Amstel Investment Holdings Limited v AMS Holdings Limited

THE EASTERN CARIBBEAN SUPREME COURT IN THE COURT OF APPEAL TERRITORY OF THE VIRGIN ISLANDS BVIHCMAP2024/0002 BETWEEN: [1] AMSTEL INVESTMENT HOLDINGS LIMIIT Amstel Investment Holdings Limited v AMS Holdings LimitedED [2] CHRISTOPHER STUART MCKENZIE [3] CAVENDISH MANAGEMENT ENTERPRISEES LIMITED Appellants and [1] AMS HOLDINGS LIMITED [2] CIRCLE CAPITAL LIMITED [3] SUKRU EVRENGUN Respondents Before: The Hon. Mr. Trevor M. Ward Justice of Appeal The Hon. Mde. Esco L. Henry Justice of Appeal The Hon. Mde. Kimberly Cenac-Phulgence Justice of Appeal [Ag.] Appearances: Mr. Alex Hall Taylor KC with him Mr. Simon Hall and Mr. Tom Roscoe for the Appellants Mr. Ben Woolgar, Ms. Tameka Davis and Mr. Andre Sheckleford for the Respondents __________________________________ 2024: October 29 and 30; 2025: March 27. __________________________________ Commercial Appeal – Appeal against learned judge granting fixed date claim and dismissing ancillary claim – Fiduciary duty – Unfair prejudice – Improper purpose – Whether the learned judge erred in failing to hold that the debt-for-equity swap was carried out at an undervalue and further erred in failing to hold that the fact that the debt-for-equity swap was at an undervalue also amounted to unfair prejudice – Whether the judge erred in finding that the debt-for-equity swap was carried out for a proper purpose which was not pleaded by the respondents – Whether the judge erred in failing to find that there had been unfair prejudice to Amstel by the unilateral and retrospective increase of the interest payable upon the Circle and Corepoint debts This appeal stems from a dispute between shareholders in the first respondent, AMS Holdings Limited (“AMS”). The first appellant, Amstel Investment Holdings Limited (“Amstel”) was the minority shareholder in AMS. The second appellant, Mr. Christopher McKenzie is the sole shareholder of Amstel. The third appellant, Cavendish Management Enterprises Limited (“Cavendish”) is a wholly owned subsidiary of Amstel and is beneficially owned by Mr. McKenzie. AMS is a limited company incorporated in the BVI on 13th February 1995. It is the group parent holding company of the AMS Group, which conducts business in the offshore financial services sector. The second respondent, Circle Capital Limited (“Circle”) is a limited company incorporated in the BVI and was the majority shareholder in AMS. The third respondent Mr. Sukru Evrengun is the sole shareholder and sole director of Circle. Mr. Evrengun is also the sole director of Corepoint Select Strategies Limited (“Corepoint”), a company incorporated in the Virgin Islands. In 1997 Mr. McKenzie became a shareholder in AMS, holding 16.85% of the shares which he subsequently transferred to his corporate vehicle, Amstel. On 10th January 1998 he was appointed as a director of AMS. In July 2012, Mr. Evrengun, through his wholly owned corporate vehicle, Circle, acquired a majority shareholding of about 67.955% in AMS by buying out other shareholders. In July 2012, Mr. Evrengun became a Director of AMS. The remaining 15.195% shares in AMS were then held by Sun Investments Limited (“Sun”) which was owned by Mr. Andrew Bickerton (“Mr. AB”) who was also a director of AMS. Discussions between Mr. Evrengun and Mr. McKenzie from about 2012 had produced an agreement that Mr. McKenzie would be engaged in the role of Group Managing Director, Corporate and Trust, within the AMS Group. There was an informal arrangement whereby it was agreed that AMS would pay Mr. McKenzie the sum of US$350,000 per annum for management services provided by Cavendish. It was also agreed that Mr. Evrengun would have an executive role in AMS as Group Managing Director and would be paid US$300,000.00 per annum. By July 2014, Mr. AB was bought out so that Sun ceased to be a shareholder in AMS. Through a series of agreed transactions, as at the end of 2014, Circle held 70% of the shares in AMS with the remaining 30% held by Amstel. It was also agreed that AMS owed Amstel a sum of $US400,000.00 by way of shareholders’ loan assigned by Circle to Amstel (the “Amstel Loan”). Circle was also owed a substantial amount in the form of various sums which were contributed to AMS by Mr. Evrengun and/or his compensation was retained in AMS and recorded against Circle’s loan account with AMS. In the early years following Mr. Evrengun’s takeover, several cash loans were made to AMS through Corepoint. In total, between November 2013 and December 2014, Corepoint made 5 such loans to AMS through which the acquisitions were made of Circle Trust Services (BVI) Ltd, Sentinel Management LLC, Fidelius, Nexman BV and a portfolio of clients held by Superior Trust and Management Company. In late 2017, the relationship of trust and confidence between Mr. McKenzie and Mr. Evrengun broke down. In November 2017 it was agreed that Mr. McKenzie would leave AMS. Both sides agreed that Amstel’s 30% shareholding should be bought out, and on 19th December 2017 Mr. Evrengun indicated that he would offer at least US$1.274m for Amstel’s 30% shareholding, among other terms. However, disagreement between the parties in relation to the value of AMS, the extent of its debts, the reasons for those debts, the effect of these debts on the value of the company and the state of company’s financial records all stood in the way of an amicable and mutually acceptable parting of the ways. Protracted communications ensued between Mr. Evrengun and Mr. McKenzie concerning a fair valuation for Mr. McKenzie’s shares until on 3rd May 2018 Mr. McKenzie threated to make a formal statutory demand if an amicable agreement on the future repayment of his debts and the Amstel shareholder loans was not agreed. On 18th May 2018, Mr. McKenzie made good on this threat when he caused statutory demands to be served on AMS in relation to the Amstel Loan and payment of receivables payable to Cavendish. As a result on 30th May 2018, Mr. Evrengun and Mr. McKenzie reached an agreement that the combined debts would be settled by 2020 by the payment of monthly instalments of US$20,000. In return, Mr. McKenzie undertook not to enforce the statutory demands without giving a minimum of 21 days prior notice. The discussions seeking to find common ground as to the way Mr. McKenzie’s shares might be bought out and the valuation of AMS continued but were unproductive. Mr. Evrengun made a final offer on 29th October 2018, offering Mr. McKenzie US$950,00.00 for his shares to be repaid together with the remaining shareholder loan debt at US$25,000.00 per month over 4.5 years. Mr. McKenzie did not accept. Instead, he replied by threatening to place AMS into liquidation and to advise the BVI Financial Services Commission (“FSC”) of the petition and notify them ‘perceived fraudulent and deceptive account practices…’. The parties continued to exchange emails in the ensuing months, in which Mr. McKenzie threatened to appoint a liquidator and commence unfair prejudice proceedings. In December 2018, Mr. Evrengun initiated discussions with the AMS Group’s auditors, BDO BVI, with a view to the preparation of a valuation report for the shares in AMS in contemplation of a debt for equity swap. AMS’s Board also passed a resolution for BDO to conduct a valuation of AMS to determine a fair value for the debt for equity conversion. On 20th May 2019 BDO submitted their valuation report which valued AMS at US$1,244,500 or US$24.89 per share as at 31st December 2018. On 30th May 2019, by written resolution of the sole director, Mr. Evrengun, the authorised capital of AMS was increased from US$50,000 to US$500,000.00, divided into 500,000 shares with a par value of US$1.00 each. On 31st May AMS passed a written resolution of the sole director Mr. Evrengun to issue new shares in AMS to Corepoint and Circle (the ‘new shares’) in exchange for the release by Corepoint and Circle of the Corepoint and Circle Debts. Corepoint also directed AMS to issue Corepoint’s portion of the new shares to Circle, on the basis that Circle would hold those shares on terms agreed between Corepoint and Circle. On 31st May 2019, AMS’s register of members was updated to reflect the issuance of 218,691 ordinary shares to Circle. The result was that Circle was then a holder of 94.4% of the shares in AMS, with Amstel then holding 5.6% of the issued shares of the Company. By reducing Amstel’s shareholding to below the 10% threshold, the Company was thereby placed in a position to invoke its right of compulsory redemption of the Amstel shares under the provisions of section 176 of the BVI Business Companies Act (the “BCA”). On 8th August 2019, pursuant to section 176 of the BCA, Circle, being the registered holder of more than ninety per cent of the votes of the issued shares in the Company, issued a redemption notice seeking to compulsorily redeem all the shares held by Amstel as a minority shareholder. The Redemption Notice also provided that, subject to Amstel’s right to dissent, the shares were to be redeemed by the Company on 15th August 2019 (the “Redemption Date”) at a price of US$19.91 per share. Amstel dissented on 14th August 2019 on the basis, among others, that the redemption price of US$19.91 did not represent fair value. Amstel further alleged a lack of information and access to the Company’s documents and accounts, and that the redemption process was unfairly prejudicial and thus illegal. Following further protracted correspondence bearing no fruit, the respondents (claimants in the court below) filed a Fixed Date Claim Form in the Commercial Court of the BVI. They essentially sought a declaration that the share redemption process is valid, an order to compel Amstel to appoint an appraiser pursuant to section 179 of the BCA and for consequential directions related to the appraisal process. The appellants (respondents in the court below) responded by filing an ancillary claim alleging that Mr. Evrengun had committed breaches of director and other fiduciary statutory duties and/or breaches of a shareholder’s agreement and had engaged in unfairly prejudicial conduct of the affairs of AMS. They sought declarations that the affairs of AMS had been conducted in an unfairly prejudicial manner and that Amstel remains a 30% shareholder in the company. They further sought orders requiring Circle, Mr. Evrengun and AMS to acquire Amstel’s shares in the company at a fair price or compensation for the diminution in the value of Amstel’s shares in AMS. The learned judge identified two major themes in the proceedings below: whether the Corepoint and Circle debts were legitimate and in particular, whether they were disclosed to Mr. McKenzie at or around the time that they were incurred; and whether the debt for equity swap was legitimate. On the first theme, the learned judge found that Mr. Evrengun was open with Mr. Mckenzie about the AMS’s debt position and did not conceal it from him. There was no indication that any borrowing concerned was improper or had any purpose other than to provide AMS business with much needed cash in order to continue to operate. In relation to the debt for equity swap, the learned judge concluded that it was not at an undervalue and that it was done for the proper purpose of increasing the company’s financial position in response to Mr. McKenzie’s threats to present a winding up petition. The learned judge therefore rejected the appellant’s ancillary claim and allowed the respondent’s fixed date claim as well as ordering that a further hearing would be required on matters involving a buy- out of Amstel’s shares in AMS and the valuation of those shares. The appellants appealed by notice of appeal filed on 12th January 2024. The issues, distilled from the grounds of appeal, are reduced to the following: (1) whether the learned judge erred in failing to hold that the debt-for-equity swap was carried out at an undervalue and further erred in failing to hold that the fact that the debt-for-equity swap was at an undervalue also amounted to unfair prejudice; (2) whether the judge erred in finding that the debt-for-equity swap was carried out for a proper purpose which was not pleaded by the respondents and; (3) whether the judge erred in failing to find that there had been unfair prejudice to Amstel by the unilateral and retrospective increase of the interest payable upon the Circle and Corepoint debts. Held: dismissing the appeal and affirming the orders of the trial judge, remitting the matter to the trial judge for consideration of consequential directions and ordering that the appellants pay the respondent’s costs to be assessed if not agreed within 28 days of the date of delivery of this judgment, that: 1. A petitioner must demonstrate both unfairness and prejudice in order to succeed in an unfair prejudice petition under section 184I of the BCA. The court’s mandate in adjudicating an unfair prejudice claim is to do what is just and equitable to achieve fairness, which must be applied judicially, and what constitutes fairness must be determined upon rational principles. Ultimately, the concept of fairness must be informed and shaped by context and background. There are two features constituting the background which must be kept in mind when considering unfair prejudice. The first is that the manner in which the company’s affairs are conducted is regulated by its articles of association and sometimes by collateral agreements between shareholders (the legal background). A member of a company will therefore not ordinarily be entitled to complain of unfairness unless there has been some breach of the terms on which he agreed that the affairs of the company should be conducted. The second feature is that there may be cases in which equitable considerations will prevent those having conduct of the affairs of the company from insisting on their strict legal rights. O’Neill v Phillips [1999] 1WLR 1092 applied; JF Ming Inc et al v Ming Suit Hung, Ronald et al BVIHCMAP2016/0039 (delivered 30th June 2016, unreported) followed; Grace v Biagioli [2005] EWCA Civ 1222 applied. 2. In relation to whether the debt-for-equity swap was carried out at an undervalue and whether that fact, as a matter of law, amounted to unfair prejudice, it cannot be said on a proper analysis of Re Sunrise Radio, a decision on which the appellants rely, that the compulsory redemption of a shareholder’s shares at an undisputed significant undervalue is necessarily unfairly prejudicial. The determinative factor in that case was the breach of fiduciary duty which constituted the unfairness. It was prejudicial because the failure of the directors to have regard to all relevant considerations resulted in the majority shareholders obtaining the shares at a much lower price and diluted the minority shareholding to a much greater extent than would have resulted had those matters been considered. The principle to be extracted from Re Sunrise Radio case indicates that a share issue/dilution at an undervalue will be unfairly prejudicial if the directors are in breach of their fiduciary duties by reason of failing to give proper consideration to the price at which the share issue should occur. The appellants’ submission that the mere dilution of the minority shareholding will necessarily establish unfair prejudice therefore cannot be maintained. That proposition is too broadly cast and would suggests that in any case where the minority converts debt to equity or otherwise issues new shares at a price which the court subsequently determines was too low unfair prejudice would be established. Such an approach ignores the principle that whether in any given case the conduct complained of is unfairly prejudicial is a matter to be determined on the particular facts and circumstances of a case, as opposed to by reference to any pre-defined set of circumstances. The judge’s finding that there was no unfairness because there was no evidence to establish that Mr. Evrengun engineered the valuation error which led to the undervalue and that he was unaware of said error was entirely open to him on the evidence. The undervalue, without more, cannot be said to be necessarily unfairly prejudicial. Additionally, it was not wrong or improper for the judge to defer the valuation issue until liability had been established, particularly considering that the ascertainment of the correct value required expert evidence, and the judge seemed not to have reposed full confidence in either of the parties’ experts. Re Sunrise Radio [2009] EWCH 2893 (Ch) applied; Re Cardiff City Football Club (Holdings) Ltd [2022] EWHC 2023 (Ch) considered. 3. As it relates to the issue whether the judge erred in finding that the debt-for-equity swap was carried out for a proper purpose which was not pleaded by the respondents, the starting point is that a matter such as the raising of finance is a management call within the remit of the directs, and it would be wrong for the court to substitute its opinion for management’s or to question the correctness of management’s decision if bona fide arrived at. Nonetheless, when a dispute arises whether the directors of a company made a particular decision for one purpose or for another or whether, there being more than one purpose, one or another purpose was the substantial or primary purpose, the court must look at the situation objectively in order to estimate how critical or pressing, or substantial or, per contra, insubstantial an alleged requirement may have been. If it finds that a particular requirement, though real, was not urgent, or critical, at the relevant time, it may have reason to doubt, or discount, the assertions of individuals that they acted solely in order to deal with it, particularly when the action they took was unusual or even extreme. The stages of the court’s enquiry are to (i) identify the power that has been exercised; (ii) identify the proper purpose for which that power was delegated to the directors; (iii) identify the substantial purpose for which the power was exercised; (iv) determine whether that purpose was proper or not. Howard Smith Ltd v Ampol Ltd [1974] AC 821 applied; Antow Holdings Ltd. v Best Nation Investments Ltd BVIHCMAP2017/0010 (delivered 21st September 2018, unreported) followed; Nam Tai Property v IsZo Capital LP BVIHCMAP2021/0010 (re-issued 6th October 2021, unreported) followed; Independent Asset Management Company Ltd v Swiss Forfaiting BVIHCMAP2016/0034 (delivered 24th November 2017, unreported) followed. 4. The trial judge was very much immersed in this trial and in his comprehensive judgment has demonstrated intimate familiarity with the pleadings and evidence in the case. The suggestion that the judge set out an erroneous chronology in approaching the issue of improper purpose is simply unfounded. It was for the judge to determine whether the trigger for the 30th May 2019 resolution relating to the debt- for-equity-swap was the Letter Before Action, as contended by the appellants, or otherwise, and whether the subsequent letter to counsel for the appellants raising the question of the redemption of Amstel’s shares was suggestive of a “pre-decided plan” which was “of a piece” with the redemption that followed it on 8th August 2019. The learned judge very clearly identified that the substantial purpose was to increase the capital of the company and reduce its debts and described this as the Evrengun parties’ stated purpose. That finding accords with the pleadings. The judge therefore found no improper purpose at all. Instead, he accepted the Evrengun Parties’ pleaded purpose and concluded that it was a proper one, which was the substantial or dominant purpose. The fact that the judge went on to assign a reason for, or a “collateral advantage” to be achieved by, the Evrengun Parties pursuing that purpose, namely to put the company in a better position to defend an application for the appointment of a liquidator, does not detract from the fact that he had expressly accepted the pleaded purpose and found it to be the substantial or dominant and a proper purpose for the benefit of the company. 5. An appellate court should not interfere with a judge’s findings of primary fact unless they are “plainly wrong”, in the sense that either there was no evidence to support the finding, or the finding was based on a misunderstanding of the evidence, or the finding was one that no reasonable judge could have reached. Rarely would it be justifiable for an appellate court to overturn a finding of fact which turns on the credibility of the witnesses. It should not do so unless it is satisfied that any advantage enjoyed by the trial judge by having seen and heard the witnesses could not be sufficient to explain or justify his conclusions. This restraint extends to the judge’s evaluation of the facts and any inferences to be drawn from them. In this case it cannot be said that the judge’s findings in relation to proper purpose were plainly wrong in the sense that either there was no evidence to support the finding, or the finding was based on a misunderstanding of the evidence, or the finding was one that no reasonable judge could have reached. The facts found and inferences drawn by the judge on this issue were open to him on the evidence. Kwok Kin Kwok v Yao Juan [2022] UKPC 52 followed. 6. The appellants’ argument that, the judge erred in failing to find that there had been unfair prejudice to Amstel by Mr. Evrengun when he unilaterally and retrospectively caused the Company to increase the interest payable upon the debts, and therefore the sums due to Circle and Corepoint from 0 to 8% and 8 to 10% respectively must also fail. The judge found that it was not unfair because priority was being given to the Amstel and Cavendish debts. Based on evidence in relation to third party lending rates he found that the rates were at a commercially reasonable and unexceptional rate. The judge also considered the matter from the Company’s perspective and held that it was not against its interests to be asked to pay 2% more on interest when that was still within commercial bounds. Nor was it contrary to its interests to be asked to pay 8% interest where hitherto it had paid none. With respect to the retroactive interest, the judge found that to be unobjectionable. The start date he found coincided with the breakdown of the relationship between Mr. Evrengun and Mr. McKenzie which he marks as 20th December 2017 and culminating with Mr. Evrengun’s demand for Mr. McKenzie’ resignation as director on 5th January 2018. In circumstances where both parties had decided to fall back on their strict legal rights in relation to debts owed to them, the judge found the actions of Mr. Evrengun to be justifiable. The judge was effectively saying that there was no breach of fiduciary duty by Mr. Evrengun and that the transactions increasing the interest rate did not amount to unfairly prejudicial conduct. Accordingly, there is no discernable basis for saying that the judge failed to consider whether Mr. Evrengun had complied with his fiduciary duties owed to the company as contended by the appellants. JUDGMENT

[1]WARD JA: This appeal stems from a dispute between shareholders in the first respondent, AMS Holdings Limited (“AMS” or “the Company”). The first appellant, Amstel Investment Holdings Limited (“Amstel”) was the minority (30%) shareholder in AMS. The second appellant, Mr. Christopher McKenzie (“Mr. McKenzie”) is the sole shareholder of Amstel. The third appellant, Cavendish Management Enterprises Limited (“Cavendish”) is a wholly owned subsidiary of Amstel and is beneficially owned by Mr. McKenzie. The first respondent, AMS, is a limited company incorporated in the BVI on 13th February 1995. It is the group parent holding company of the AMS Group (“the Group”), which conducts business in the offshore financial services sector. The Group has operational subsidiaries in a number of jurisdictions, including in the BVI where one such subsidiary, AMS Trustees Limited (“AMS Trustees”) is incorporated. AMS Trustees is regulated by the BVI Financial Services Commission (“FSC”). The second respondent, Circle Capital Limited (“Circle”), is a limited company incorporated in the BVI and was the majority (70%) shareholder in AMS. The third respondent Mr. Sukru Evrengun (“Mr. Evrengun”) is the sole shareholder of Circle and, since 17th January 2018, its sole director. Mr. Evrengun is also the sole director of Corepoint Select Strategies Limited (“Corepoint”), a BVI incorporated company. In this judgment, the appellants may be referred to together as “the McKenzie Parties” and the respondents as “the Evrengun Parties”.

