The Grand Court of the Cayman Islands (the "Grand Court") in the matter of China Shanshui Cement Group Limited (the "Company")1 recently granted a validation order to facilitate the trading of the Company's shares on the Hong Kong Stock Exchange.

The Company sought this validation order, following the presentation by a shareholder of a petition seeking the Company's winding-up, to ensure that the transfer of legal title in its shares would not be voided pursuant to section 99 of the Companies Law (as amended) (the "Companies Law") in the event that the Company is subsequently wound up.

In arriving at the decision, Mangatal J helpfully reiterated the following principles that apply where a solvent company is seeking a validation order to dispose of its assets following the presentation of a winding-up petition against it, which acts as a useful reminder to directors, general partners and insolvency practitioners of the principles that the Grant Court will take in to account in determining whether to grant such an order in the context of Cayman Islands winding-up proceedings:

  1. Section 99 of the Companies Law only affects the transfer of legal title in shares (which the Company wished to facilitate) and not the beneficial interest in its shares.
  2. The grounds that should be satisfied in order for a validation order in respect of a share transfer to be granted are as follows:
    • The disposition must be within the powers of the directors;
    • There must be evidence to show that the directors believe that the disposition is necessary or expedient in the interests of the Company;
    • The directors must have reached their decision in good faith; and
    • The reasons supporting the disposition must be ones which an intelligent and honest director could reasonably hold.
  3. The evidence required to demonstrate that the above grounds have been met will depend on the nature and type of the transaction that a company is seeking to have validated although the bar for successfully contesting the granting of such an order is significantly higher than that required of the applicant company.


In the same matter, the Grand Court refused to vary the terms of a previous validation order that the Company had agreed to by consent, notwithstanding that the validation order contained a liberty to apply provision which the Company unsuccessfully argued would allow it to vary the terms of the order following a change in its circumstances.

In arriving at this decision, Mangatal J made clear that good grounds must be shown to vary the order and a party cannot fight the same battle that it has previously fought unsuccessfully unless there has been a significant change in circumstances or it becomes aware of facts that it could not have reasonably been aware of at the first encounter.


1. The decision was appealed and heard at a special sitting on 11 November 2019. Judgment was reserved.

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