BVI Shareholder Disputes: Deadlock, Loss of Trust and Buy-out Offers

The BVI Court’s decision in Jin Yao Holdings Ltd v Forever Winner Intl et al examines the options open to shareholders in a “deadlock” situation where trust and confidence between shareholders has been eroded and offers guidance on the factors to consider when making a buy-out offer in order to avoid the company being wound up on just and equitable grounds.

The judgment also examines the thresholds which must be met in order for the Court to grant a strike-out application or appoint provisional liquidators.

Background

Jin Yao Holdings v Forever Winner¹ concerns a dispute over a company incorporated in the BVI, Forever Winner International Ltd (Company), which was incorporated by two individuals, Mr Yao Guoliang (Mr Yao) and Mr Wang Jiansheng (Mr Wang), as an asset-holding quasi-partnership.

• Jin Yao Holdings Ltd, a company owned and controlled by Mr. Yao, holds 50% of the Company’s shares.
• The other 50% are held by Sino Century Holdings Limited, a company owned and controlled by Mr. Wang.
• Mr Yao and Mr Wang are the directors of the Company.

The Company holds 49.06% of the shares in Strong Petrochemical Holdings Limited (SPHL), a company incorporated in the Cayman Islands and listed on the Main Board of the Hong Kong Stock Exchange (the SPHL Shares). At one time, Mr Yao and Mr Wang were both directors of SPHL but Mr Yao resigned in January 2025.

The relationship between Mr Yao and Mr Wang broke down, which led to proceedings before the BVI Commercial Court (Court) seeking to wind up the Company on just and equitable grounds under the BVI Insolvency Act 2003 (Act).

The breakdown in the shareholders’ relationship

The breakdown in Mr Yao and Mr Wang’s relationship involved allegations of serious misconduct on both sides, with each party accusing the other of actions that undermined the functioning of the Company and of SPHL.

Amongst other things, Mr Yao accused Mr Wang of:

• secretly removing Mr Yao as a director of the Company;
• denying Mr Yao access to Company information;
• delaying dividend payments;
• causing SPHL’s share price to drop significantly by petitioning to wind up SPHL;
• financial wrongdoing in relation to SPHL;
• sending letters to SPHL’s banks which lead to SPHL’s bank accounts being frozen; and
• colluding with another SPHL shareholder to take control of SPHL by removing all of SPHL’s directors, except Mr Wang.

In short, Mr Wang accused Mr Yao of:

• unreasonably refusing a reasonable offer by Mr Wang to purchase Mr Yao’s shares in the Company (the Buy-out Offer);
• attempting to misappropriate SPHL’s assets; and
• filing the Application in an effort to retain control of SPHL, against the wishes of SPHL’s other shareholders.

It was accepted by both parties that the Company was “deadlocked” (i.e. the shareholders are unable to co-operate in the management of the company’s affairs, the company cannot function at board / shareholder level and the company is, in short, “paralysed”²).

The dispute before the BVI Court

Mr Yao, through his company Jin Yao Holdings Ltd, applied to wind up the Company on just and equitable grounds under section 162(1)(b) of the Act (Application).

Separately, Mr Yao applied for the appointment of joint provisional liquidators (JPLs) under section 170(4)(b)(i) of the Act in order to preserve the Company’s main asset, its substantial shareholding in SPHL (and dividends payable to the Company in respect of the SPHL Shares), and to prevent Mr Wang from exercising unilateral control over the SPHL Shares, pending resolution of the Application (JPLs Application).

Mr Wang applied to strike-out the Application and JPLs Application, arguing that Mr Yao had unreasonably refused the Buy-out Offer because (in Mr Wang’s view) the Offer would give Mr Yao “all that he could reasonably hope to receive” ³ should the Company be wound up and that Mr Yao had therefore failed to pursue other potential remedies. On that basis (the availability of an alternative remedy), Mr Wang contended that permitting the Petition to proceed would be an abuse of process⁴.

Legal issues to be determined

This dispute raised several interrelated legal issues:

1. Was it just and equitable under section 162(1)(b) of the Act to wind up the Company, given that the between relationship Mr Yao and Mr Wang, two equal shareholders in a quasi-partnership corporate structure, had broken down and the company was in “deadlock”?

The leading BVI law authority on just and equitable winding-up is the decision of the Judicial Committee of the Privy Council (Privy Council) in Chu v Lau, in which the Privy Council confirmed that a company operating as a quasi-partnership may be wound up on just and equitable grounds where: (a) there is a functional deadlock and / or (b) an irretrievable breakdown in trust and confidence between the shareholders.