The background

[2]Many aspects of the relevant background to this case were not in controversy at trial or in this appeal. Accordingly, the summary that follows draws in large part on that provided by the learned trial judge and the factual background provided by the parties but only to the extent necessary to address the issues engaged on this appeal.

History of the shareholding

[3]Mr. McKenzie initially became a shareholder in AMS in 1997, holding 16.85% of the shares in AMS, which he subsequently transferred to his corporate vehicle, Amstel. On 10th January 1998 he was appointed a director of AMS.

[4]In July 2012, Mr. Evrengun, through his wholly owned corporate vehicle, Circle, acquired a majority shareholding of about 67.955% in AMS by buying out other shareholders. The remaining 15.195% shares in AMS were then held by Sun Investments Limited (“Sun”) which was owned by Mr. Andrew Bickerton, styled ‘Mr. AB’ in the judgment. Mr. AB was also a director of AMS. In July 2012, Mr. Evrengun became a Director of AMS.

[5]Discussions between Mr. Evrengun and Mr. McKenzie from about 2012 had also produced an agreement that Mr. McKenzie would be engaged in the role of Group Managing Director, Corporate and Trust within the AMS Group. There was an informal arrangement whereby it was agreed that AMS would pay Mr. McKenzie the sum of US$350,000.00 per annum for management services provided by Cavendish. It was also agreed that Mr. Evrengun too would have an executive role in AMS as Group Managing Director and would be paid US$300,000.00 per annum. Mr. McKenzie would focus on the operational side of the business, while Mr. Evrengun would focus on the financial and insurance sides. Mr. McKenzie commenced duties at some point in early to mid-2013.

[6]By July 2014, Mr. AB was bought out so that Sun ceased to be a shareholder in AMS. Through a series of agreed transactions, as at the end of 2014, Circle held 70% of the shares in AMS with the remaining 30% held by Amstel. Moreover, as part of the same series of transactions, it was agreed that AMS owed Amstel a sum of US$400,000 by way of a shareholders’ loan assigned by Circle to Amstel (the ‘Amstel Loan’). Circle was also owed a substantial amount in the form of various sums which were contributed to AMS by Mr. Evrengun and/or by virtue that his compensation was retained in AMS and recorded against Circle’s loan account with AMS.

[7]It seemed to have been common understanding that the strategic plan for the AMS group of companies was that it would grow by acquiring other corporate service providers and/or their client portfolios. Clearly, to realise its aspiration, these acquisitions needed to be funded. The judge found that in the early years following Mr. Evrengun’s takeover the financial needs of AMS ‘appear very largely to have been supplied by Mr. Evrengun, in the form of cash loans made to AMS through Corepoint’. In total, between November 2013 and December 2014, Corepoint made 5 such loans to AMS through which the acquisitions were made of Circle Trust Services (BVI) Ltd, Sentinel Management LLC, Fidelius, Nexman BV and a portfolio of clients held by Superior Trust and Management Company. The said loans also met the operating expenses of the group. The judge found that Mr. McKenzie was aware of these matters.1 Circle had also advanced a shareholder loan to AMS.

[8]In or around late 2017, the relationship of trust and confidence between Mr. McKenzie and Mr. Evrengun broke down. The parties agree that the reasons for this are not relevant for present purposes. In November 2017 it was agreed that Mr. McKenzie would leave AMS. Both sides seemed agreed that Amstel’s 30% shareholding should be bought out, and in December 2017 Mr. Evrengun indicated that he would offer at least US$1.274m for Amstel’s 30% shareholding.

[9]However, disagreement between the parties in relation to the value of AMS, the extent of its debts, the reasons for those debts, the effect of these debts on the value of the company and the state of company’s financial records all stood in the way of an amicable and mutually acceptable parting of the ways. In particular, the company’s accounts (provisions) to 6th November 2017 showed the level of debt to Circle and Corepoint stood at US$3.75m. By December Mr. Evrengun indicated that AMS’ total labilities stood at some US$6.374m, of which the Circle and Corepoint debts comprised US$4.075m.

[10]Mr. McKenzie expressed himself to be surprised at this level of indebtedness and sought to probe Mr. Evrengun, through correspondence, on the extent of the indebtedness and the reasons for it. There was much daylight between the parties as to the legitimate extent of AMS’ debts. The upshot of this was that discussion for the buy-out of the Amstel shareholding was hampered. Further to this, Mr. McKenzie was also a creditor of AMS, which owed Amstel and Cavendish US$400,000.00 and US$230,000.00 respectively. These loans were interest free and repayable on demand.

[11]On 19th December 2017, Mr. Evrengun sent Mr. McKenzie a proposal in relation to his departure from AMS. The salient features were that: (1) he would remain employed until 30th June 2018 focusing mainly on legal work; (2) his share would be bought out, valued at a multiple of 1.25 of the 2017 turnover, less debts; (3) this value would need to be calculated, with Mr. McKenzie being free to check the calculations himself or to appoint someone to do so; (4) Mr. McKenzie would receive a minimum US$1,274,000.00 to ensure that he was in no worse position than if he had sold his shares at the time Mr. Evrengun had bought out the other shareholders.

[12]By email of even date Mr. McKenzie countered with a suggestion that the same value be used for his shares in AMS as was being contemplated for the Newhaven merger.2 In an email response dated 20th December 2017, Mr. Evrengun proposed a buyout of Mr. McKenzie’s shareholding at a price of US$1,275,000.00, detailing the formula by which he had arrived at that offer. Additionally, Mr. Evrengun detailed the shareholder loans to AMS as follows: US$400,000.00 owing to Amstel; US$250,000.00 owing to Cavendish; US$2.725 million (principal) and US$700,000.00 (interest) together totalling US$3,245 million owing to Corepoint; and US$650,000.00 owing to Circle. Other lending from third parties was put at US$935,000.00.

[13]Mr. McKenzie responded via email dated 21st December 2017. Evidently, Mr. McKenzie did not consider that the proposal represented fair value, contending that it represented only a $250,000.00 increase in the total value of AMS since 2012 when Mr. Evrengun first bought shares in the company, which was based on a minimum value of US$4,000,000.00 at that time.

[14]Mr. McKenzie’s response led Mr. Evrengun to withdraw his previous offers with regard to Mr. McKenzie’s departure as well as to his shareholding. By email dated 5th January 2018, he invited Mr. McKenzie to resign his directorships in the AMS group by 10th January 2018, failing which Mr. Evrengun would use his majority shareholding to remove him, which would have the effect also of terminating his monthly management fee. Mr. McKenzie replied on 9th January 2018 to say that as soon as his employment was terminated, he would serve a formal demand for all debt due to him, payable immediately. In an email dated 11th January 2018, Mr. Evrengun called on Mr. McKenzie to resign his directorships as time was of the essence. By further emails dated 12th and 17th January 2018, Mr. McKenzie indicated that he was resigning his position. However, Mr. Evrengun agreed to continue to pay Mr. McKenzie’s monthly management fee via Cavendish until 31st March 2018.

[15]Protracted communications ensued between Mr. Evrengun and Mr. McKenzie concerning a fair valuation for Mr. McKenzie’s shares with a view to his departure as a member of AMS. On 3rd May 2018 Mr. McKenzie threatened Mr. Evrengun that ‘…if we don’t immediately reach an amicable agreement on the future repayment of my debt and the Amstel shareholder loans, I intend to forthwith make a formal and statutory demand which will become fully payable.’

[16]Mr. McKenzie made good on this threat when on 18th May 2018, he caused statutory demands to be served on AMS in relation to the Amstel Loan and payment of receivables payable to Cavendish for outstanding management fees and rechargeable costs. That course of action seems to have had the desired effect of bringing Mr. Evrengun to the bargaining table. On 30th May 2018, Mr. Evrengun emailed certain proposals to Mr. McKenzie. They reached agreement that the combined debts would be settled by 2020 by the payment of monthly instalments of US$20,000.00. In return, Mr. McKenzie undertook not to enforce the statutory demands without giving a minimum of 21 days prior notice.

[17]The following day on 31st May 2018 AMS, the company adopted a number of resolutions.3 The resolution explained that the background to the resolution was that on 18th May the company was confronted by the Statutory Demand. As such the Company resolved, among others: “(a)To repay the indebtedness of Amstel and Cavendish, as recorded in the books of the Company in monthly installments of USD 20,000 until the total debt is fully repaid. (b) To increase, effective as of January 1, 2018 the interest of the loan of Corepoint from 8% to 10% and to increase the interest on the loan of Circle from 0% to 8%.”

[18]The 4th paragraph of the resolution explained the reason for the increase in interest rates in the following terms: “It was further noted that in order for the other creditors, Corepoint Select Strategies Ltd. (“Corepoint”) and Circle Capital Ltd. (“Circle”) to accept the preferred position of Amstel and Cavendish and to effectively subordinate repayment of their debts until Amstel and Cavendish have been fully repaid, the Company agreed new interest agreements with both Corepoint and Circle, i.e. an increase of the Corepoint interest from 8% to 10% and for Circle from no interest to 8% interest p.a. effective as of January 1, 2018.”

[19]The discussions seeking to find common ground as to the manner in which Mr. McKenzie’s shares might be bought out and the valuation of AMS continued but were unproductive. Significantly, in an email dated 18th August 2018 Mr. Evrengun floated the idea of a redemption of Mr. McKenzie’s shares. The relevant part of that email states: “However, we think it is in the best interest of all parties involved that we come to a fair and realistic arrangement. We can only do this via AMS Holdings Ltd., since I will not purchase these shares in private, this can only be done in the form of a redemption of your shares and the redemption proceeds then have to be repaid by the company over a prolonged period of time in order to make this feasible and that it does not jeopardize the continuity of the company and its shareholders. In order to determine whether such a transaction would be feasible, we will need to understand your expectations on price and term of repayment. This way we can see whether the company is willing and able to bear this additional burden without risking its continuity.”

[20]In specific response to this proposal, Mr. McKenzie expressed the view that ‘if the Group is struggling to continue without investment, then the simple solution would be to sell the same in its entirety and we both get out now. Problem solved.’ Mr. McKenzie stated that the starting point should be the figures looked at for the Newhaven deal, with the legitimate debt to be ascertained by an independent third- party accountant agreed by the two of them. Once they could agree on the purchase price, Mr. McKenzie said he would have no problem with the Company redeeming the shares from him over a three-year period at 6% interest. As security, he would take a debenture from the Company containing a charge over the company’s assets.

[21]Meanwhile, in seeming pursuit of AMS’ strategic plan to build a global corporate and trust provider, Mr. Evrengun made the following enquiry of Mr. McKenzie, by email dated 8th October 20184: “In this regard, we are continuing our strategic plan. We are in advanced discussions with the major lenders to convert the loans into share capital. As you will understand, this will lead to a dilution of the present shareholders. From my side, I will convert my shareholders’ loan into equity as well, and you will have to indicate whether you plan to convert the remaining balance of your shareholder’s loan into equity or whether you would like to keep it as debt, which is now being repaid on a monthly basis. … In order to keep the matters moving, could you please advise not later than by the close of business in Luxembourg Monday October 15, 2018, first of all whether you are still interested in selling your shares? If not, could you then please advise whether you would like to convert your shareholders’ loan into share capital, jointly with the other main creditors.”

[22]Mr. McKenzie replied via email dated 10th October 2018.5 He stated among other things: “Referring to your email below, I confirm: 1. That I want to sell my shares subject receipt of a fair price; and 2. I certainly do not want to convert my shareholder loan and debt to equity. I should also specify for the record that I do not agree with my equity being diluted in any way without first being paid for (sic) a fair price for it. Converting “debt”, the legitimate validity (and quantum) of which has still not been properly explained or proven to me is absolutely not agreed to. No proper explanation has ever been given for this debt , nor have the terms or documents been produced and certainly no proper internal approvals or procedures were followed when taking this debt on. It is also in breach of our shareholder agreement (the enforceability of which I appreciate you don’t accept)…”

[23]He followed this up with an email dated 19th October declaring ‘I have now given you the said 21 days’ notice by virtue of my last email.’

[24]This was a reference to his earlier undertaking not to enforce the statutory demands without giving a minimum of 21 days prior notice.

[25]Mr. Evrengun made a final offer on 29th October 2018, offering Mr. McKenzie US$950,000.00 for his shares to be repaid together with the remaining shareholder loan debt at US$25,000.00 per month over 4.5 years; an offer that would expire on 3rd November 2018. Thereafter, AMS would proceed with its restructuring plan.

[26]Mr. McKenzie did not accept this proposal. Instead, he replied in terms which the judge characterized as vicious in tone, threatening to place the Company into liquidation and to advise the BVI Financial Services Commission (“FSC”) of the petition and notify them of the perceived fraudulent and deceptive accounting practices and hopefully they will want to get involved given it is the holding company of regulated entities. I will be doing likewise to the Cayman and Dutch regulators.’6

[27]Mr. McKenzie would later admit under cross-examination that by this threat he was ‘trying to show what pressure points [he] had in response to his [Mr. Evrengun’s] pressure points.’

[28]The protagonists continued to exchange emails in the ensuing months, in which Mr. McKenzie threatened the appointment of a liquidator and the commencement of unfair prejudice proceedings.

[29]On 14th December 2018 Mr. Evrengun initiated discussions with the AMS Group’s auditors, BDO BVI, with a view to the preparation of a valuation report for the shares in AMS, in contemplation of the debt for equity swap. Swiftly following this, on 15th December 2018 AMS’ Board passed a resolution appointing a leading BVI law firm as legal advisers and BDO as financial advisers tasked with assisting with the debt for equity swap. The resolution also provided for BDO to conduct a valuation of AMS to determine a fair value for the debt for equity conversion.

[30]By a letter dated 17th May 2019 Mr. McKenzie, acting through his BVI legal practitioners, sent a letter before action to Mr. Evrengun’s lawyers threatening to bring a number of claims against AMS and Mr. Evrengun and to commence liquidation proceedings against AMS in relation to the Amstel Loan. The letter further alleged breaches of director’s and other fiduciary and statutory duties, with accompanying threats to write to the Director of Banks, Trust Companies and Company Managers at the FSC about perceived regulatory breaches. Mr. McKenzie also threatened to send similar letters to the relevant regulators in the Cayman Islands, the Netherlands and Singapore.

[31]On 20th May 2019 BDO submitted their valuation report which valued AMS at US$1,244,500 or US$24.89 per share as at 31st December 2018. It is pertinent to observe here that it was common ground at the trial that the debt-for-equity swap was at an undervalue by at least 37%. The respondents to the appeal concede this. I will return to this issue later in this judgment.

[32]On 30th May 2019, by written resolution of the sole director Mr. Evrengun, the authorised capital of AMS was increased from US$50,000 to US$500,000.00, divided into 500,000 shares with a par value of US$1.00 each. A notice of change in number of shares or authorised capital was also filed on 30th May 2019.

[33]In correspondence between the parties’ legal representatives, AMS explained in a letter dated 4th July 2019 that the decision to increase the Company’s authorised share capital from US$50,000.00 to US$500,000.00 was done to improve AMS’s financial position. Mr. McKenzie’s legal representatives disputed the validity of the increase.

[34]Further, on 31st May 2019, AMS passed a written resolution of the sole director Mr. Evrengun to issue new shares in AMS to Corepoint and Circle (the “new shares”) in exchange for the release by Corepoint and Circle of the Corepoint and Circle Debts (which as at 31st May 2019 stood at $1,797,950.00 owed to Circle and US$3,646,250.00 owed to Corepoint) and to do so at the fair market value of AMS, which was determined to be US$24.89 per share based on the BDO BVI valuation report. Corepoint also directed AMS to issue Corepoint’s portion of the new shares to Circle, on the basis that Circle would hold those shares on terms agreed between Corepoint and Circle. On 31st May 2019, AMS’s register of members was updated to reflect the issuance of 218,691 ordinary shares to Circle. The result was that Circle was then a holder of 94.4% of the shares in AMS, with Amstel then holding 5.6% of the issued shares of the Company. By reducing Amstel’s shareholding to below the 10% threshold, the Company was thereby placed in a position to invoke its right of compulsory redemption of the Amstel shares under the provisions of section 176 of the BVI Business Companies Act (the “BCA”), which provides that a majority shareholder holding 90% or more of the shares in a Company could instruct the Company to redeem the remaining shares.

[35]On 15th July 2019, Circle made an offer to have the shares in the company valued by independent appraisers. Amstel failed to appoint an appraiser. Further communications about valuation ensued, with Mr. McKenzie’s legal practitioners writing on 30th July 2019, setting out detailed proposals for the valuation process including, importantly, a requirement that ‘the valuation of the Amstel Shares shall not be discounted by virtue of it being a minority shareholding [sic] and moreover shall not be valued, pro rata, less than the valuation placed on the Company/Group in 2012 and subsequently 2014, when the value of the Company/Group was deemed to be US$4,000,000.00’.

[36]On 8th August 2019, pursuant to section 176 of the BCA, Circle, being the registered holder of more than ninety per cent of the votes of the issued shares in the Company, issued a redemption notice seeking to compulsorily redeem all the shares held by Amstel as a minority shareholder. The Redemption Notice also provided that, subject to Amstel’s right to dissent, the shares were to be redeemed by the Company on 15th August 2019 (the “Redemption Date”) at a price of US$19.91 per share.

[37]Amstel dissented on 14th August 2019 on the basis, among others, that the redemption price of US$19.91 did not represent fair value. Amstel further alleged a lack of information and access to the Company’s documents and accounts, and that the redemption process was unfairly prejudicial and thus illegal.

