On 30 November 2023, the Honourable Mr Justice Wallbank handed down his judgment in Claim No BVIHCM 2019/0176 AMS Holdings Limited v Amstel Investment Holdings Limited and Amstel Investments Limited et al vs AMS Holdings Limited et al. It is an important case, not least because of the learned judge’s treatment of an allegation of unfairly prejudicial conduct in the context of a debt for equity swap resulting in the dilution of a minority shareholding. In the interests of brevity and focus, this digest will address only the debt for equity swap issue, but this ought not to detract from the learned judge’s excellent and comprehensive treatment of the many other points arising from the claim and ancillary claim.
The procedural history began with the issuance by AMS Holdings Limited (“AMS”) of a Fixed Date Claim Form seeking a declaration that a Notice of Compulsory Redemption of Shares in respect of shares held by Amstel Investments Limited (“Amstel”) in AMS was valid, as well as consequential orders and directions under section 179 of the BVI Business Companies Ac (the “BC Act”). Section 179 provides the mechanism for the fixing of fair value of redeemed shares in circumstances where there is no agreement on the price to be paid for those shares. In defence of what ought to have been a straightforward claim, Amstel and others issued a defence and ancillary claim seeking inter alia relief under section 184I of the BC Act on the basis that the affairs of AMS had been or were likely to be conducted in a manner that was or was likely to be unfairly prejudicial to Amstel as the minority shareholder. The conduct which featured prominently at trial, but was by no means the only one complained of, was the dilution of Amstel’s shareholding to below the 10% threshold which allowed for the compulsory redemption of Amstel’s shares under section 176 of the BC Act. The usual relief was sought including the ubiquitous buy-out order.
In his well-written judgment, the learned judge granted the relief sought on AMS’s claim and rejected Amstel’s unfair prejudice claim. In doing so, the learned judge confirmed that in the context of a section 179 valuation, whether a minority discount ought to be applied to the valuation of a minority interest was a matter within the appraiser’s mandate relying on the decision in Olive Group Capital, a case in which Conyers also appeared.
There was no controversy between the parties on the law in relation to unfair prejudice, and in confirming what the position was the learned judge referred to his own judgment in CH Trustees SA v Omega Services Group Limited where the basic principles were summarised at paragraphs 95 to 124. On the nuanced question of whether a debt for equity swap resulting in the dilution of a minority shareholding was unfairly prejudicial, a more detailed analysis was required. Here, the learned judge applied the four-stage test adopted by the Court of Appeal in Independent Asset Management Company Swiss Forfaiting v Swiss Forfaiting Limited  ECSCJ No 271, namely (i) identifying the power, (ii) ascertaining the reason for the exercise of that power, (iii) determining the substantial purpose for the exercise of that power, and (iv) deciding whether that purpose was proper. This final step is described as critical and the learned judge characterised this inquiry as a factual one. Notably at paragraph 378 of his judgment the learned judge stated the following:
“The Court cannot jump to a conclusion that a share issuance was improper, merely because it increased or decreased or transferred power between shareholders, if there was some kind of dispute or tension between the shareholders. There is no getting round the need to identify what was the substantial, or primary, or dominant purpose behind the issuance” (see paragraph 378).
There did not appear to be any real dispute about whether the issuance of shares and the conversion of debt for equity was a legitimate power exercisable by the Company. The controversial steps were determining the substantial or dominant or primary purpose behind the debt for equity swap, and whether that purpose was proper or improper. On these facts the judge, after having heard the witnesses at trial and after having conducted a detailed review of the contemporaneous documents, concluded that:
“The purpose, or at least the substantial, or dominant, or primary, purpose, behind the debt for equity swap was to increase the capital of the company and reduce its debt, as indeed had been its stated reason, in order to put the Company in a better position to defend an application to the Court for the appointment of a liquidator under section 157 of the Insolvency Act 2003 (as amended)”.
The learned judge went on to find that this was “clearly of benefit to the Company and was a proper purpose.” That, however, was not the end of the matter. Amstel also went on to argue that even if AMS did subjectively have a good reason for the debt-for-equity swap, it was still unfairly prejudicial because it took place at a significant undervalue. In pursuing this argument, Amstel relied on the decision of His Honour Judge Purle KC (sitting as a High Court Judge) in Re Sunrise Radio, a decision of the Chancery Decision of the English High Court. In seeking to demonstrate that the debt for equity swap was at an undervalue, Amstel relied on inter alia the valuation of the experts deployed in the claim and various other historical and current indicia of value, including an earlier valuation produced by BDO. Ultimately, however, the Court concluded that the figures were defensible, and so that argument also failed.
AMS Holdings and others were represented by Partner Tameka Davis and Associate Allana-J Joseph of Conyers’ BVI office, working alongside Ben Woolgar of Brick Court Chambers.