2. Could the Application survive analysis under section 167(3) of the Act?

Section 167(3) requires the Court to refuse to grant a just and equitable winding up Application if: (a) another remedy is available to the applicant; and (b) the applicant is acting unreasonably in seeking liquidation rather than pursuing that alternative.

The issue here was therefore whether Mr. Wang’s buy-out offer constituted such a remedy and, if so, whether Mr. Yao’s refusal to accept it was unreasonable.

3. Should the winding-up Application be struck out as an abuse of process?

Was it unreasonable for Mr Yao to persist with the Application because it was “clear and obvious”⁵ that he ought to have accepted Mr Wang’s offer to buy his shares in the Company? In the circumstances, should the Court strike out the Application at this preliminary stage?

4. Should JPLs be appointed to preserve the Company’s assets?

Key findings

• The Court found that Mr Yao and Mr Wang’s relationship had broken down irretrievably and that the Company, which was characterised as a “quasi-partnership”, was in a state of functional deadlock. 
• The Court dismissed Mr Wang’s strike out application on the basis that Mr Wang had not demonstrated that the petition was “manifestly unarguable” or an abuse of process:
  • The offer was marked “subject to contract“, lacked key protections and was not capable of immediate acceptance. It also failed to address Mr Yao’s allegations of misconduct affecting the value of the shares. The Court therefore held that Mr Wang’s offer to purchase Mr Yao’s shares (which formed the basis of the strike-out application) was inadequate. 
  • As such, Mr Yao’s refusal of the offer was not unreasonable and the test set out in section 167(3) of the Act was not satisfied.
• The Court found that while there were governance concerns, there was no immediate threat to the Company’s assets and, as such, Mr Yao had failed to establish that the appointment of provisional liquidators, which is a form of exceptional relief which courts will be “very reluctant“⁶ to grant, was justified.

Accordingly, Mr Wang’s application to strike out application and Mr Yao’s application to appoint provisional liquidators over the Company were dismissed and Mr. Yao’s application to wind up the Company on just and equitable grounds will now proceed to trial.

Commentary

Appointment of provisional liquidators – only in exceptional cases: Even where corporate governance issues are present, the Court will not appoint provisional liquidators lightly. The appointment of provisional liquidators involves significant expense and reputational issues, plus the risk of injustice being suffered by the other parties. There must be compelling evidence of imminent risk to assets or other urgent justifications in order for the Court to take this significant step.

Just and equitable winding-up – deadlock and loss of trust: In quasi-partnerships, where equal shareholders can no longer cooperate and mutual trust has broken down, the Court will be prepared to hear an application to wind up a company, whether or not the company is solvent.

Strike-out applications – a high threshold: The Court will only strike-out a shareholder application as an abuse of process for failure to accept a buy-out offer where it is “clear and obvious” that the offer met specific standards (outlined below) and should have been accepted.

Buy-out offers must be carefully structured: A buy-out offer which is an adequate “alternative remedy” to just and equitable winding up must be:

• Unconditional and capable of immediate acceptance.
• Supported by a clearly defined and fair valuation process.
• Reasonable in timing, payment terms and scope.
• Respond to any alleged misconduct affecting share value.
• Free from procedural uncertainty (i.e. the offer should not be “subject to contract”; it should not be a mere offer to negotiate).

Shareholder disputes often involve a series of competing applications and tactical moves, some of which aim to delay the proceedings or “muddy the waters” to distract from the real issues in dispute. As this case shows, the BVI Court will focus on the substance of the parties’ dispute and the applicable law, scrutinising buy-out offers closely. As a result, a buy-out offer which lacks substance is an expensive stalling tactic at best.

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Footnotes

1. Jin Yao Holdings Ltd v (1) Forever Winner International Ltd and (2) Sino Century Holdings Limited BVIHC(COM) 0641 of 2024 (Jin Yao Holdings v Forever Winner)
2. See paragraph [18] of Jin Yao Holdings v Forever Winner, which cites Chu v Lau [2020] UKPC 24 at [14] (Chu v Lau).
3. Jin Yao Holdings v Forever Winner at paragraph [24]
4. Relying on rule 11.15 of the Eastern Caribbean Supreme Court (ECSC) Civil Procedure Rules (CPR) (as applied to BVI insolvency proceedings by rule 4 of the BVI Insolvency Rules 2005), which entitles the Court to strike out a statement of case (or part of) if the case (or part) is an abuse of process.
5. Jin Yao Holdings v Forever Winner, paragraph [34]
6. Jin Yao Holdings v Forever Winner, paragraph [89] citing paragraph 8-42 of Hollington on Shareholders’ Rights 10th Edn, Ed Robin Hollington KC, 2023, Sweet and Maxwell