[38]On 19th August 2019 Mr. McKenzie wrote to the FSC querying whether approval had been given for AMS to issue new shares to Circle and contend that Amstel’s shareholding in AMS had been ‘illegally diluted’ in breach of a shareholder’s agreement between Amstel and Circle.7

[39]In or about November 2020 Corepoint was dissolved and on 1st January 2021 all of AMS’ assets were transferred to a Dutch company called AMCIN Holdings BV (“AMCIN”). The judge accepted (paragraphs 308 & 309) that this company was incorporated on 5th June 2020 for the purpose of a reorganization of the AMS Group, which would bring the base of the AMS Group onshore in the Netherlands. The proceedings in the court below

[40]Further protracted correspondence ensued without fruit. The Evrengun Parties (the claimants below) filed a Fixed Date Claim Form in the Commercial Court of the BVI. By this, they essentially sought: a declaration that the share redemption process is valid; an order to compel Amstel to appoint an appraiser pursuant to section 179 of the BCA and for consequential directions related to the appraisal process, namely that the ‘fair value’ of the McKenzie Parties’ shares in AMS should be established, as at the date of the redemption (8th August 2019), by three appraisers – one to be appointed by each of the Evrengun and McKenzie Parties respectively and a third to be appointed by the other two appraisers so appointed.

[41]The McKenzie parties responded by filing an ancillary claim, which was bought in Mr. McKenzie’s own name as well as in the names of Amstel and Cavendish, against the Evrengun Parties. This ancillary claim, subsequently re-amended, was an unfair prejudice claim brought pursuant to section 184I of the BCA. The McKenzie Parties alleged that Mr. Evrengun had committed breaches of director and other fiduciary and statutory duties and/or breaches of a shareholder’s agreement and had engaged in unfairly prejudicial conduct of the affairs of the Company.

[42]The McKenzie Parties sought the following substantive reliefs: (1) A declaration that the affairs of the Company are being and/or have been conducted in a manner which is unfairly prejudicial, unfairly discriminatory and/or oppressive to Amstel as a minority shareholder of the Company. (2) A declaration that Amstel remains a 30% shareholder in the Company and/or an order requiring the Register of Members of the Company be rectified to reflect the same. (3) An Order requiring Circle, Mr. Evrengun and the Company to acquire Amstel’s shares in the Company at a fair value price that: (a) takes into account the diminution in the value of Amstel’s shares in the Company attributable to the Company’s affairs being conducted in an oppressive and/or unfairly prejudicial manner; (b) proceeds on the basis that Amstel is a 30% shareholder in the Company; (c) discards the ‘Corepoint Debt’ and ‘Circle Debt’ respectively; (d) disregards and/or sets aside the disposition of the Company's assets to a company called ‘AMCIN’; (e) does not apply a minority discount; (f) applies (i) a current valuation date, alternatively (ii) a valuation date of 8th August 2019, alternatively (iii) a valuation date of 31st May 2019, alternatively (iv) a valuation date as at the time of Mr. McKenzie’s departure from the Group on 17th January 2018; (g) permits Amstel to make representations to the valuer(s) following the full disclosure of all information relevant to the value of Amstel's shares. (4) An Order that the Company produce all accounting records of the Company and all of its underlying subsidiaries for the purposes of a forensic review and requiring the Company and/or Mr. Evrengun to answer any reasonable queries or questions raised by Amstel in respect of such records; (5) Alternatively, compensation for the diminution in the value of Amstel’s shares in the Company attributable to the Company’s affairs being conducted in an oppressive and/or unfairly prejudicial manner; (6) Such other Order as may be made pursuant to section 184I of the Act as the Court thinks fit; (7) An account of the outstanding amount due to Amstel in relation to the Shareholder Loan, and judgment in such sum.

[43]The judge summarized the McKenzie Parties’ case by quoting verbatim from their pleadings. Some of the issues before the judge are not pursued in this appeal. Accordingly, the summary of the parties’ contentions that follows is tailored to speak to the issues that remain live on this appeal.

[44]In summary the McKenzie Parties pleaded that the affairs of the Company are being and/or have been conducted in a manner which is unfairly prejudicial, unfairly discriminatory and/or oppressive to Amstel as a minority shareholder of the Company. In particular, such conduct included: “101. ….. d. Restructuring the share capital and/or converting improperly incurred debt into equity, so as to reduce Amstel's shareholding in the Company, contrary to clause 4 and paragraph 15 of schedule 2 of the SHA; e. Passing a written resolution to increase the authorised share capital from £50,000 to £500,000 [£: sic] with the intention of reducing Amstel’s shareholding in the Company, contrary to clause 4 and paragraph 15 schedule 2 of the SHA; f. Taking out loans and incurring debt in the name of and on behalf of the Company without full and proper disclosure of the existence of and or terms and conditions of such loans to Mr. McKenzie and/or the Board of the Company as a duly appointed director of the Company; such loans are not in the best interests of the Company and/or are on a basis unfairly prejudicial to Amstel; contrary to clause 4 and paragraph 7 of schedule 2 of the SHA; g. Failing to properly declare conflicts of interest on various of the above loans taken out by and in the name of the Company, in particular the loans from Corepoint (and making secret profits thereon); h. Failing to provide accounts for the Company for the years 2013, 2014, 2015, 2016 and 2017 until November 2017; i. Failing to procure proper treatment of loans and other operating expenses taken out by the Company in that they have been on loan to the Group Subsidiaries with no reciprocal intercompany receivables credited back to the Company, thus reducing the net asset value of the Company to the detriment of Amstel; j. Using operating expenses to mask the insolvency or doubtful solvency of the Group Subsidiaries, and therefore filing improper and inaccurate statutory/audited accounts with the FSC and other regulators; k. Taking steps to run and manage the Company contrary to the legitimate expectations of Amstel and in a manner which is otherwise unfairly prejudicial and unfairly oppressive; l. On 1 January 2021, apparently selling, transferring or otherwise disposing of the entirety of the Company's assets by transferring them to AMCIN Holdings BV…. …. 103. Further and alternatively, Mr. Evrengun has acted in breach of his fiduciary dues owed to the Company thereby causing Amstel unfair prejudice.”8

[45]The judge identified the trial battlelines as delineated by counsel for the Evrengun Parties in his opening submissions, which the judge regarded as succinct. The Evrengun Parties posited that there were essentially two related themes: (1) whether the Corepoint and Circle debts were legitimate and in particular, whether they were disclosed to Mr. McKenzie at or around the time that they were incurred; and (2) whether the debt for equity swap was legitimate. The judge’s findings in relation to these themes

[46]The credibility of Mr. McKenzie and Mr. Evrengun was central to the judge’s factual findings in relation to the first issue when assessed against the contemporaneous documentation in evidence before him. The judge carefully examined the evidence touching and concerning the parties’ knowledge of the funding requirements and the likely source of such funding in order to grow the business, consistent with Mr. Evrengun’s strategic plan.9 He then examined each Corepoint loan transaction individually at paragraphs 97 – 147, and gave detailed reasons along the way for his ultimate conclusion that: “[Mr. McKenzie] had every opportunity to follow the progress and status of AMS’s debt position but, on his own case, he chose not to read the materials. He cannot lay responsibility for that at Mr. Evrengun’s door. I am satisfied that Mr. Evrengun did not withhold financial information from Mr.

McKenzie.”10

[47]The judge expressly rejected Mr. McKenzie’s assertion in cross-examination that Mr. Evrengun had made a series of bad deals which he had borrowed money to cover up in the hope that they would be repaid before the Company had to face or encounter them. On this score the judge held: “I am satisfied that that was not the case. Mr. Evrengun was open with Mr. Mckenzie about the Company’s debt position and did not conceal it from him. From the evidence which I have summarized above in some detail, there is no indication that any borrowing concerned was improper, or had any purpose other than to provide the AMS business with much needed cash in order to continue to operate”11

[48]In relation to the debt for equity swap, the judge concluded that it was not at an undervalue and that it was done for the proper purpose of increasing the company’s financial position in response to Mr. McKenzie’s threats to present a winding up petition. The judge’s reasoning and conclusion on this issue are expressed in the following terms at paragraphs [393]-[395] of the judgment: “[393] I have no reason to believe that Mr. Evrengun was not aware of the Court’s statutory discretion. On balance I believe it is more likely that he was aware of it. He had shown himself to have been well-informed (on taking legal advice or otherwise) about the legal details of BVI ‘schemes of arrangement’. It is clear that he had given careful thought to the steps he could cause the Company to take to protect it from Mr. McKenzie’s attacks, apparently upon taking legal advice. I would be extremely surprised if Mr. Evrengun had been unaware of the Court’s discretion in this regard. In this regard, there is no reason to suppose that on such crucial existential matters Mr. Evrengun had been content to rely upon his own assumptions or informal, ad hoc, advice from colleagues in the manner that Mr. McKenzie, for his own part, appears to have done. [394] For the reasons given, I concluded in my respectful judgment 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). [395] In my respectful judgment that was clearly of benefit to the company and was a proper purpose.”

[49]Accordingly, the judge rejected the McKenzie Parties’ ancillary claim and allowed the Evrengun Parties’ Fixed Date Claim. The judge also ordered that a further hearing would be required for further submissions on the consequential matters involving a buy-out of Amstel’s shares in the Company and the valuation/ value of those shares.

The appeal

[50]By notice of appeal filed on 12th January 2024, the appellants advance three grounds of appeal. The nub of the grounds is summarised in the paragraphs that follow.

[51]Ground (1) contends that the learned judge erred in failing to hold that the debt-for- equity swap was carried out at an undervalue and in failing to hold that the fact that the debt-for-equity-swap was at an undervalue also amounted to unfair prejudice.12 In this regard the appellants place much reliance on Re Sunrise Radio.13

[52]Ground (2) challenges the judge’s finding that the debt-for-equity swap was not done for an improper purpose but finding, on a case not pleaded by the Evrengun Parties, that: (i) the decision to increase the Company’s authorized share capital from US$50,000 to US$500,000 ‘was done to improve the financial position of the company thus allowing it to exchange the debt for equity’; (ii) that the debt-for-equity swap was a ‘reaction to Mr. McKenzie’s repeated threats to apply to the BVI courts for the appointment of a liquidator of the company…the most important purpose for Mr. Evrengun was to improve the Company’s chances of avoiding a winding up order’; and (iii) “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 has been its stated purpose, 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”.

[53]It is said that the purposes ascribed by the judge for the debt-for-equity swap were not properly open to him to find, and were, in any case, unsupported by the evidence, contradicted by the contemporary documentary evidence and were in all the circumstances perverse.

[54]Ground (3) asserts that the judge erred in failing to find that there had been unfair prejudice to Amstel by Mr. Evrengun when on 31st May 2018, he unilaterally and retrospectively caused the Company to increase the interest payable upon the debts, and therefore the sums due to Mr. Evrengun’s connected companies, Circle and Corepoint. The judge’s error is said to be in approaching the question on the basis of what might have been commercially reasonable in the round, rather than considering whether Mr. Evrengun had complied with his duties owed to the Company as a director and/or taken any adequate steps to manage the obvious and acute conflict of interest that he had. So analysed, the only proper conclusion was that Mr. Evrengun had preferred his own interests (as creditor and shareholder via Corepoint and Circle respectively) to those of the Company in a manner that was unfairly prejudicial to Amstel in its capacity as a minority shareholder. It is alternatively contended that even to the extent that the prospective increase in interest on the Corepoint and Circle debts was not unfairly prejudicial, the retrospective increase in interest from 1st January 2018 was.

[55]The appellants seek orders that: (1) the Fixed Date Claim be dismissed; (2) an order under section 184I of the BCA requiring Mr. Evrengun, alternatively Circle, to acquire Amstel’s shareholding in the Company forthwith; and (3) consequential directions in relation to the calculation of the purchase price to give effect to relief (2).

[56]The issues in this appeal are therefore reducible to the following: (i) Whether the judge erred in failing to hold that the debt-for-equity swap was carried out at an undervalue and further erred in failing to hold that the fact that the debt-for-equity-swap was at an undervalue also amounted to unfair prejudice; (ii) Whether the judge erred in finding that the debt-for-equity swap was carried out for a proper purpose which was not pleaded by the respondents; (iii) Whether the judge erred in failing to find that there had been unfair prejudice to Amstel by the unilateral and retrospective increase of the interest payable upon the Circle and Corepoint debts.

The legislative framework

Ground 1 – The undervalue and unfair prejudice

[57]This ground gives rise to a consideration of both an issue of fact and an issue of law. The issue of fact is whether the judge failed to engage with the expert evidence adduced by both sides that the debt-for-equity swap was at an undervalue, where the only difference between them was the extent of that undervalue. The McKenzie Parties’ contention is that had the debt-for-equity-swap not been done at an undervalue of at least 37% (resulting in $138,000 more for McKenzie’s shareholding) then Amstel’s shareholding in AMS would not have been diluted to 5.6% and ‘may well not have been beneath 10% at all’, thus triggering the squeeze-out provisions. It is said that the judge erred in not determining what Amstel’s shareholding would have been had the debt-for-equity swap not been conducted at an undervalue. He was required to accept the undisputed evidence that it was done at an undervalue and then gone on to determine the correct valuation that should have been used. Based on that value, he could then have determined whether it would or could have resulted in Amstel’s shareholding being diluted below 10%. Mr. Hall-Taylor KC submits that in granting the Fixed Date Claim without carrying out that exercise, the judge erred.

[58]The issue of law is whether, as a matter of law, the purported compulsory redemption of a shareholder’s shares at an undisputed undervalue is necessarily unfairly prejudicial conduct for the purposes of Section 184I the BCA.

[59]Section 184I of the BCA provides the mechanism whereby a member of a company, typically a minority shareholder, in a BVI company may petition the court for redress if he considers that the affairs of the company have been, are being, or are likely to be conducted in a manner that is oppressive, unfairly discriminatory or unfairly prejudicial to them.

[60]Section 184I provides: “184I. (1) A member of a company who considers that the affairs of the company have been, are being or are likely to be, conducted in a manner that is, or any act or acts of the company have been, or are, likely to be oppressive, unfairly discriminatory, or unfairly prejudicial to him in that capacity, may apply to the Court for an order under this section. (2) If, on an application under this section, the Court considers that it is just and equitable to do so, it may make such order as it thinks fit, including, without limiting the generality of this subsection, one or more of the following orders (a) in the case of a shareholder, requiring the company or any other person to acquire the shareholder’s shares; …. (c) regulating the future conduct of the company’s affairs; … (g) directing the rectification of the records of the company; (h) setting aside any decision made or action taken by the company or its directors in breach of this Act or the memorandum or articles of the company. (3) No order may be made against the company or any other person under this section unless the company or that person is a party to the proceedings in which the application is made.”

[61]Where the rights of minority shareholders are threatened in this way, section 184I provides a measure of protection against the company and its majority shareholders. To put matters right, the court is empowered to fashion an appropriate remedy including those outlined in section184I(2) above.

[62]In the BVI, the court’s approach to the determination of an unfair prejudice petition is well established and has been re-stated by this Court on a number of occasions. Its jurisprudence adheres in large measure to the principles derived from the seminal case of O’Neill v Phillips.14 The following statements of principle are culled from that authority.

[63]A petitioner must demonstrate both unfairness and prejudice in order to succeed. As Blenman JA expressed it in JF Ming Inc et al v Ming Sui Hung, Ronald et al:15 “It is settled that both elements must coexist; namely, unfairness and prejudice. Indeed, section 184I(1) of the Act, so far as relevant, acknowledges this.”

[64]The court’s mandate in adjudicating an unfair prejudice claim is to do what is just and equitable to achieve fairness, which must be applied judicially and what constitutes fairness must be determined upon rational principles. Ultimately, the content of the concept of fairness must be informed and shaped by context and background. The way it was put in JF Ming, is that the concept of fairness is flexible and open textured but it is not unbounded. The court must act on a principled basis even though the concept is to be approached flexibly.

[65]The case of O’Neill v Phillips instructs further that there are two features constituting the background which must be kept in mind when considering unfair prejudice. The first is that the manner in which the company’s affairs are conducted is regulated by its articles of association and sometimes by collateral agreements between shareholders, also referred to as the ‘legal background” in Grace v Biagioli.16 This leads to the general rule that a member of a company will not ordinarily be entitled to complain of unfairness unless there has been some breach, for example either in the articles or a shareholders’ agreement, of the terms on which he agreed that the affairs of the company should be conducted. It will therefore not ordinarily be unfair for the affairs of a company to be conducted in accordance with the provisions of its articles or any other relevant and legally enforceable agreement, unless it would be inequitable for those agreements to be enforced in the particular circumstances under consideration: Grace v Biagioli.

[66]The second feature is that there may be cases in which equitable considerations will prevent those having conduct of the affairs of the company from insisting on their strict legal rights. Marrying these propositions the court held: “Thus unfairness may consist in a breach of the rules or in using the rules in a manner which equity would regard as contrary to good faith.”17

[67]Whether in any given case the application of equitable principles might make it unfair for a party to insist on or enforce its strict legal rights is a matter to be determined on the particular facts and circumstances of a case, as opposed to by reference to any pre-defined set of circumstances.

[68]Notwithstanding the broad discretion given to a court hearing an unfair prejudice petition to apply equitable principles in determining whether it is just for a party to insist on its strict legal rights in any particular circumstance, the principles which guide the court in that determination are fairly well settled and the concept of fairness is not at large. According to Lord Hoffman, while the concept of fairness was chosen to free the court from considerations of legal rights and to do what appeared just and equitable ‘this does not mean that the court can do whatever the individual judge happens to think fair. The concept of fairness must be applied judicially and the content which it is given by the courts must be based upon rational principles.’18

[69]This point is further underscored later by Lord Hoffman at page 1099, F -H: “In my view a balance has to be struck between the breadth of the discretion given to the court and the principle of legal certainty. Petitions under section 459 [BVI 184I] are often lengthy and expensive. It is highly desirable that lawyers should be able to advise their clients whether or not a petition is likely to succeed. Lord Wilberforce, after the passage which I have quoted said that it would be impossible “and wholly undesirable” to define the circumstances in which the application of equitable principles might make it unjust, or inequitable (or unfair) for a party to insist on legal rights or to exercise them in particular way. This of course is right. But that does not mean that there are no principles by which those circumstances may be identified. The way in which such equitable principles operate is tolerably well settled and in my view it would be wrong to abandon them in favour of some wholly indefinite notion of fairness.”

[70]The test of unfairness is thus an objective one applying established equitable principles to discern whether the majority has acted, or is proposing to act, in a manner which equity would regard as contrary to good faith.

Discussion – Ground 1

[71]Mr. Hall Taylor KC for the McKenzie Parties submits that the purported compulsory redemption of a shareholder’s share at a significant undervalue is necessarily unfair prejudicial conduct within the meaning of section 184I. It is unfair because on a principled evaluation basis it is unjustified as the redemption was at a significant undervalue of the share, which the judge failed to acknowledge. It is prejudicial because it diminishes the value of the Amstel shareholding.

