BVI Court of Appeal dismisses €7.5m unfair prejudice appeal

01/04/25

The Eastern Caribbean Court of Appeal, sitting in the BVI, has dismissed all the grounds of appeal against a decision of Wallbank J in November 2023 following a three-week trial in a substantial unfair prejudice claim (see earlier article here).

The claim was brought by Amstel Investment Holdings Ltd and Christopher McKenzie (the “McKenzie Parties”) under s.184I of the BVI Business Companies Act alleging unfairly prejudicial conduct in the management of AMS Holdings Ltd (the “Company”) by Sukru Evrengun and Circle Capital Ltd (the “Evrengun Parties”).

At trial, the Judge dismissed a large number of factual and legal allegations made against the Evrengun Parties. The appeal focussed on two of those allegations, namely (i) a debt-for-equity swap (the “Swap”) between May and August 2019 which had reduced Amstel’s share in the Company from 30% to 5.6%, and (ii) a retrospective increase of the interest rate on two debts, the Circle and Corepoint Debts, which were owed to parties connected with Mr Evrengun.

In what will now be one of the leading authorities on s.184I claims, the Court of Appeal held that:

1. Ground 1: Although the Swap had occurred at a 37% undervalue [76], this did not mean that it was unfairly prejudicial. The Court rejected the Appellants’ case that a share issue or swap which takes place at a “significant” undervalue will necessarily constitute unfair prejudice. Instead, it held that the share issue will not be unfairly prejudicial unless the directors are in breach of their fiduciary duties in failing to give proper consideration to the price to be used [90]. This depended on the analysis of a number of leading English cases including Re Sunrise Radio [2009] EWHC 2893 (Ch) and Re Cardiff City Football Club [2022] EWHC 2023 (Ch). In circumstances where there was no evidence that Mr Evrengun had engineered or been aware of the undervalue, he was not in breach of fiduciary duty [92]-[93].
2. Ground 2: The Court rejected an appeal on the facts by the McKenzie Parties, alleging that the Judge had found a substantial purpose of the Swap which was (i) wrong on the facts [135] or (ii) not a purpose it was open to him to find [138]-[139].
3. Ground 3: The retroactive increase in the interest rate on the Circle and Corepoint debts was not unfair. That was on the basis that Mr Evrengun was not in breach of fiduciary duty in causing those increase, given that the repayment of Mr McKenzie’s own debts from the Company was being given priority [148]-[150].

A copy of the judgment is available here.