointment of provisional liquidators (PLs) over Fang Holdings Limited (the Company) and issued a summons to reconstitute the Company’s board of directors.  The presentation of the petition triggered an event of default under the terms of a convertible note between the Company and Safari Group CB Holdings Limited (SGCB).  In the application to appoint PLs the Chief Justice (CJ) made an order, by consent of the parties, facilitating the appointment to the Company of an independent director nominated by the Petitioners.  The Petitioners’ PL application and the summons were adjourned sine die.

Sometime after, the Company sought an order that the intended disposition of its assets, by repayment to SGCB, shall not be void by virtue of section 99 of the Act if an order for the winding-up of the Company is made.  The Company was found to be both cash flow and balance sheet solvent and its board of directors expected it to continue to be solvent following payment to SGCB.

Despite certain concerns regarding the validity of the appointments to the Company’s board, the validation order pertaining to the payment to SGCB was unopposed. However, the Petitioners opposed payment of certain management fees they considered were unnecessary and related to transactions that had been made in bad faith.

Section 99 of the Companies Act

A section 99 validation order serves to maintain the status quo in a company pending resolution of a petition to wind up the company. Upon presentation of a winding-up petition, any transaction seeking to dispose of a company’s property and any transfer of shares or alteration in the status of the company’s members, unless the court validates the transaction, will be treated as if it never occurred if the court ultimately makes a winding-up order.

The Court’s Decision

In granting the validation order the CJ applied the legal test in the English decision of Burton v Deakin Ltd2, approved by the Grand Court in Fortuna Development Corporation3.  It was found that the application satisfied the requirements set out in Fortuna4 (and distinguished from Re Cybervest Fund5, a decision in which the CJ added a further consideration to those set out in Fortuna):

  • The proposed disposition must appear to be within the powers of the directors.
  • The evidence must show that the directors believe that the disposition is necessary and expedient in the interests of the company.
  • It must appear that in reaching the decision the directors have acted in good faith.
  • The burden of establishing bad faith is on the party opposing the application.
  • The reasons for the disposition must be shown to be ones which an intelligent and honest director could reasonably hold.

It was held that section 99 of the Act does not prevent a company from continuing to trade or make payments once a winding up petition has been presented and pending the hearing of the petition. However, the court refused to validate payment of the management fees based on the Re Cybervest guidelines – irregularities in the conduct of the company’s affairs could be demonstrated and the company’s solvency does not absolve its conduct at the expense of the investors.  It was held that the management fees were not necessary or expedient in the interests of the Company at the time.


As the case authorities point out, the guidelines in Fortuna and Re Cybervest are neither exclusive nor necessarily applicable to every case.  The court will determine each case on its own merit and will be careful to maintain the status quo pending the hearing of a petition to wind up the company in question.

By Adam Crane, Partner and Nicosia Lawson, Associate

1 Fang Holdings Limited (Unreported, 13 September 2021) (FSD 278 of 2020 (ASCJ)).

[1977] 1 WLR 390.

[2004-205] CILR 533, confirmed and approved by the Court of Appeal in Re Torchlight Fund LP (C.A.).

[2004-205] CILR 533.

[2006] CILR 80.

Additional Resources