[72]Mr. Woolgar for the Evrengun Parties candidly accepts that in light of BDO’s error in applying a minority discount, the valuation at which the debt-for-equity swap was conducted was at least 20% too low. Further, accepting the Evrengun’s expert’s concession in cross-examination, it was at least 37% too low. What is said, however, is that there is no basis to suggest that the mere amount of the undervalue in a share issue is sufficient to demonstrate unfair prejudice without more, and that in order to amount to unfair prejudice there must be some special feature which goes beyond the mere fact of an undervalue.

[73]He argues that decided cases have generally treated cases of unfair prejudice as being limited to three situations where a petitioner can show: (i) a breach of his contractual rights; (ii) a breach of a quasi-partnership agreement; or (iii) that the directors have exercised their powers for an ulterior purpose or otherwise acted in breach of fiduciary duty.

[74]He does accept, however, that there may be cases falling outside of these situations given the flexibility of the approach to unfair prejudice. Given the judge’s unchallenged findings that (i) the company was not a quasi-partnership, and (ii) that the draft Shareholders’ Agreement was not binding in law or equity and there being no suggestion that the debt-for-equity swap breached the company’s articles, the fact that it was done at an undervalue does not fall within any of the categories of unfair prejudice identified above. Mr. Woolgar asserted that there is no case in which unfair prejudice has been found on the sole basis that the minority’s shares were diluted at an undervalue.

[75]In relation to this issue of fact relating to whether there was an undervalue, the judge expresses his conclusions on this issue at paragraphs [399] – [400] of his judgment in the following terms: “[399] It can be seen from the above that the McKenzie Parties were studiously trying to avoid impugning BDO’s integrity and competence and at the same time trying to fix responsibility upon Mr. Evrengun for misleading BDO. I accept the Evrengun Parties’ submission that BDO were an independent third party. BDO BVI is part of the BDO global international accounting network. BDO BVI was also the Company’s auditor, so had a considerable degree of familiarity and institutional knowledge about its financial affairs. That of course does not mean that no error crept into their work – it may (or may not) have done. After all, to err is human. There is far too little documentary evidence available for the Court to be persuaded on a balance of probabilities that Mr. Evrengun engineered such an error. There is also no evidence that Mr. Evrengun, the alleged perpetrator of the unfairly prejudicial conduct complained of by the McKenzie Parties knew that this was an error. If it was an error, it was an error by an external third party and not by those in control of the company. [400] As to the McKenzie Parties’ point that the BDO valuation, being as at 31st December 2018, was unreliable and unfair, this is met by the Evrengun Parties’ submission that their expert reached a similar valuation for May 2019. I accept the figures are defensible. I also accept that to the extent that the similar figures are thus defensible, there is no substantive unfairness arising from the fact that Mr. Evrengun proceeded to use a valuation as at 31st December 2018 for the debt for equity swap in May 2019.”

[76]In view of Mr. Woolgar’s proper concession, necessitated by the uncontradicted expert evidence before the judge in relation to the fact and extent of the undervalue, I have no difficulty in concluding that, barring some cogent reason for not acting on the expert evidence, the judge should have found as a fact that there was an undervalue of at least 37%. The evidence does not reasonably admit of the possibility that the error ‘may or may not’ have crept into BDO’s work. It undoubtedly did.

Does an undervalue without more amount to unfair prejudice

[77]The approach preferred by the judge was to say that ‘if it was an error’ then the submission that the valuation was unreliable and unfair was met by the Evrengun Parties’ submission that their expert reached a ‘similar’ valuation in May 2019. In his view, this made the figures defensible, and to that extent there was no substantive unfairness arising from using the December 2018 valuation for the purpose of conducting the debt-for-equity swap in May 2019.

[78]By this conclusion, the judge seems to be saying that the mere fact of the undervalue did not produce unfairness in the circumstances of this case because the value used for the debt-for-equity swap was similar to a valuation made in May 2019. He also found no unfairness because there was no evidence to establish that Mr. Evrengun engineered the error, which was committed by an independent and reputable third party.

[79]Mr. Hall Taylor KC points out that a 37% difference in valuation can hardly be regarded as a ‘similar’ valuation. Mr. Woolgar, on the other hand submits that valuation is an art not a science and underlines this point by drawing attention to the fact that in this case the experts’ valuations differed by 475%; a point also noted by the McKenzie Parties at paragraph 30 of their skeleton submissions.

[80]It is to the case law that one must turn to determine whether in principle and as a matter of law an undisputed significant undervalue is necessarily unfairly prejudicial conduct. The McKenzie Parties rely on Re Sunrise Radio19 a case where a minority shareholding was diluted by reason of a rights issue which took place at a significant undervalue, as supportive of its proposition that a significant undervalue is necessarily unfairly prejudicial conduct.

[81]In that case, Ms. Geeta Kohli was a former director and minority shareholder having a 15% shareholding in Sunrise Radio Ltd. Dr. Lit and his Company (ABC) owned 78.33%. On 16th August 2005 a special resolution was passed increasing the nominal share capital of Sunrise from £270,000 to £570,000. On 19th October 2005 another special resolution was passed authorizing the directors unconditionally to allot and issue further shares. ABC was allotted 10,000,000 further shares at par that said day. This allotment resulted in the combined shareholdings of Dr. Lit and ABC being increased to 87.89% while Ms. Kohli’s shareholding decreased to 8.33% of the total shares. On the evidence, a much higher price could have been obtained on the rights issue. Ms. Kohli also claimed that she was not offered the opportunity to subscribe and that the issue was unnecessary and had as its object the dilution of her shareholding. The respondents contended that she was given the opportunity to subscribe and that the rights issue had the genuine object of raising much needed capital. The court found that Ms. Kohli had been given the opportunity to subscribe to the rights issue and that the reason for the rights issue offer was a genuine need for cash. Nonetheless, the court found unfair prejudice.

[82]At paragraph 104 of the judgment the court identified the issue for determination as ‘whether it was a proper exercise of the directors’ power to allot the 10,000,000 shares to ABC at par.’ The court found (at paragraph 106) that the effect of the issue of shares to ABC was not simply to dilute Ms. Kohli’s proportionate shareholding but also it produced a significant dilution in value. The court had also found that neither the company’s articles nor the Special Resolution required the shares to be issued at par. (para 103).

[83]The court identified and expressed its conclusion on the core issue at paragraph 113: “In the present context of section 994, the issue is whether Ms Kohli has suffered unfair prejudice by reason of the directors' failure to give proper consideration to the issue price of the shares. It seems to me that a failure to take relevant matters into account may amount to unfair prejudice even if the most the Court can say is that the decision might have been different had the matters in question been considered. The failure to take all relevant considerations into account was (in the present case) a breach of fiduciary duty and therefore unfair to Ms Kohli as a shareholder, and prejudice is established as the directors have in consequence denied Sunrise the opportunity it should have had of fixing for the rights issue, or negotiating with ABC, a more suitable price following proper consideration, which would have reduced or eliminated the extent of the dilution in the value of the minority shareholdings, including Ms Kohli's. Ms Kohli can only be said not to have been prejudiced if the Court concludes that had they taken the unconsidered relevant matters into account, the decision would have been no different… 114…In any event, the interests of the shareholders as a body, and the different interests within them, were not properly considered, as the rights issue shares were offered and (subsequently) allotted unthinkingly at par.”

[84]The rationale for the decision is put beyond doubt when at paragraph 120 the judge concluded: “In the circumstances, the allotment of shares to ABC on 19th October 2005 at par was in my judgment the product of a breach or breaches of fiduciary duty and this was unfairly prejudicial to Ms. Kohli.”

[85]It seems to me therefore that the basis on which the court concluded that the claim of unfair prejudice had been made out was not simply on the basis of the fact that Ms. Kohli had suffered a dilution of her proportionate shareholding and a significant dilution in its value. Indeed, the court seemed to recognise that in certain circumstances a rights issue may yet be appropriate even where it produces a dilution in the shareholding of a minority shareholder. At paragraph 76 the court stated: “A rights issue may be an appropriate route if the foreseeable or inevitable effect is the dilution of the percentage holding of a minority shareholder because (for example) it is known or foreseen that the minority in question is unlikely to or cannot subscribe. This may even be so where the impact of the rights issue will dilute the value of that minority's remaining shareholding.

A rights issue must however be priced at a level which is fair to all.”

[86]The court’s finding of unfair prejudice was grounded in its conclusion that directors should not unthinkingly issue shares at par in circumstances where it is known or foreseen that the minority shareholders will or may not have the money or inclination to subscribe, and that “any failure to give proper consideration to the price in the light of the factors I have mentioned may, and ordinarily, will, amount to a breach of fiduciary duty.”20

[87]In Mr. Hall Taylor KC’s submission that the compulsory redemption of a shareholder’s shares at an undisputed significant undervalue is necessarily unfairly prejudicial is to prosper, it cannot be on the basis of the Sunrise Radio case as the determinative factor there was the breach of fiduciary duty which constituted the unfairness. It was prejudicial because the failure of the directors to have regard to all relevant considerations resulted in the majority shareholders obtaining the shares at a much lower price and diluted the minority shareholding to a much greater extent than would have resulted had those matters been considered.

[88]The judge in Sunrise Radio referenced a number of cases during the course of his judgment where unfair prejudice was found on the dilution of a minority shareholding. Common to all of them, however, was the presence of some additional factor or fault element on the part of the directors. For example in Re a Company21 the decision was premised on the fact that despite a genuine belief that the company required additional capital and the petitioner was offered shares on the same terms as other shareholders, the majority knew that the petitioner did not have the money to take up the rights issues, and that the shares offered at par were worth much more as a majority shareholder but very little as a minority shareholder.

To similar effect is another case bearing the name Re a Company;22 and also West

Coast Capital (Lios) Limited.23

[89]The case of Re Cardiff City Football Club (Holdings) Ltd,24 relied on by the Evrengun Parties, provides an interesting contrast. There the court dismissed the section 994 petition of a minority shareholder on the basis that while the actions of the majority shareholder to advance a share offer under which the petitioner’s shares would have been diluted might have been motivated by vindictiveness towards the minority shareholder, the majority shareholder’s conduct did not amount to unfair prejudice by the company. The Board’s approval of the share offer, although potentially influenced by an improper motive, would have been made regardless, even without that improper purpose.

[90]I therefore find myself in agreement with Mr. Woolgar’s submission that ‘the correct analysis of Sunrise Radio is that a share issue/dilution at an undervalue will be unfairly prejudicial if the directors are in breach of their fiduciary duties by reason of failing to give proper consideration to the price at which the share issue should occur.’

[91]Unless the appellants can make good their second ground of appeal in relation to improper purpose, to which I will turn in due course, I do not accept that the mere dilution of the minority shareholding will necessarily establish unfair prejudice. That is too broadly cast and can amount to saying, as Mr. Woolgar submitted, that in any case where the majority converts debt to equity or otherwise issues new shares at a price which the court subsequently determines was too low, that will constitute unfair prejudice. In my view, such an approach ignores the principle that whether in any given case the conduct complained of is unfair is a matter to be determined on the particular facts and circumstances of a case, as opposed to by reference to any pre-defined set of circumstances.

[92]Returning to the present case and bearing in mind that both unfairness and prejudice must be established, the judge found as a fact that that there was no unfairness because there was no evidence to establish that Mr. Evrengun engineered the valuation error which led to the undervalue or was aware of it, and that the error was committed by an independent and reputable third party. That finding was entirely open to the judge on the evidence.

[93]As I see it, Mr. Evrengun sought properly to conduct the valuation of the company and for this purpose engaged the reputable firm of BDO. In the absence of any indication that anything was amiss, he was entitled to act on the valuation presented by BDO in determining a proper share price. In this case, that valuation turned to be too low by at least 37%. No fault element or breach of fiduciary duty can be attributed to Mr. Evrengun in this regard. I do not understand the appellants to be asserting on this appeal that he breached his fiduciary duty in this regard by engineering the undervalue. What is said, correctly in my view, is that the finding by the judge that he did not engineer the undervalue is irrelevant to the question whether there was an undervalue. But it is relevant to the question whether in all the circumstances of this case, the undervalue, without more, was unfairly prejudicial conduct.

[94]The judge, having analysed the circumstances under which the undervalue came about, concluded that there was no conduct by Mr. Evrengun that could be regarded as unfair. Applying the principles discussed above, I am unable to conclude that the undervalue without more is, as a matter of law, necessarily unfairly prejudicial.

Should the judge have established the correct value?

[95]Mr. Hall Taylor KC develops the submission in relation to the undervalue further by submitting that the judge’s next task should have been to ascertain what the correct valuation and any resultant dilution should have been. Not having done so, he erred. Not so, says Mr. Woolgar; that exercise would have been relevant to quantum but the judge found no liability.

[96]In my view, two observations are pertinent. First, the ascertainment of the correct value clearly required expert evidence. The judge seemed not to have reposed full confidence in either of the parties’ experts, whose opinions as to value diverged by a chasm as wide as 475%.

[97]His reflection on the experts is seen at paragraphs [466] – [467] of the judgment: “[466] I have refrained from commenting upon their evidence and from indicating which of their respective analyses I am more taken with. In part that is because I think it opportune to leave it to the parties to try to use their respective experts as appraisers, if possible, without undermining either side more than the other- in other words, to preserve both sides on a relatively equal footing. [467] That said, I am afraid that in my respectful view, both sides’ experts could be viewed as partial towards their respective instructing parties. I was also of the impression that each adopted a valuation method, with data inputs, which curiously led to precisely the valuation levels that their instructing parties would like to see. This is perhaps being unfair to these two experts and the main reason I have taken care not to name them in this judgment. These observations on my part do not mean that they should not be used for the section 179 appraisal process.”

[98]One appreciates the challenge this presented for the judge in arriving at a precise valuation of the extent of the undervalue given the state of the experts’ evidence.

[99]Secondly, it was not wrong or improper for the judge to defer the valuation issue until liability had been established. It seems clear to me that this is the course the judge proposed to steer and helps to explain why he was reticent in expressing his views about the experts. I do not consider that he erred in adopting this approach. Ground 2 - Was the debt-for-equity swap conducted for an improper purpose?

[100]The BCA provides in section 45 that shares in a company are at the disposal of the directors. Section 45 reads: “Subject to this Act and to the memorandum and articles, shares in a company may be issued, and options to acquire shares in a company granted, at such times, to such persons, for such consideration and on such terms as the directors may determine.”

[101]Pursuant to section 12 of the Company’s Memorandum of Association and section 2 of its Articles of Association, the directors were empowered to increase the authorised share capital and to issue new shares. AMS’ Articles provided that ‘shares may be issued by the Directors at their discretion and may be issued only as registered shares’. Section 12 of the Memorandum of Association states: “the Company shall by resolution of the directors or by resolution of the members have the power to amend modify any conditions contained in this Memorandum of Association and to increase or reduce the authorized capital of the Company in any way which may be permitted by law.”

[102]While clothed with the authority to issue shares, there is a fiduciary obligation on directors to issue shares for a proper purpose, as codified in section 121 of the BCA which provides: “A director shall exercise his powers as a director for a proper purpose and shall not act, or agree to the company acting, in a manner that contravenes this Act or the memorandum or articles of the company.”

[103]The appellants’ pleaded case was that the primary purpose for the debt-for-equity swap was to dilute the shareholding of Amstel. The respondents’ pleaded case25 is that the decision to increase the authorised share capital of AMS Holdings “was done to improve the financial position of the Company thus allowing it to exchange the debt for equity.”

[104]The leading case in this area of the law concerning the power to allot and issue shares is Howard Smith Ltd v Ampol Ltd.26 It establishes that a matter such as the raising of finance is a management call within the remit of the directors, and it would be wrong for the court to substitute its opinion for management’s or to question the correctness of management’s decision if bona fide arrived at, nonetheless: “…when a dispute arises whether directors of a company made a particular decision for one purpose or for another, or whether, there being more than one purpose, one or another purpose was the substantial or primary purpose, the court…is entitled to look at the situation objectively in order to estimate how critical or pressing, or substantial or, per contra, insubstantial an alleged requirement may have been. If it finds that a particular requirement, though real was not urgent, or critical, at the relevant time, it may have reason to doubt, or discount, the assertions of individuals that they acted solely in order to deal with it, particularly when the action they took was unusual or even extreme.”27

[105]Flowing from this, the courts adopt a structured and staged frame of analysis when seeking to discern whether the directors have acted for a proper purpose. Lord Wilberforce in Howard Smith v Ampol provides authoritative guidance as to the proper approach to be adopted: “In their Lordships’ opinion it is necessary to start with a consideration of the power whose exercise is in question, in this case a power to issue shares. Having ascertained, on a far view, the nature of this power, and having defied as can best be done in the light of modern conditions the, or some, limits within which it may be exercised, it is then necessary for the court, if a particular exercise of it is challenged, to examine the substantial purpose for which it was exercised, and to reach a conclusion whether that purpose was proper or not. In doing so it will necessarily give credit to the bona fide opinion of the directors, if such is found to exist, and will respect their judgment as to matters of management; having done this, the ultimate conclusion has to be as to the side of a fairly broad line on which the case falls.”28

[106]In summary, the stages of the court’s enquiry are to (i) identify the power that has been exercised; (ii) identify the proper purpose for which that power was delegated to the directors; (iii) identify the substantial purpose for which the power was exercised; (iv) determine whether that purpose was proper or not. This has been called the substantial purpose test and has been endorsed in the BVI as the applicable test: Antow Holdings Ltd. v Best Nation Investments Ltd;29 Nam Tai Property Inc v IsZo Capital LP30 and Independent Asset Management Company Ltd v Swiss Forfaiting.31

[107]In practice, problems arise when, although the power to issue shares has been exercised in accordance with a company’s memorandum or articles, the contention is that it was not exercised for a proper purpose, but solely in pursuit of the directors’ self-interest or for the purpose of creating a shift in the voting power within the company. Such purposes would be improper as being in breach of the directors’ fiduciary duties.

[108]It has to be said that the McKenzie Parties attempt to draw a parallel between the present case and Independent Asset Management Company Ltd v Swiss Forfaiting to suggest that the present case should be regarded as involving a power struggle resulting in a shift in the balance of the voting power is misplaced. Given the distribution of shares prior to the debt-for-equity swap with Circle holding 70% and Amstel 30% and Mr. Evrengun being the sole director, this could hardly be analogous with the situation in the Swiss Forfaiting case. The restructuring of the Company’s share capital and the debt-for-equity swap, though resulting in a diminution of Amstel’s shareholding, did nothing to alter the balance of voting power within the Company.

[109]It happens too that on occasions there are dual or multiple purposes actuating the exercise of the power, one of which may be for a proper purpose, such as to raise capital for the company, but others are not. The principle is that although primarily the power is given for the purpose of raising capital for the company, there are occasions when the directors may fairly and properly issue shares for other reasons provided those reasons relate to a purpose benefiting the company as a whole.

[110]The conventional approach in such cases is to interrogate what was the “substantial” or “primary” or “dominant” purpose underlying the exercise of the power and to ask whether issuing the share for that purpose was made honestly in the interests of the company. See Ampol, 836, d – e, EP 418.

[111]Turning now to the present case. Mr. Hall Taylor KC criticizes the judge’s conclusion that the debt-for-equity swap was not done for an improper purpose and further criticizes the proper purposes ascribed by the judge in so far as he mentioned the purpose of avoiding a winding-up, contending that that finding was based on a case not pleaded by the Evrengun Parties and therefore not open to him. It is further said that the findings were, in any case, unsupported by the evidence, contradicted by the contemporary documentary evidence and were in all the circumstances perverse.

[112]For the Evrengun Parties, Mr. Woolgar submitted that though ground 2 is dressed up as one raising questions of law, it is in truth purely factual. He submitted that the case the judge found proved was the pleaded one, namely that the purpose of the swap was to improve the Company’s financial position. While the judge did go on to say that the reason for that was because Mr. Evrengun feared a winding-up petition, that was not a matter which needed to be pleaded and that that finding was open to the judge on the evidence.

[113]Furthermore, submitted Mr. Woolgar, the critical part of the test for determining improper purpose, i.e. for what purpose did the director act, is a subjective one, which may require an objective assessment of the surrounding evidence in order to ascertain what subjectively the director’s purpose was. However, the question whether the purpose was proper is itself an objective one. There can be no substitute for a factual analysis of what was actually in the minds of the directors. The pleadings and the judge’s reasoning on improper purpose

[114]The pleading to which Mr. Hall Taylor KC specifically draws attention to make good his case on this issue is paragraph 74 of the Evrengun Parties’ defence to the Ancillary Claim. To place it in context, however, one must see the pleadings to which it was responding.

[115]At paragraph 78 of the Re-Amended Statement of Ancillary Claim it is averred: “On 26 June 2019 and in the course of carrying out routine BVI company searches, Mr. McKenzie discovered that on 30 May 2019 the Board of Directors of the Company, i.e. Mr. Evrengun, had passed a resolution increasing the authorized share capital of the Company from $50,000 to $500,000 divided into 500,000 shares each with a par value of $1.00. It is averred that this initial step amounted to an unlawful and improper attempt to dilute Amstel’s Shareholding in the Company. It is further averred that this initial step is a further instance of unfairly prejudicial conduct and moreover, a breach of fiduciary duty by Mr. Evrengun in that he failed to exercise his power as a director for a proper purpose.”

[116]Paragraphs 80 - 84 of the Re-Amended Statement of Ancillary Claim address further the passing of the 31st May 2019 resolution issuing the new shares to Circle and Corepoint in exchange for the release of debts owed to them by AMS. That resolution had posited that the reason for restructuring of the Company’s capital and the issue of new shares was to raise capital and reduce the debt obligations of the Company. Seemingly, to meet this contention the McKenzie Parties pleaded at paragraph 83: “It is denied that the purpose of the restructure of the Company’s share capital and the issue of new shares in the Company was to raise capital and reduce the debt obligations of the company.”

[117]In summary, the improper purpose pleaded by the McKenzie Parties’ at paragraph 78 of the Re-Amended Statement of Ancillary Claim was the attempt to dilute Amstel’s shareholding. This is the context in which paragraph 74 of Mr. Evrengun Parties’ defence to the Re-Amended Statement of Ancillary Claim has to be viewed. It states: “74. Paragraph 78 of the Ancillary Claim is admitted save that the director’s resolution of the Company dated 30 May 2019 did not amount to an unlawful and improper dilution of Amstel’s shareholding in the Company nor did this amount to unfairly prejudicial conduct or breach of fiduciary duty by Mr. Evrengun. Pursuant to section 12 of the Company’s Memorandum of Association and section 2 of the Company’s Articles of Association, it is within the power and discretion of the directors of the Company to increase the authorized share capital of the Company and to issue new shares. As was expressed in a letter from Conyers to Cary Olsen dated 4 July 2019 the purpose of the share capital increase was to improve the financial position of the company by allowing it to issue additional shares as a means of reducing its debt obligations and not for any ulterior purpose as alleged.”

[118]The Evrengun Parties addressed paragraph 83 of the Re-Amended Statement of Claim as follows: “Paragraph 83 of the Ancillary Claim is poorly particularised but it is denied that the purpose of the restructuring of the Company’s share capital and issuance of shares was for a purpose other than that stated at paragraph [2] above.”

[119]It is fair to say that the Evrengun Parties did not expressly plead the avoidance of a winding-up as a purpose motivating the restructuring of the Company’s share capital and issuance of shares. It seems, however, that it was raised on behalf of the Evrengun Parties during opening submissions as reflected at paragraph [363] of the judgment where the judge rehearses the submissions of the McKenzie Parties. By the same token, it is fair to say that the McKenzie Parties did not plead at paragraph 78 of the Re-Amended Statement of Ancillary Claim that the purpose was to dilute Amstel’s shareholding below 10% in order to trigger the ‘squeeze-out’ provisions although it was an issue at the trial. The judge’s conclusions on purpose

[120]Mr. Hall Taylor KC cites the judge’s statements at paragraphs [387] that the debt- for-equity swap was ‘a reaction to Mr. McKenzie’s repeated threats to apply to the BVI courts for the appointment of a liquidator of the company’; and further, the judge’s answer to his own question ‘why or how would a debt for equity swap assist the Evrengun Parties in the event that Mr. McKenzie would make good on his threats to apply for the appointment of a liquidator’, which he answered by saying at paragraph [392] ‘the most important purpose for Mr. Evrengun was to improve the Company’s chances of avoiding a winding up order’.

[121]To those comments one must add what the judge’s conclusions were as expressed at paragraphs [393] – [395]: “[393] I have no reason to believe that Mr. Evrengun was not aware of the Court’s statutory discretion. On balance I believe it is more likely that he was aware of it. He had shown himself to have been well-informed (on taking legal advice or otherwise) about the legal details of BVI ‘schemes of arrangement’. It is clear that he had given careful thought to the steps he could cause the Company to take to protect it from Mr. Mckenzie’s attacks, apparently upon taking legal advice. I would be extremely surprised if Mr. Evrengun had been unaware of the Court’s discretion in this regard. In this regard, there is no reason to suppose that on such crucial existential matters Mr. Evrengun had been content to rely upon his own assumptions or informal, ad hoc, advice from colleagues in the manner that Mr. McKenzie, for his own part, appears to have done. [394] For the reasons given, I concluded in my respectful judgment 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). [395] In my respectful judgment that was clearly of benefit to the company and was a proper purpose.” (emphasis added)

[122]The judge’s reasoning has to be looked at as a whole and in context. The judge clearly did not accept the improper purpose pleaded by the McKenzie Parties. Mr. Hall Taylor KC contends that he was wrong to have rejected this for a number of reasons including that: (a) the debt-for-equity swap, though raised in October 2018, was resurrected only after service of the McKenzie Parties’ Letter Before Action which threatened an unfair prejudice petition; (b) the question of the redemption of Amstel’s shares was raised in correspondence to counsel in July 2019, very soon after the 30th May 2019 debt-for-equity-swap, suggestive of a “pre-decided plan” which was “of a piece” with the redemption that followed it; (c) the judge “set out an obviously erroneous treatment of the chronology which led to his wrong conclusion that the debt-for-equity swap was a reaction to Mr. Mckenzie’s repeated threats to wind up the Company; (d) the debt-for-equity-swap did nothing to enable the company to meet the debts owed to Amstel and Cavendish; and (e) Mr. Evrengun had informed his legal advisers in correspondence in July 2019 that the redemption was the last part of the Company’s financial reorganisation.32

[123]Mr. Hall Taylor KC relies on these matters to ground his submission that the only proper conclusion for the judge to have drawn on the evidence was that the proposal of a debt-for-equity swap was first raised by Mr. Evrengun at a time when there was not an extant threat of liquidation but was rather raised in the context of a lack of progress about a consensual purchase of the Amstel shares. These errors, submitted by Mr. Hall Taylor KC, led the judge to an erroneous conclusion on the issue of proper or improper purpose.

[124]These submissions clearly invite this Court to take a different view of the facts from those formed by the trial.

[125]The circumstances in which an appellate court is entitled to interfere with findings of fact made by a trial judge based on the oral evidence of witnesses has been described by the Privy Council as “severely circumscribed.” In Kwok Kin Kwok v Yao Juan33 the Board restated the guiding principles that should inform the approach of an appellate court in reviewing a trial judge’s findings of fact. In summary, an appellate court should not interfere with a judge’s findings of primary fact unless they are “plainly wrong”, in the sense that either there was no evidence to support the finding, or the finding was based on a misunderstanding of the evidence, or the finding was one that no reasonable judge could have reached. Rarely would it be justifiable for an appellate court to overturn a finding of fact which turns on the credibility of the witnesses. It should not do so unless it is satisfied that any advantage enjoyed by the trial judge by having seen and heard the witnesses could not be sufficient to explain or justify his conclusions. This restraint extends to the judge’s evaluation of the facts and any inferences to be drawn from them.

[126]The Board succinctly explained the reason for such appellate restraint in the following way: “43. The reasons for such appellate restraint are not limited to the advantage enjoyed by the trial judge of having seen and heard the witnesses. They include the recognition that the judge who presides over the trial is immersed in the evidence in a way that an appeal court cannot replicate. The judge will be totally familiar with the evidence at trial, and is likely to gain a far deeper insight from living with the case over several days than the appeal court, whose view of the case will be circumscribed by the issues raised on appeal. 44. Moreover, not every detail of the relevant evidence need be or can be captured in the reasons given by the judge for his findings. As Lord Hoffman said in Piglowska v Pigolwski [1999] 1 WLR 1360, 1372, citing from his own judgment in Biogen Inc v Medeva plc [1997] RPC 1, 45: “[The judge’s] expressed findings are always surrounded by a penumbra of imprecision as to emphasis, relative weight, minor qualifications and nuance…of which time and language do not permit exact impression, but which may play an important part in the judge’s overall evaluation.”

[127]The trial judge was very much immersed in this trial and in his comprehensive judgment has demonstrated intimate familiarity with the pleadings and evidence in the case. The structure of his judgment, in which he devotes a considerable portion of it ([311] – [345]) to his assessment of the credibility of the protagonists, signals that credibility played an important role in the fact-finding exercise.

[128]The suggestion that the judge set out an erroneous chronology in approaching the issue of proper or improper purpose is simply unfounded. It is important to remind oneself of some salient markers in the chronology. In May 2018 the Statutory Demand was served. The evidence established that the idea of the debt-for-equity swap was first floated by Mr. Evrengun on 8th October 2018. It was raised in the context of Mr. McKenzie’s suggestion on 3rd October 2018 that the Company be sold. This was not aligned with Mr. Evrengun’s strategic expansion plans. On 10th October 2018, Mr. McKenzie made it clear he was not interested in converting his shareholder loan and debt to equity. Clearly, he wanted out, subject of course to a fair price for his shares.

[129]Two months later, on 14th December 2018, Mr. Evrengun initiated discussions with BDO with a view to the preparation of a valuation report for the shares in AMS in contemplation of the debt-for-equity swap. It was not until the following year on 17th May 2019 that the McKenzie Parties served the Letter Before Action. BDO submitted its valuation report on 20th May 2019. The judge did not see anything sinister about the timing of this submission. He expressed the view that it was to be expected that the preparation of such a report would take some time. On 30th May 2019 the resolution relating to the debt-for-equity-swap was passed. On 4th July 2019, counsel for the Evrengun parties wrote to counsel for the McKenzie Parties raising the question of the redemption of Amstel’s shares. On 15th July 2019 Mr. McKenzie was invited to nominate an appraiser for the purpose of having the shares in the company valued by independent appraisers. Amstel failed to appoint an appraiser. On 8th August 2019, the redemption notice was issued.

[130]Against the full background and chronology, therefore, it was for the judge to determine whether the trigger for the 30th May 2019 resolution relating to the debt- for-equity-swap was the Letter Before Action, as contended by the McKenzie Parties, or otherwise, and whether the subsequent letter to counsel for the McKenzie Parties raising the question of the redemption of Amstel’s shares was suggestive of a “pre-decided plan” which was “of a piece” with the redemption that followed it on 8th August 2019.

[131]The judge’s treatment of the relevant chronology commences at paragraph [384] and culminates in his conclusions at paragraphs [393] – [395] as set out at paragraph 121 above. Paragraphs [384] to [387] bear quoting: “[384] The McKenzie Parties treat the first key date in their chronology behind this argument as 17th May 2019. That was the date the McKenzie Parties sent the Evrengun Parties a letter before action. The second key date for the McKenzie Parties is 20th May 2019, when, they say, the BDO valuation report ‘landed’ with Mr. Evrengun, ‘apparently out of the blue’. They submit that ‘[I]t is an obvious inference that Mr. Evrengun had chased for its preparation in response to the 17th May 2019 letter before action’. The next key dates (for the McKenzie Parties) are 30th and 31st May 2019 respectively, when the documents for the share issue and debt for equity swap were signed. The McKenzie Parties nod lightly (too lightly, as I will explain below) towards earlier dates, in observing that ‘Mr. Evrengun seems to have come up with the idea of a debt-for-equity swap in negotiations with Mr. McKenzie in October 2018. Some steps were taken to progress the plan in December 2018 (e.g., making contact with BDO and [the leading BVI law firm which became his legal advisers on the transaction]) [385] The McKenzie Parties’ core submission was that the debt for equity swap was a reaction to Mr. McKenzie’s threat of ‘litigation’. This is a seductive but fundamentally incorrect submission. On a high, superficial level, it is correct. It was indeed the case that the debt for equity swap was a reaction on Mr. Evrengun’s part to threats of ‘litigation’ made by Mr. McKenzie. But we have to interrogate this by asking what type of ‘litigation’, and when those threats were made. Looking at the correspondence, it can be seen that the answers to these questions are: (1) threats to apply to the BVI courts for a liquidator to be appointed over AMS; and (2) these threats were made well before the 17th May 2019 letter before action (as well as in that letter before action itself). In other words, the debt for equity swap was not a reaction to the McKenzie’s threats of ‘litigation’ contained solely in their 17th May 2019 letter before action. It was a reaction to Mr. McKenzie’s threats to apply to the BVI courts seeking the appointment of a liquidator over the Company, i.e., to wind up the Company. [386] In an earlier part of this Judgment I have set out in quite some detail the salient content of the correspondence over the relevant prior period. One can read there that there was a ‘watershed’ exchange of emails between Mr. Evrengun and Mr. McKenzie culminating in an email on 10th November 2017 which marked a point of irretrievable breakdown in their business relationship. On 3rd May 2018, Mr. McKenzie threatened to serve Statutory Demands. On 18th May 2018 he did so. On 25th May 2018 Mr. Evrengun indicated that he had taken legal advice and that he was thinking of having the Company adopt a ‘scheme of arrangement’. By this, I understand him to be referring to a ‘scheme of arrangement’ as provided for by section 179A. of the BCA. He accurately summarized the key attributes of such a scheme. It was clear from that email that Mr. Evrengun thought and hoped that a ‘scheme of arrangement’ could be used to defeat a Statutory Demand. In the event, by 31st May 2018 he and Mr. McKenzie had agreed that the debts which had been the subject of the Statutory Demands would be paid off by way of monthly instalments of US$20,000 (which would see these debts paid off in 2020) and ‘enforcement’ of the Statutory Demands through an application to appoint a liquidator over the Company would be put on hold. In their negotiations which ensued, on 18th August 2018 Mr. Evrengun raised the possibility of a redemption in respect of Mr. McKenzie’s shares, on the basis that he (Mr. Evrengun) would not be able to buy Mr. McKenzie out. Some time then passed. On 3rd October 2018, Mr. McKenzie revived threats. They could reasonably be understood as threatening to apply for the appointment of a liquidator over the Company. It was five days later, on 8th October 2018, in response to this, that Mr. Evrengun indicated that ‘we are in advanced discussions with the major lenders to convert the loans into share capital’. On 19th October 2018 Mr. McKenzie increased the pressure on Mr. Evrengun, by notifying Mr. Evrengun that he was going to revive his Statutory Demands. That could only be understood to mean that he would be applying to the BVI courts for the appointment of a liquidator if the Company did not satisfy the Statutory Demands. Then, on 29th October 2018, Mr. McKenzie reiterated that he was going to apply for the appointment of a liquidator over the Company. He made further, similar, threats on 5th, 9th and 13th November 2018. It was in the context of those threats to apply for the appointment of a liquidator that Mr. Evrengun went to see the Company’s auditors, BDO, on 14th December 2018 to commission a valuation report for a debt for equity swap. Then, on 15th December 2018, the Company (obviously at Mr. Evrengun’s instigation) resolved to appoint the leading BVI law firm previously mentioned as the legal advisors and BDO as the financial advisers in relation to the swap. The reason given there for the swap was stated at point 1 of the resolution’s preamble, as quoted already above: “It was noted that due to the financial position of the Company and in particular its equity to debt ratio, the Company intended to explore options to raise capital and/or reduce the debt obligations of the Company.” [387] Obviously, an ‘officially stated’ motive or reason may not be the predominant, nor even any true, purpose at all. But it can be seen that the debt for equity swap was instigated as a reaction to Mr. McKenzie’s repeated threats to apply to the BVI courts for the appointment of a liquidator over the Company.

[132]As can be seen from the foregoing, the judge clearly did not confine his review of the chronology to the narrow window that the McKenzie Parties wished. He was right to do so and there is nothing erroneous about the chronology set out in those paragraphs. The real complaint seems to be the inferences drawn or not drawn by the judge from the sequence of events that unfolded.

[133]Significantly also, the judge addressed frontally what he called “the high point” of the McKenzie Parties’ case at paragraph [366]: “[366] In a nutshell, the McKenzie Parties say the debt for equity swap was part of an improper scheme to force redemption of Mr. McKenzie’s shares. The highpoint of their evidence in this regard is that Mr. Evrengun had informed his legal advisers that the redemption was the last part of the Company’s financial reorganisation. The context of that statement had been that in July 2019 Mr. Evrengun was negotiating with that firm over the fees for dealing with the redemption part of it, in circumstances where the redemption part was taking place several weeks after the debt for equity swap, and the case handler that Mr. Evrengun had first dealt with then happened to be absent. The Court does not know the outcome of that exchange (whether that firm agreed to do the work within the ambit of the previously agreed fee arrangement or whether a separate fee was ultimately agreed). [367] I accept that what Mr. Evrengun told that firm can be taken as contradicting his case that the debt for equity swap was not done in order to force redemption of Mr. McKenzie’s shares. So, this may be an instance in which Mr. Evrengun has been shown to be making a self-serving statement which contradicts his own formal case. But, at the same time, that firm itself appears not to have been aware of the debt for equity swap and redemption being part of a single scheme, because that firm appears to have wished to charge separately for the redemption work. [368] The most, or at least more, reliable evidence for the contemporaneous motivation for the debt for equity swap can more appropriately be gleaned from the contemporaneous correspondence and the pertinent chronology.

[134]In short, the judge was not prepared to view that statement by Mr. Evrengun in isolation but to place it in a wider context and to consider it in tandem with other contemporaneous material and the chronology. Having done so, he determined that it did not bear the sting urged on him by the McKenzie Parties. I can see no fault in the approach the judge took in relation to that specific point.

[135]In my view, taking the judge’s reasoning as a whole, it cannot be said that his findings were plainly wrong in the sense that either there was no evidence to support the finding, or the finding was based on a misunderstanding of the evidence, or the finding was one that no reasonable judge could have reached. The substantial purpose found by the judge

[136]Having rejected the McKenzie Parties’ case, the judge therefore proceeded to identify what was the substantial purpose for which the power was exercised and whether that purpose was a proper one.

[137]In my view, the critical finding is at paragraph [394]. “[394] For the reasons given, I concluded in my respectful judgment 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). [395] In my respectful judgment that was clearly of benefit to the company and was a proper purpose.” (emphasis added)

[138]In the underlined words, the judge clearly articulates that the substantial purpose was to increase the capital of the company and reduce its debts. This accords with the Evrengun parties’ pleadings. The positioning of the words, ‘as was the stated reason’ immediately after that finding tends to confirm that the judge clearly understood and accepted the Evrengun Parties’ expressly pleaded case. The fact that the judge went on to assign a reason for, or a “collateral advantage” to be achieved by, the Evrengun Parties pursuing that purpose, namely to put the company in a better position to defend an application for the appointment of a liquidator, does not detract from the fact that he had expressly accepted the pleaded purpose and found it to be a proper purpose for the benefit of the company. This finding was open to him on the evidence which established that Mr. McKenzie was fully aware of and was very concerned about the level of Amstel’s indebtedness as recounted by the judge.

[139]Even if it might be said that the judge found an additional or collateral purpose, that is a matter within the remit of the judge. Stage 3 of the substantial purpose test requires him to assess and analyse all of the evidence in the case, including inferences to be drawn therefrom, and determine as a question of fact what was the substantial purpose for which the impugned power was exercised. If the evidence so admits, it is open to a judge to identify a duality or plurality of purpose.

[140]In a case where there are multiple purposes, some proper and some improper, the directors’ decision will be set aside only if the primary or dominant purpose for which it was made was improper: Eclairs Group Ltd v JKX Oil & Gas PLC.34 An alternative formulation was posited which says that “regardless of whether the impermissible purpose was the dominant one or but one of a number of significantly contributing causes, the allotment will be invalidated if the impermissible purpose was causative in the sense that, but for its presence, ‘the power would not have been exercised.” Lord Sumption considered that although Lord Wilberforce did not in Howard Smith v Ampol express the point in terms of causation, it was clear that by “substantial or primary purpose” he meant the purpose which accounted for the Board’s decision. Lord Mance (with whom Lord Neuberger agreed) did not think that Lord Sumption’s interpretation of Lord Wilberforce’s speech was “necessarily or clearly what Lord Wilberforce meant”. As to the ‘but for’ test, Lord Mance had this to say: “…although I have sympathy with Lord Sumption’s view that “but for” causation offers a single, simple test, which it might be possible or even preferable to substitute for references to the principal or primary purpose, I am not persuaded that we can or should safely undertake what all parties consider would be “a new development” of company law, without having heard argument.”35

[141]This Court in Antow Holdings declined to adopt the ‘but for’ test.

[142]All that said, however, the present case was not a case where the judge found there to be a mix of proper and improper purpose and needed to determine which was the substantial or primary or dominant purpose. Indeed, the McKenzie Parties put the case on the footing that there was only one purpose, which was an improper one.

[143]The important point is that the judge found no improper purpose at all. Instead, he accepted the Evrengun Parties’ pleaded purpose and concluded that it was a proper one, which was the substantial or dominant purpose. Even if it may be said that he identified a collateral purpose, he found this other purpose to be a proper one also. The facts found and inferences drawn by the judge on this issue were open to him on the evidence.

[144]I therefore find no merit in this ground of appeal.

Ground 3 – The retroactive interest rate

[145]This last ground can be taken shortly. The decision to increase the interest rates formed part of the resolution of 31st May 2018, to which reference has been previously made in this judgment. It was companion to the resolution of even date to repay the debt owed to Amstel and Cavendish by monthly instalments of $20,000.00.

[146]Mr. Hall Taylor KC submitted that the judge erred in failing to find that there had been unfair prejudice to Amstel by Mr. Evrengun when on 31st May 2018, he unilaterally and retrospectively caused the Company to increase the interest payable upon the debts, and therefore the sums due to Circle and Corepoint from 0 to 8% and 8 to 10% respectively. The judge was invited, but declined, to find that the unilateral increase in interest rate was a further breach by Mr. Evrengun of his director ‘s duties and amounted to unfairly prejudicial conduct. The judge’s error is said to be in approaching the question on the basis of what might have been commercially reasonable in the round, rather than considering whether Mr. Evrengun had complied with his duties owed to the Company as a director and/or taken any adequate steps to manage the obvious and acute conflict of interest that he had. It is said that viewed in this way, the only proper conclusion was that Mr. Evrengun had preferred his own interests (as creditor and shareholder via Corepoint and Circle respectively) to those of the Company in a manner that was unfairly prejudicial to Amstel in its capacity as a minority shareholder. It is alternatively contended that even to the extent that the prospective increase in interest on the Corepoint and Circle debts was not unfairly prejudicial, the retrospective increase in interest from 1st January 2018 was.

[147]The judge’s reasons for not finding that increasing the interest rate was a breach of fiduciary duty and unfairly prejudicial are recorded at paragraphs [410] onwards.

[148]In summary, the judge found that it was not unfair because priority was being given to the Amstel and Cavendish debts. Based on evidence in relation to third party lending rates, he found that the rates were at a commercially reasonable and unexceptional rate. The judge also considered the matter from the Company’s perspective and held that it was not against its interests to be asked to pay 2% more on interest when that was still within commercial bounds. Nor was it contrary to its interests to be asked to pay 8% interest where hitherto it had paid none.

[149]With respect to the retroactive interest, the judge found that to be unobjectionable. The start date he found coincided with the breakdown of the relationship between Mr. Evrengun and Mr. McKenzie, which he marks as 20th December 2017 and culminating with Mr. Evrengun’s demand for Mr. McKenzie’ resignation as director on 5th January 2018. In circumstances where both parties had decided to fall back on their strict legal rights in relation to debts owed to them, the judge found the actions of Mr. Evrengun to be justifiable.

[150]Notwithstanding the judge’s assessment of what was commercially reasonable, which was a relevant consideration, he was effectively saying that there was no breach of fiduciary duty by Mr. Evrengun and that the transactions increasing the interest rate did not amount to unfairly prejudicial conduct. I can discern no basis for saying that the judge failed to consider whether Mr. Evrengun had complied with his fiduciary duties owed to the company. This ground of appeal fails.

Summary of conclusions

[151]I have concluded that while the judge should have found that the debt-for-equity swap was conducted at an undervalue of at least 37%, nonetheless, that fact without more in the circumstances of this case does not amount to unfair prejudice. Secondly, the judge did not err in holding that the debt for equity swap was conducted for a proper purpose. Thirdly, the judge did not err in failing to hold that the increase in interest rates in relation to the Circle and Corepoint debts was a breach of fiduciary duties and unfairly prejudicial.

Disposition

[152]The appeal is dismissed. The orders of the trial judge are affirmed. The matter is remitted to the trial judge for consideration of consequential directions. The appellants shall pay the respondents’ costs of this appeal and in the court below to be assessed by a judge of the Commercial Court if not agreed within 28 days of the date of delivery of this judgment. I concur. Esco L. Henry Justice of Appeal I concur.

Kimberly Cenac-Phulgence

Justice of Appeal [Ag.]

By the Court

Chief Registrar

THE EASTERN CARIBBEAN SUPREME COURT IN THE COURT OF APPEAL TERRITORY OF THE VIRGIN ISLANDS BVIHCMAP2024/0002 BETWEEN:

[1]Amstel Investment Holdings LIMIITED

[2]CHRISTOPHER STUART MCKENZIE

[1]AMS HOLDINGS LIMITED

[3]CAVENDISH MANAGEMENT ENTERPRISEES LIMITED Appellants and

[4]In July 2012, Mr. Evrengun, through his wholly owned corporate vehicle, Circle, acquired a majority shareholding of about 67.955% in AMS by buying out other shareholders. The remaining 15.195% shares in AMS were then held by Sun Investments Limited (“Sun”) which was owned by Mr. Andrew Bickerton, styled ‘Mr. AB’ in the judgment. Mr. AB was also a director of AMS. In July 2012, Mr. Evrengun became a Director of AMS.

[5]Discussions between Mr. Evrengun and Mr. McKenzie from about 2012 had also produced an agreement that Mr. McKenzie would be engaged in the role of Group Managing Director, Corporate and Trust within the AMS Group. There was an informal arrangement whereby it was agreed that AMS would pay Mr. McKenzie the sum of US$350,000.00 per annum for management services provided by Cavendish. It was also agreed that Mr. Evrengun too would have an executive role in AMS as Group Managing Director and would be paid US$300,000.00 per annum. Mr. McKenzie would focus on the operational side of the business, while Mr. Evrengun would focus on the financial and insurance sides. Mr. McKenzie commenced duties at some point in early to mid-2013.

[6]By July 2014, Mr. AB was bought out so that Sun ceased to be a shareholder in AMS. Through a series of agreed transactions, as at the end of 2014, Circle held 70% of the shares in AMS with the remaining 30% held by Amstel. Moreover, as part of the same series of transactions, it was agreed that AMS owed Amstel a sum of US$400,000 by way of a shareholders’ loan assigned by Circle to Amstel (the ‘Amstel Loan’). Circle was also owed a substantial amount in the form of various sums which were contributed to AMS by Mr. Evrengun and/or by virtue that his compensation was retained in AMS and recorded against Circle’s loan account with AMS.

[7]It seemed to have been common understanding that the strategic plan for the AMS group of companies was that it would grow by acquiring other corporate service providers and/or their client portfolios. Clearly, to realise its aspiration, these acquisitions needed to be funded. The judge found that in the early years following Mr. Evrengun’s takeover the financial needs of AMS ‘appear very largely to have been supplied by Mr. Evrengun, in the form of cash loans made to AMS through Corepoint’. In total, between November 2013 and December 2014, Corepoint made 5 such loans to AMS through which the acquisitions were made of Circle Trust Services (BVI) Ltd, Sentinel Management LLC, Fidelius, Nexman BV and a portfolio of clients held by Superior Trust and Management Company. The said loans also met the operating expenses of the group. The judge found that Mr. McKenzie was aware of these matters. Circle had also advanced a shareholder loan to AMS.

[8]In or around late 2017, the relationship of trust and confidence between Mr. McKenzie and Mr. Evrengun broke down. The parties agree that the reasons for this are not relevant for present purposes. In November 2017 it was agreed that Mr. McKenzie would leave AMS. Both sides seemed agreed that Amstel’s 30% shareholding should be bought out, and in December 2017 Mr. Evrengun indicated that he would offer at least US$1.274m for Amstel’s 30% shareholding.

[9]However, disagreement between the parties in relation to the value of AMS, the extent of its debts, the reasons for those debts, the effect of these debts on the value of the company and the state of company’s financial records all stood in the way of an amicable and mutually acceptable parting of the ways. In particular, the company’s accounts (provisions) to 6th November 2017 showed the level of debt to Circle and Corepoint stood at US$3.75m. By December Mr. Evrengun indicated that AMS’ total labilities stood at some US$6.374m, of which the Circle and Corepoint debts comprised US$4.075m.

[10]Mr. McKenzie expressed himself to be surprised at this level of indebtedness and sought to probe Mr. Evrengun, through correspondence, on the extent of the indebtedness and the reasons for it. There was much daylight between the parties as to the legitimate extent of AMS’ debts. The upshot of this was that discussion for the buy-out of the Amstel shareholding was hampered. Further to this, Mr. McKenzie was also a creditor of AMS, which owed Amstel and Cavendish US$400,000.00 and US$230,000.00 respectively. These loans were interest free and repayable on demand.

[11]On 19th December 2017, Mr. Evrengun sent Mr. McKenzie a proposal in relation to his departure from AMS. The salient features were that: (1) he would remain employed until 30th June 2018 focusing mainly on legal work; (2) his share would be bought out, valued at a multiple of 1.25 of the 2017 turnover, less debts; (3) this value would need to be calculated, with Mr. McKenzie being free to check the calculations himself or to appoint someone to do so; (4) Mr. McKenzie would receive a minimum US$1,274,000.00 to ensure that he was in no worse position than if he had sold his shares at the time Mr. Evrengun had bought out the other shareholders.

[12]By email of even date Mr. McKenzie countered with a suggestion that the same value be used for his shares in AMS as was being contemplated for the Newhaven merger. In an email response dated 20th December 2017, Mr. Evrengun proposed a buyout of Mr. McKenzie’s shareholding at a price of US$1,275,000.00, detailing the formula by which he had arrived at that offer. Additionally, Mr. Evrengun detailed the shareholder loans to AMS as follows: US$400,000.00 owing to Amstel; US$250,000.00 owing to Cavendish; US$2.725 million (principal) and US$700,000.00 (interest) together totalling US$3,245 million owing to Corepoint; and US$650,000.00 owing to Circle. Other lending from third parties was put at US$935,000.00.

[13]Mr. McKenzie responded via email dated 21st December 2017. Evidently, Mr. McKenzie did not consider that the proposal represented fair value, contending that it represented only a $250,000.00 increase in the total value of AMS since 2012 when Mr. Evrengun first bought shares in the company, which was based on a minimum value of US$4,000,000.00 at that time.

[14]Mr. McKenzie’s response led Mr. Evrengun to withdraw his previous offers with regard to Mr. McKenzie’s departure as well as to his shareholding. By email dated 5th January 2018, he invited Mr. McKenzie to resign his directorships in the AMS group by 10th January 2018, failing which Mr. Evrengun would use his majority shareholding to remove him, which would have the effect also of terminating his monthly management fee. Mr. McKenzie replied on 9th January 2018 to say that as soon as his employment was terminated, he would serve a formal demand for all debt due to him, payable immediately. In an email dated 11th January 2018, Mr. Evrengun called on Mr. McKenzie to resign his directorships as time was of the essence. By further emails dated 12th and 17th January 2018, Mr. McKenzie indicated that he was resigning his position. However, Mr. Evrengun agreed to continue to pay Mr. McKenzie’s monthly management fee via Cavendish until 31st March 2018.

[15]Protracted communications ensued between Mr. Evrengun and Mr. McKenzie concerning a fair valuation for Mr. McKenzie’s shares with a view to his departure as a member of AMS. On 3rd May 2018 Mr. McKenzie threatened Mr. Evrengun that ‘…if we don’t immediately reach an amicable agreement on the future repayment of my debt and the Amstel shareholder loans, I intend to forthwith make a formal and statutory demand which will become fully payable.’

[16]Mr. McKenzie made good on this threat when on 18th May 2018, he caused statutory demands to be served on AMS in relation to the Amstel Loan and payment of receivables payable to Cavendish for outstanding management fees and rechargeable costs. That course of action seems to have had the desired effect of bringing Mr. Evrengun to the bargaining table. On 30th May 2018, Mr. Evrengun emailed certain proposals to Mr. McKenzie. They reached agreement that the combined debts would be settled by 2020 by the payment of monthly instalments of US$20,000.00. In return, Mr. McKenzie undertook not to enforce the statutory demands without giving a minimum of 21 days prior notice.

[17]The following day on 31st May 2018 AMS, the company adopted a number of resolutions. The resolution explained that the background to the resolution was that on 18th May the company was confronted by the Statutory Demand. As such the Company resolved, among others: “(a)To repay the indebtedness of Amstel and Cavendish, as recorded in the books of the Company in monthly installments of USD 20,000 until the total debt is fully repaid. (b) To increase, effective as of January 1, 2018 the interest of the loan of Corepoint from 8% to 10% and to increase the interest on the loan of Circle from 0% to 8%.”

[18]The 4th paragraph of the resolution explained the reason for the increase in interest rates in the following terms: “It was further noted that in order for the other creditors, Corepoint Select Strategies Ltd. (“Corepoint”) and Circle Capital Ltd. (“Circle”) to accept the preferred position of Amstel and Cavendish and to effectively subordinate repayment of their debts until Amstel and Cavendish have been fully repaid, the Company agreed new interest agreements with both Corepoint and Circle, i.e. an increase of the Corepoint interest from 8% to 10% and for Circle from no interest to 8% interest p.a. effective as of January 1, 2018.”

[19]The discussions seeking to find common ground as to the manner in which Mr. McKenzie’s shares might be bought out and the valuation of AMS continued but were unproductive. Significantly, in an email dated 18th August 2018 Mr. Evrengun floated the idea of a redemption of Mr. McKenzie’s shares. The relevant part of that email states: “However, we think it is in the best interest of all parties involved that we come to a fair and realistic arrangement. We can only do this via AMS Holdings Ltd., since I will not purchase these shares in private, this can only be done in the form of a redemption of your shares and the redemption proceeds then have to be repaid by the company over a prolonged period of time in order to make this feasible and that it does not jeopardize the continuity of the company and its shareholders. In order to determine whether such a transaction would be feasible, we will need to understand your expectations on price and term of repayment. This way we can see whether the company is willing and able to bear this additional burden without risking its continuity.”

[20]In specific response to this proposal, Mr. McKenzie expressed the view that ‘if the Group is struggling to continue without investment, then the simple solution would be to sell the same in its entirety and we both get out now. Problem solved.’ Mr. McKenzie stated that the starting point should be the figures looked at for the Newhaven deal, with the legitimate debt to be ascertained by an independent third-party accountant agreed by the two of them. Once they could agree on the purchase price, Mr. McKenzie said he would have no problem with the Company redeeming the shares from him over a three-year period at 6% interest. As security, he would take a debenture from the Company containing a charge over the company’s assets.

[21]Meanwhile, in seeming pursuit of AMS’ strategic plan to build a global corporate and trust provider, Mr. Evrengun made the following enquiry of Mr. McKenzie, by email dated 8th October 2018 : “In this regard, we are continuing our strategic plan. We are in advanced discussions with the major lenders to convert the loans into share capital. As you will understand, this will lead to a dilution of the present shareholders. From my side, I will convert my shareholders’ loan into equity as well, and you will have to indicate whether you plan to convert the remaining balance of your shareholder’s loan into equity or whether you would like to keep it as debt, which is now being repaid on a monthly basis. … In order to keep the matters moving, could you please advise not later than by the close of business in Luxembourg Monday October 15, 2018, first of all whether you are still interested in selling your shares? If not, could you then please advise whether you would like to convert your shareholders’ loan into share capital, jointly with the other main creditors.”

[22]Mr. McKenzie replied via email dated 10th October 2018. He stated among other things: “Referring to your email below, I confirm:

[23]He followed this up with an email dated 19th October declaring ‘I have now given you the said 21 days’ notice by virtue of my last email.’

[24]This was a reference to his earlier undertaking not to enforce the statutory demands without giving a minimum of 21 days prior notice.

[25]Mr. Evrengun made a final offer on 29th October 2018, offering Mr. McKenzie US$950,000.00 for his shares to be repaid together with the remaining shareholder loan debt at US$25,000.00 per month over 4.5 years; an offer that would expire on 3rd November 2018. Thereafter, AMS would proceed with its restructuring plan.

[26]Mr. McKenzie did not accept this proposal. Instead, he replied in terms which the judge characterized as vicious in tone, threatening to place the Company into liquidation and to advise the BVI Financial Services Commission (“FSC”) of the petition and notify them of the perceived fraudulent and deceptive accounting practices and hopefully they will want to get involved given it is the holding company of regulated entities. I will be doing likewise to the Cayman and Dutch regulators.’

[27]Mr. McKenzie would later admit under cross-examination that by this threat he was ‘trying to show what pressure points [he] had in response to his [Mr. Evrengun’s] pressure points.’

[28]The protagonists continued to exchange emails in the ensuing months, in which Mr. McKenzie threatened the appointment of a liquidator and the commencement of unfair prejudice proceedings.

[29]On 14th December 2018 Mr. Evrengun initiated discussions with the AMS Group’s auditors, BDO BVI, with a view to the preparation of a valuation report for the shares in AMS, in contemplation of the debt for equity swap. Swiftly following this, on 15th December 2018 AMS’ Board passed a resolution appointing a leading BVI law firm as legal advisers and BDO as financial advisers tasked with assisting with the debt for equity swap. The resolution also provided for BDO to conduct a valuation of AMS to determine a fair value for the debt for equity conversion.

[30]By a letter dated 17th May 2019 Mr. McKenzie, acting through his BVI legal practitioners, sent a letter before action to Mr. Evrengun’s lawyers threatening to bring a number of claims against AMS and Mr. Evrengun and to commence liquidation proceedings against AMS in relation to the Amstel Loan. The letter further alleged breaches of director’s and other fiduciary and statutory duties, with accompanying threats to write to the Director of Banks, Trust Companies and Company Managers at the FSC about perceived regulatory breaches. Mr. McKenzie also threatened to send similar letters to the relevant regulators in the Cayman Islands, the Netherlands and Singapore.

[31]On 20th May 2019 BDO submitted their valuation report which valued AMS at US$1,244,500 or US$24.89 per share as at 31st December 2018. It is pertinent to observe here that it was common ground at the trial that the debt-for-equity swap was at an undervalue by at least 37%. The respondents to the appeal concede this. I will return to this issue later in this judgment.

[32]On 30th May 2019, by written resolution of the sole director Mr. Evrengun, the authorised capital of AMS was increased from US$50,000 to US$500,000.00, divided into 500,000 shares with a par value of US$1.00 each. A notice of change in number of shares or authorised capital was also filed on 30th May 2019.

[33]In correspondence between the parties’ legal representatives, AMS explained in a letter dated 4th July 2019 that the decision to increase the Company’s authorised share capital from US$50,000.00 to US$500,000.00 was done to improve AMS’s financial position. Mr. McKenzie’s legal representatives disputed the validity of the increase.

[34]Further, on 31st May 2019, AMS passed a written resolution of the sole director Mr. Evrengun to issue new shares in AMS to Corepoint and Circle (the “new shares”) in exchange for the release by Corepoint and Circle of the Corepoint and Circle Debts (which as at 31st May 2019 stood at $1,797,950.00 owed to Circle and US$3,646,250.00 owed to Corepoint) and to do so at the fair market value of AMS, which was determined to be US$24.89 per share based on the BDO BVI valuation report. Corepoint also directed AMS to issue Corepoint’s portion of the new shares to Circle, on the basis that Circle would hold those shares on terms agreed between Corepoint and Circle. On 31st May 2019, AMS’s register of members was updated to reflect the issuance of 218,691 ordinary shares to Circle. The result was that Circle was then a holder of 94.4% of the shares in AMS, with Amstel then holding 5.6% of the issued shares of the Company. By reducing Amstel’s shareholding to below the 10% threshold, the Company was thereby placed in a position to invoke its right of compulsory redemption of the Amstel shares under the provisions of section 176 of the BVI Business Companies Act (the “BCA”), which provides that a majority shareholder holding 90% or more of the shares in a Company could instruct the Company to redeem the remaining shares.

[35]On 15th July 2019, Circle made an offer to have the shares in the company valued by independent appraisers. Amstel failed to appoint an appraiser. Further communications about valuation ensued, with Mr. McKenzie’s legal practitioners writing on 30th July 2019, setting out detailed proposals for the valuation process including, importantly, a requirement that ‘the valuation of the Amstel Shares shall not be discounted by virtue of it being a minority shareholding [sic] and moreover shall not be valued, pro rata, less than the valuation placed on the Company/Group in 2012 and subsequently 2014, when the value of the Company/Group was deemed to be US$4,000,000.00’.

[36]On 8th August 2019, pursuant to section 176 of the BCA, Circle, being the registered holder of more than ninety per cent of the votes of the issued shares in the Company, issued a redemption notice seeking to compulsorily redeem all the shares held by Amstel as a minority shareholder. The Redemption Notice also provided that, subject to Amstel’s right to dissent, the shares were to be redeemed by the Company on 15th August 2019 (the “Redemption Date”) at a price of US$19.91 per share.

[37]Amstel dissented on 14th August 2019 on the basis, among others, that the redemption price of US$19.91 did not represent fair value. Amstel further alleged a lack of information and access to the Company’s documents and accounts, and that the redemption process was unfairly prejudicial and thus illegal.

[38]On 19th August 2019 Mr. McKenzie wrote to the FSC querying whether approval had been given for AMS to issue new shares to Circle and contend that Amstel’s shareholding in AMS had been ‘illegally diluted’ in breach of a shareholder’s agreement between Amstel and Circle.

[39]In or about November 2020 Corepoint was dissolved and on 1st January 2021 all of AMS’ assets were transferred to a Dutch company called AMCIN Holdings BV (“AMCIN”). The judge accepted (paragraphs 308 & 309) that this company was incorporated on 5th June 2020 for the purpose of a reorganization of the AMS Group, which would bring the base of the AMS Group onshore in the Netherlands. The proceedings in the court below

[40]Further protracted correspondence ensued without fruit. The Evrengun Parties (the claimants below) filed a Fixed Date Claim Form in the Commercial Court of the BVI. By this, they essentially sought: a declaration that the share redemption process is valid; an order to compel Amstel to appoint an appraiser pursuant to section 179 of the BCA and for consequential directions related to the appraisal process, namely that the ‘fair value’ of the McKenzie Parties’ shares in AMS should be established, as at the date of the redemption (8th August 2019), by three appraisers – one to be appointed by each of the Evrengun and McKenzie Parties respectively and a third to be appointed by the other two appraisers so appointed.

[41]The McKenzie parties responded by filing an ancillary claim, which was bought in Mr. McKenzie’s own name as well as in the names of Amstel and Cavendish, against the Evrengun Parties. This ancillary claim, subsequently re-amended, was an unfair prejudice claim brought pursuant to section 184I of the BCA. The McKenzie Parties alleged that Mr. Evrengun had committed breaches of director and other fiduciary and statutory duties and/or breaches of a shareholder’s agreement and had engaged in unfairly prejudicial conduct of the affairs of the Company.

[42]The McKenzie Parties sought the following substantive reliefs: (1) A declaration that the affairs of the Company are being and/or have been conducted in a manner which is unfairly prejudicial, unfairly discriminatory and/or oppressive to Amstel as a minority shareholder of the Company. (2) A declaration that Amstel remains a 30% shareholder in the Company and/or an order requiring the Register of Members of the Company be rectified to reflect the same. (3) An Order requiring Circle, Mr. Evrengun and the Company to acquire Amstel’s shares in the Company at a fair value price that: (a) takes into account the diminution in the value of Amstel’s shares in the Company attributable to the Company’s affairs being conducted in an oppressive and/or unfairly prejudicial manner; (b) proceeds on the basis that Amstel is a 30% shareholder in the Company; (c) discards the ‘Corepoint Debt’ and ‘Circle Debt’ respectively; (d) disregards and/or sets aside the disposition of the Company’s assets to a company called ‘AMCIN’; (e) does not apply a minority discount; (f) applies (i) a current valuation date, alternatively (ii) a valuation date of 8th August 2019, alternatively (iii) a valuation date of 31st May 2019, alternatively (iv) a valuation date as at the time of Mr. McKenzie’s departure from the Group on 17th January 2018; (g) permits Amstel to make representations to the valuer(s) following the full disclosure of all information relevant to the value of Amstel’s shares. (4) An Order that the Company produce all accounting records of the Company and all of its underlying subsidiaries for the purposes of a forensic review and requiring the Company and/or Mr. Evrengun to answer any reasonable queries or questions raised by Amstel in respect of such records; (5) Alternatively, compensation for the diminution in the value of Amstel’s shares in the Company attributable to the Company’s affairs being conducted in an oppressive and/or unfairly prejudicial manner; (6) Such other Order as may be made pursuant to section 184I of the Act as the Court thinks fit; (7) An account of the outstanding amount due to Amstel in relation to the Shareholder Loan, and judgment in such sum.

[43]The judge summarized the McKenzie Parties’ case by quoting verbatim from their pleadings. Some of the issues before the judge are not pursued in this appeal. Accordingly, the summary of the parties’ contentions that follows is tailored to speak to the issues that remain live on this appeal.

[44]In summary the McKenzie Parties pleaded that the affairs of the Company are being and/or have been conducted in a manner which is unfairly prejudicial, unfairly discriminatory and/or oppressive to Amstel as a minority shareholder of the Company. In particular, such conduct included: “101. ….. d. Restructuring the share capital and/or converting improperly incurred debt into equity, so as to reduce Amstel’s shareholding in the Company, contrary to clause 4 and paragraph 15 of schedule 2 of the SHA; e. Passing a written resolution to increase the authorised share capital from £50,000 to £500,000 [£: sic] with the intention of reducing Amstel’s shareholding in the Company, contrary to clause 4 and paragraph 15 schedule 2 of the SHA; f. Taking out loans and incurring debt in the name of and on behalf of the Company without full and proper disclosure of the existence of and or terms and conditions of such loans to Mr. McKenzie and/or the Board of the Company as a duly appointed director of the Company; such loans are not in the best interests of the Company and/or are on a basis unfairly prejudicial to Amstel; contrary to clause 4 and paragraph 7 of schedule 2 of the SHA; g. Failing to properly declare conflicts of interest on various of the above loans taken out by and in the name of the Company, in particular the loans from Corepoint (and making secret profits thereon); h. Failing to provide accounts for the Company for the years 2013, 2014, 2015, 2016 and 2017 until November 2017; i. Failing to procure proper treatment of loans and other operating expenses taken out by the Company in that they have been on loan to the Group Subsidiaries with no reciprocal intercompany receivables credited back to the Company, thus reducing the net asset value of the Company to the detriment of Amstel; j. Using operating expenses to mask the insolvency or doubtful solvency of the Group Subsidiaries, and therefore filing improper and inaccurate statutory/audited accounts with the FSC and other regulators; k. Taking steps to run and manage the Company contrary to the legitimate expectations of Amstel and in a manner which is otherwise unfairly prejudicial and unfairly oppressive; l. On 1 January 2021, apparently selling, transferring or otherwise disposing of the entirety of the Company’s assets by transferring them to AMCIN Holdings BV…. ….

[45]The judge identified the trial battlelines as delineated by counsel for the Evrengun Parties in his opening submissions, which the judge regarded as succinct. The Evrengun Parties posited that there were essentially two related themes: (1) whether the Corepoint and Circle debts were legitimate and in particular, whether they were disclosed to Mr. McKenzie at or around the time that they were incurred; and (2) whether the debt for equity swap was legitimate. The judge’s findings in relation to these themes

[46]The credibility of Mr. McKenzie and Mr. Evrengun was central to the judge’s factual findings in relation to the first issue when assessed against the contemporaneous documentation in evidence before him. The judge carefully examined the evidence touching and concerning the parties’ knowledge of the funding requirements and the likely source of such funding in order to grow the business, consistent with Mr. Evrengun’s strategic plan. He then examined each Corepoint loan transaction individually at paragraphs 97 – 147, and gave detailed reasons along the way for his ultimate conclusion that: “[Mr. McKenzie] had every opportunity to follow the progress and status of AMS’s debt position but, on his own case, he chose not to read the materials. He cannot lay responsibility for that at Mr. Evrengun’s door. I am satisfied that Mr. Evrengun did not withhold financial information from Mr. McKenzie.”

[47]The judge expressly rejected Mr. McKenzie’s assertion in cross-examination that Mr. Evrengun had made a series of bad deals which he had borrowed money to cover up in the hope that they would be repaid before the Company had to face or encounter them. On this score the judge held: “I am satisfied that that was not the case. Mr. Evrengun was open with Mr. Mckenzie about the Company’s debt position and did not conceal it from him. From the evidence which I have summarized above in some detail, there is no indication that any borrowing concerned was improper, or had any purpose other than to provide the AMS business with much needed cash in order to continue to operate”

[48]In relation to the debt for equity swap, the judge concluded that it was not at an undervalue and that it was done for the proper purpose of increasing the company’s financial position in response to Mr. McKenzie’s threats to present a winding up petition. The judge’s reasoning and conclusion on this issue are expressed in the following terms at paragraphs [393]-[395] of the judgment: “[393] I have no reason to believe that Mr. Evrengun was not aware of the Court’s statutory discretion. On balance I believe it is more likely that he was aware of it. He had shown himself to have been well-informed (on taking legal advice or otherwise) about the legal details of BVI ‘schemes of arrangement’. It is clear that he had given careful thought to the steps he could cause the Company to take to protect it from Mr. McKenzie’s attacks, apparently upon taking legal advice. I would be extremely surprised if Mr. Evrengun had been unaware of the Court’s discretion in this regard. In this regard, there is no reason to suppose that on such crucial existential matters Mr. Evrengun had been content to rely upon his own assumptions or informal, ad hoc, advice from colleagues in the manner that Mr. McKenzie, for his own part, appears to have done.

[49]Accordingly, the judge rejected the McKenzie Parties’ ancillary claim and allowed the Evrengun Parties’ Fixed Date Claim. The judge also ordered that a further hearing would be required for further submissions on the consequential matters involving a buy-out of Amstel’s shares in the Company and the valuation/ value of those shares. The appeal

[50]By notice of appeal filed on 12th January 2024, the appellants advance three grounds of appeal. The nub of the grounds is summarised in the paragraphs that follow.

[51]Ground (1) contends that the learned judge erred in failing to hold that the debt-for-equity swap was carried out at an undervalue and in failing to hold that the fact that the debt-for-equity-swap was at an undervalue also amounted to unfair prejudice. In this regard the appellants place much reliance on Re Sunrise Radio.

[52]Ground (2) challenges the judge’s finding that the debt-for-equity swap was not done for an improper purpose but finding, on a case not pleaded by the Evrengun Parties, that: (i) the decision to increase the Company’s authorized share capital from US$50,000 to US$500,000 ‘was done to improve the financial position of the company thus allowing it to exchange the debt for equity’; (ii) that the debt-for-equity swap was a ‘reaction to Mr. McKenzie’s repeated threats to apply to the BVI courts for the appointment of a liquidator of the company…the most important purpose for Mr. Evrengun was to improve the Company’s chances of avoiding a winding up order’; and (iii) “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 has been its stated purpose, 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”.

[53]It is said that the purposes ascribed by the judge for the debt-for-equity swap were not properly open to him to find, and were, in any case, unsupported by the evidence, contradicted by the contemporary documentary evidence and were in all the circumstances perverse.

[54]Ground (3) asserts that the judge erred in failing to find that there had been unfair prejudice to Amstel by Mr. Evrengun when on 31st May 2018, he unilaterally and retrospectively caused the Company to increase the interest payable upon the debts, and therefore the sums due to Mr. Evrengun’s connected companies, Circle and Corepoint. The judge’s error is said to be in approaching the question on the basis of what might have been commercially reasonable in the round, rather than considering whether Mr. Evrengun had complied with his duties owed to the Company as a director and/or taken any adequate steps to manage the obvious and acute conflict of interest that he had. So analysed, the only proper conclusion was that Mr. Evrengun had preferred his own interests (as creditor and shareholder via Corepoint and Circle respectively) to those of the Company in a manner that was unfairly prejudicial to Amstel in its capacity as a minority shareholder. It is alternatively contended that even to the extent that the prospective increase in interest on the Corepoint and Circle debts was not unfairly prejudicial, the retrospective increase in interest from 1st January 2018 was.

[55]The appellants seek orders that: (1) the Fixed Date Claim be dismissed; (2) an order under section 184I of the BCA requiring Mr. Evrengun, alternatively Circle, to acquire Amstel’s shareholding in the Company forthwith; and (3) consequential directions in relation to the calculation of the purchase price to give effect to relief (2).

[56]The issues in this appeal are therefore reducible to the following: (i) Whether the judge erred in failing to hold that the debt-for-equity swap was carried out at an undervalue and further erred in failing to hold that the fact that the debt-for-equity-swap was at an undervalue also amounted to unfair prejudice; (ii) Whether the judge erred in finding that the debt-for-equity swap was carried out for a proper purpose which was not pleaded by the respondents; (iii) Whether the judge erred in failing to find that there had been unfair prejudice to Amstel by the unilateral and retrospective increase of the interest payable upon the Circle and Corepoint debts. The legislative framework Ground 1 – The undervalue and unfair prejudice

[57]This ground gives rise to a consideration of both an issue of fact and an issue of law. The issue of fact is whether the judge failed to engage with the expert evidence adduced by both sides that the debt-for-equity swap was at an undervalue, where the only difference between them was the extent of that undervalue. The McKenzie Parties’ contention is that had the debt-for-equity-swap not been done at an undervalue of at least 37% (resulting in $138,000 more for McKenzie’s shareholding) then Amstel’s shareholding in AMS would not have been diluted to 5.6% and ‘may well not have been beneath 10% at all’, thus triggering the squeeze-out provisions. It is said that the judge erred in not determining what Amstel’s shareholding would have been had the debt-for-equity swap not been conducted at an undervalue. He was required to accept the undisputed evidence that it was done at an undervalue and then gone on to determine the correct valuation that should have been used. Based on that value, he could then have determined whether it would or could have resulted in Amstel’s shareholding being diluted below 10%. Mr. Hall-Taylor KC submits that in granting the Fixed Date Claim without carrying out that exercise, the judge erred.

[58]The issue of law is whether, as a matter of law, the purported compulsory redemption of a shareholder’s shares at an undisputed undervalue is necessarily unfairly prejudicial conduct for the purposes of Section 184I the BCA.

[59]Section 184I of the BCA provides the mechanism whereby a member of a company, typically a minority shareholder, in a BVI company may petition the court for redress if he considers that the affairs of the company have been, are being, or are likely to be conducted in a manner that is oppressive, unfairly discriminatory or unfairly prejudicial to them.

[60]Section 184I provides: “184I. (1) A member of a company who considers that the affairs of the company have been, are being or are likely to be, conducted in a manner that is, or any act or acts of the company have been, or are, likely to be oppressive, unfairly discriminatory, or unfairly prejudicial to him in that capacity, may apply to the Court for an order under this section. (2) If, on an application under this section, the Court considers that it is just and equitable to do so, it may make such order as it thinks fit, including, without limiting the generality of this subsection, one or more of the following orders (a) in the case of a shareholder, requiring the company or any other person to acquire the shareholder’s shares; …. (c) regulating the future conduct of the company’s affairs; … (g) directing the rectification of the records of the company; (h) setting aside any decision made or action taken by the company or its directors in breach of this Act or the memorandum or articles of the company. (3) No order may be made against the company or any other person under this section unless the company or that person is a party to the proceedings in which the application is made.”

[61]Where the rights of minority shareholders are threatened in this way, section 184I provides a measure of protection against the company and its majority shareholders. To put matters right, the court is empowered to fashion an appropriate remedy including those outlined in section184I(2) above.

[62]In the BVI, the court’s approach to the determination of an unfair prejudice petition is well established and has been re-stated by this Court on a number of occasions. Its jurisprudence adheres in large measure to the principles derived from the seminal case of O’Neill v Phillips. The following statements of principle are culled from that authority.

[63]A petitioner must demonstrate both unfairness and prejudice in order to succeed. As Blenman JA expressed it in JF Ming Inc et al v Ming Sui Hung, Ronald et al: “It is settled that both elements must coexist; namely, unfairness and prejudice. Indeed, section 184I(1) of the Act, so far as relevant, acknowledges this.”

[64]The court’s mandate in adjudicating an unfair prejudice claim is to do what is just and equitable to achieve fairness, which must be applied judicially and what constitutes fairness must be determined upon rational principles. Ultimately, the content of the concept of fairness must be informed and shaped by context and background. The way it was put in JF Ming, is that the concept of fairness is flexible and open textured but it is not unbounded. The court must act on a principled basis even though the concept is to be approached flexibly.

[65]The case of O’Neill v Phillips instructs further that there are two features constituting the background which must be kept in mind when considering unfair prejudice. The first is that the manner in which the company’s affairs are conducted is regulated by its articles of association and sometimes by collateral agreements between shareholders, also referred to as the ‘legal background” in Grace v Biagioli. This leads to the general rule that a member of a company will not ordinarily be entitled to complain of unfairness unless there has been some breach, for example either in the articles or a shareholders’ agreement, of the terms on which he agreed that the affairs of the company should be conducted. It will therefore not ordinarily be unfair for the affairs of a company to be conducted in accordance with the provisions of its articles or any other relevant and legally enforceable agreement, unless it would be inequitable for those agreements to be enforced in the particular circumstances under consideration: Grace v Biagioli.

[66]The second feature is that there may be cases in which equitable considerations will prevent those having conduct of the affairs of the company from insisting on their strict legal rights. Marrying these propositions the court held: “Thus unfairness may consist in a breach of the rules or in using the rules in a manner which equity would regard as contrary to good faith.”

[67]Whether in any given case the application of equitable principles might make it unfair for a party to insist on or enforce its strict legal rights is a matter to be determined on the particular facts and circumstances of a case, as opposed to by reference to any pre-defined set of circumstances.

[68]Notwithstanding the broad discretion given to a court hearing an unfair prejudice petition to apply equitable principles in determining whether it is just for a party to insist on its strict legal rights in any particular circumstance, the principles which guide the court in that determination are fairly well settled and the concept of fairness is not at large. According to Lord Hoffman, while the concept of fairness was chosen to free the court from considerations of legal rights and to do what appeared just and equitable ‘this does not mean that the court can do whatever the individual judge happens to think fair. The concept of fairness must be applied judicially and the content which it is given by the courts must be based upon rational principles.’

[69]This point is further underscored later by Lord Hoffman at page 1099, F -H: “In my view a balance has to be struck between the breadth of the discretion given to the court and the principle of legal certainty. Petitions under section 459 [BVI 184I] are often lengthy and expensive. It is highly desirable that lawyers should be able to advise their clients whether or not a petition is likely to succeed. Lord Wilberforce, after the passage which I have quoted said that it would be impossible “and wholly undesirable” to define the circumstances in which the application of equitable principles might make it unjust, or inequitable (or unfair) for a party to insist on legal rights or to exercise them in particular way. This of course is right. But that does not mean that there are no principles by which those circumstances may be identified. The way in which such equitable principles operate is tolerably well settled and in my view it would be wrong to abandon them in favour of some wholly indefinite notion of fairness.”

[70]The test of unfairness is thus an objective one applying established equitable principles to discern whether the majority has acted, or is proposing to act, in a manner which equity would regard as contrary to good faith. Discussion – Ground 1

[71]Mr. Hall Taylor KC for the McKenzie Parties submits that the purported compulsory redemption of a shareholder’s share at a significant undervalue is necessarily unfair prejudicial conduct within the meaning of section 184I. It is unfair because on a principled evaluation basis it is unjustified as the redemption was at a significant undervalue of the share, which the judge failed to acknowledge. It is prejudicial because it diminishes the value of the Amstel shareholding.

[72]Mr. Woolgar for the Evrengun Parties candidly accepts that in light of BDO’s error in applying a minority discount, the valuation at which the debt-for-equity swap was conducted was at least 20% too low. Further, accepting the Evrengun’s expert’s concession in cross-examination, it was at least 37% too low. What is said, however, is that there is no basis to suggest that the mere amount of the undervalue in a share issue is sufficient to demonstrate unfair prejudice without more, and that in order to amount to unfair prejudice there must be some special feature which goes beyond the mere fact of an undervalue.

[73]He argues that decided cases have generally treated cases of unfair prejudice as being limited to three situations where a petitioner can show: (i) a breach of his contractual rights; (ii) a breach of a quasi-partnership agreement; or (iii) that the directors have exercised their powers for an ulterior purpose or otherwise acted in breach of fiduciary duty.

[74]He does accept, however, that there may be cases falling outside of these situations given the flexibility of the approach to unfair prejudice. Given the judge’s unchallenged findings that (i) the company was not a quasi-partnership, and (ii) that the draft Shareholders’ Agreement was not binding in law or equity and there being no suggestion that the debt-for-equity swap breached the company’s articles, the fact that it was done at an undervalue does not fall within any of the categories of unfair prejudice identified above. Mr. Woolgar asserted that there is no case in which unfair prejudice has been found on the sole basis that the minority’s shares were diluted at an undervalue.

[75]In relation to this issue of fact relating to whether there was an undervalue, the judge expresses his conclusions on this issue at paragraphs

[76]In view of Mr. Woolgar’s proper concession, necessitated by the uncontradicted expert evidence before the judge in relation to the fact and extent of the undervalue, I have no difficulty in concluding that, barring some cogent reason for not acting on the expert evidence, the judge should have found as a fact that there was an undervalue of at least 37%. The evidence does not reasonably admit of the possibility that the error ‘may or may not’ have crept into BDO’s work. It undoubtedly did. Does an undervalue without more amount to unfair prejudice

[77]The approach preferred by the judge was to say that ‘if it was an error’ then the submission that the valuation was unreliable and unfair was met by the Evrengun Parties’ submission that their expert reached a ‘similar’ valuation in May 2019. In his view, this made the figures defensible, and to that extent there was no substantive unfairness arising from using the December 2018 valuation for the purpose of conducting the debt-for-equity swap in May 2019.

[78]By this conclusion, the judge seems to be saying that the mere fact of the undervalue did not produce unfairness in the circumstances of this case because the value used for the debt-for-equity swap was similar to a valuation made in May 2019. He also found no unfairness because there was no evidence to establish that Mr. Evrengun engineered the error, which was committed by an independent and reputable third party.

[79]Mr. Hall Taylor KC points out that a 37% difference in valuation can hardly be regarded as a ‘similar’ valuation. Mr. Woolgar, on the other hand submits that valuation is an art not a science and underlines this point by drawing attention to the fact that in this case the experts’ valuations differed by 475%; a point also noted by the McKenzie Parties at paragraph 30 of their skeleton submissions.

[80]It is to the case law that one must turn to determine whether in principle and as a matter of law an undisputed significant undervalue is necessarily unfairly prejudicial conduct. The McKenzie Parties rely on Re Sunrise Radio a case where a minority shareholding was diluted by reason of a rights issue which took place at a significant undervalue, as supportive of its proposition that a significant undervalue is necessarily unfairly prejudicial conduct.

[81]In that case, Ms. Geeta Kohli was a former director and minority shareholder having a 15% shareholding in Sunrise Radio Ltd. Dr. Lit and his Company (ABC) owned 78.33%. On 16th August 2005 a special resolution was passed increasing the nominal share capital of Sunrise from £270,000 to £570,000. On 19th October 2005 another special resolution was passed authorizing the directors unconditionally to allot and issue further shares. ABC was allotted 10,000,000 further shares at par that said day. This allotment resulted in the combined shareholdings of Dr. Lit and ABC being increased to 87.89% while Ms. Kohli’s shareholding decreased to 8.33% of the total shares. On the evidence, a much higher price could have been obtained on the rights issue. Ms. Kohli also claimed that she was not offered the opportunity to subscribe and that the issue was unnecessary and had as its object the dilution of her shareholding. The respondents contended that she was given the opportunity to subscribe and that the rights issue had the genuine object of raising much needed capital. The court found that Ms. Kohli had been given the opportunity to subscribe to the rights issue and that the reason for the rights issue offer was a genuine need for cash. Nonetheless, the court found unfair prejudice.

[82]At paragraph 104 of the judgment the court identified the issue for determination as ‘whether it was a proper exercise of the directors’ power to allot the 10,000,000 shares to ABC at par.’ The court found (at paragraph 106) that the effect of the issue of shares to ABC was not simply to dilute Ms. Kohli’s proportionate shareholding but also it produced a significant dilution in value. The court had also found that neither the company’s articles nor the Special Resolution required the shares to be issued at par. (para 103).

[83]The court identified and expressed its conclusion on the core issue at paragraph 113: “In the present context of section 994, the issue is whether Ms Kohli has suffered unfair prejudice by reason of the directors' failure to give proper consideration to the issue price of the shares. It seems to me that a failure to take relevant matters into account may amount to unfair prejudice even if the most the Court can say is that the decision might have been different had the matters in question been considered. The failure to take all relevant considerations into account was (in the present case) a breach of fiduciary duty and therefore unfair to Ms Kohli as a shareholder, and prejudice is established as the directors have in consequence denied Sunrise the opportunity it should have had of fixing for the rights issue, or negotiating with ABC, a more suitable price following proper consideration, which would have reduced or eliminated the extent of the dilution in the value of the minority shareholdings, including Ms Kohli’s. Ms Kohli can only be said not to have been prejudiced if the Court concludes that had they taken the unconsidered relevant matters into account, the decision would have been no different… 114…In any event, the interests of the shareholders as a body, and the different interests within them, were not properly considered, as the rights issue shares were offered and (subsequently) allotted unthinkingly at par.”

[84]The rationale for the decision is put beyond doubt when at paragraph 120 the judge concluded: “In the circumstances, the allotment of shares to ABC on 19th October 2005 at par was in my judgment the product of a breach or breaches of fiduciary duty and this was unfairly prejudicial to Ms. Kohli.”

[85]It seems to me therefore that the basis on which the court concluded that the claim of unfair prejudice had been made out was not simply on the basis of the fact that Ms. Kohli had suffered a dilution of her proportionate shareholding and a significant dilution in its value. Indeed, the court seemed to recognise that in certain circumstances a rights issue may yet be appropriate even where it produces a dilution in the shareholding of a minority shareholder. At paragraph 76 the court stated: “A rights issue may be an appropriate route if the foreseeable or inevitable effect is the dilution of the percentage holding of a minority shareholder because (for example) it is known or foreseen that the minority in question is unlikely to or cannot subscribe. This may even be so where the impact of the rights issue will dilute the value of that minority’s remaining shareholding. A rights issue must however be priced at a level which is fair to all.”

[400]of his judgment in the following terms: “[399] It can be seen from the above that the McKenzie Parties were studiously trying to avoid impugning BDO’s integrity and competence and at the same time trying to fix responsibility upon Mr. Evrengun for misleading BDO. I accept the Evrengun Parties’ submission that BDO were an independent third party. BDO BVI is part of the BDO global international accounting network. BDO BVI was also the Company’s auditor, so had a considerable degree of familiarity and institutional knowledge about its financial affairs. That of course does not mean that no error crept into their work – it may (or may not) have done. After all, to err is human. There is far too little documentary evidence available for the Court to be persuaded on a balance of probabilities that Mr. Evrengun engineered such an error. There is also no evidence that Mr. Evrengun, the alleged perpetrator of the unfairly prejudicial conduct complained of by the McKenzie Parties knew that this was an error. If it was an error, it was an error by an external third party and not by those in control of the company.

[86]The court’s finding of unfair prejudice was grounded in its conclusion that directors should not unthinkingly issue shares at par in circumstances where it is known or foreseen that the minority shareholders will or may not have the money or inclination to subscribe, and that “any failure to give proper consideration to the price in the light of the factors I have mentioned may, and ordinarily, will, amount to a breach of fiduciary duty.”

[87]In Mr. Hall Taylor KC’s submission that the compulsory redemption of a shareholder’s shares at an undisputed significant undervalue is necessarily unfairly prejudicial is to prosper, it cannot be on the basis of the Sunrise Radio case as the determinative factor there was the breach of fiduciary duty which constituted the unfairness. It was prejudicial because the failure of the directors to have regard to all relevant considerations resulted in the majority shareholders obtaining the shares at a much lower price and diluted the minority shareholding to a much greater extent than would have resulted had those matters been considered.

[88]The judge in Sunrise Radio referenced a number of cases during the course of his judgment where unfair prejudice was found on the dilution of a minority shareholding. Common to all of them, however, was the presence of some additional factor or fault element on the part of the directors. For example in Re a Company the decision was premised on the fact that despite a genuine belief that the company required additional capital and the petitioner was offered shares on the same terms as other shareholders, the majority knew that the petitioner did not have the money to take up the rights issues, and that the shares offered at par were worth much more as a majority shareholder but very little as a minority shareholder. To similar effect is another case bearing the name Re a Company; and also West Coast Capital (Lios) Limited.

[89]The case of Re Cardiff City Football Club (Holdings) Ltd, relied on by the Evrengun Parties, provides an interesting contrast. There the court dismissed the section 994 petition of a minority shareholder on the basis that while the actions of the majority shareholder to advance a share offer under which the petitioner’s shares would have been diluted might have been motivated by vindictiveness towards the minority shareholder, the majority shareholder’s conduct did not amount to unfair prejudice by the company. The Board’s approval of the share offer, although potentially influenced by an improper motive, would have been made regardless, even without that improper purpose.

[90]I therefore find myself in agreement with Mr. Woolgar’s submission that ‘the correct analysis of Sunrise Radio is that a share issue/dilution at an undervalue will be unfairly prejudicial if the directors are in breach of their fiduciary duties by reason of failing to give proper consideration to the price at which the share issue should occur.’

[91]Unless the appellants can make good their second ground of appeal in relation to improper purpose, to which I will turn in due course, I do not accept that the mere dilution of the minority shareholding will necessarily establish unfair prejudice. That is too broadly cast and can amount to saying, as Mr. Woolgar submitted, that in any case where the majority converts debt to equity or otherwise issues new shares at a price which the court subsequently determines was too low, that will constitute unfair prejudice. In my view, such an approach ignores the principle that whether in any given case the conduct complained of is unfair is a matter to be determined on the particular facts and circumstances of a case, as opposed to by reference to any pre-defined set of circumstances.

[92]Returning to the present case and bearing in mind that both unfairness and prejudice must be established, the judge found as a fact that that there was no unfairness because there was no evidence to establish that Mr. Evrengun engineered the valuation error which led to the undervalue or was aware of it, and that the error was committed by an independent and reputable third party. That finding was entirely open to the judge on the evidence.

[93]As I see it, Mr. Evrengun sought properly to conduct the valuation of the company and for this purpose engaged the reputable firm of BDO. In the absence of any indication that anything was amiss, he was entitled to act on the valuation presented by BDO in determining a proper share price. In this case, that valuation turned to be too low by at least 37%. No fault element or breach of fiduciary duty can be attributed to Mr. Evrengun in this regard. I do not understand the appellants to be asserting on this appeal that he breached his fiduciary duty in this regard by engineering the undervalue. What is said, correctly in my view, is that the finding by the judge that he did not engineer the undervalue is irrelevant to the question whether there was an undervalue. But it is relevant to the question whether in all the circumstances of this case, the undervalue, without more, was unfairly prejudicial conduct.

[94]The judge, having analysed the circumstances under which the undervalue came about, concluded that there was no conduct by Mr. Evrengun that could be regarded as unfair. Applying the principles discussed above, I am unable to conclude that the undervalue without more is, as a matter of law, necessarily unfairly prejudicial. Should the judge have established the correct value?

[95]Mr. Hall Taylor KC develops the submission in relation to the undervalue further by submitting that the judge’s next task should have been to ascertain what the correct valuation and any resultant dilution should have been. Not having done so, he erred. Not so, says Mr. Woolgar; that exercise would have been relevant to quantum but the judge found no liability.

[96]In my view, two observations are pertinent. First, the ascertainment of the correct value clearly required expert evidence. The judge seemed not to have reposed full confidence in either of the parties’ experts, whose opinions as to value diverged by a chasm as wide as 475%.

[97]His reflection on the experts is seen at paragraphs

[98]One appreciates the challenge this presented for the judge in arriving at a precise valuation of the extent of the undervalue given the state of the experts’ evidence.

[99]Secondly, it was not wrong or improper for the judge to defer the valuation issue until liability had been established. It seems clear to me that this is the course the judge proposed to steer and helps to explain why he was reticent in expressing his views about the experts. I do not consider that he erred in adopting this approach. Ground 2 – Was the debt-for-equity swap conducted for an improper purpose?

[100]The BCA provides in section 45 that shares in a company are at the disposal of the directors. Section 45 reads: “Subject to this Act and to the memorandum and articles, shares in a company may be issued, and options to acquire shares in a company granted, at such times, to such persons, for such consideration and on such terms as the directors may determine.”

[101]Pursuant to section 12 of the Company’s Memorandum of Association and section 2 of its Articles of Association, the directors were empowered to increase the authorised share capital and to issue new shares. AMS’ Articles provided that ‘shares may be issued by the Directors at their discretion and may be issued only as registered shares’. Section 12 of the Memorandum of Association states: “the Company shall by resolution of the directors or by resolution of the members have the power to amend modify any conditions contained in this Memorandum of Association and to increase or reduce the authorized capital of the Company in any way which may be permitted by law.”

[102]While clothed with the authority to issue shares, there is a fiduciary obligation on directors to issue shares for a proper purpose, as codified in section 121 of the BCA which provides: “A director shall exercise his powers as a director for a proper purpose and shall not act, or agree to the company acting, in a manner that contravenes this Act or the memorandum or articles of the company.”

[103]The appellants’ pleaded case was that the primary purpose for the debt-for-equity swap was to dilute the shareholding of Amstel. The respondents’ pleaded case is that the decision to increase the authorised share capital of AMS Holdings “was done to improve the financial position of the Company thus allowing it to exchange the debt for equity.”

[104]The leading case in this area of the law concerning the power to allot and issue shares is Howard Smith Ltd v Ampol Ltd. It establishes that a matter such as the raising of finance is a management call within the remit of the directors, and it would be wrong for the court to substitute its opinion for management’s or to question the correctness of management’s decision if bona fide arrived at, nonetheless: “…when a dispute arises whether directors of a company made a particular decision for one purpose or for another, or whether, there being more than one purpose, one or another purpose was the substantial or primary purpose, the court…is entitled to look at the situation objectively in order to estimate how critical or pressing, or substantial or, per contra, insubstantial an alleged requirement may have been. If it finds that a particular requirement, though real was not urgent, or critical, at the relevant time, it may have reason to doubt, or discount, the assertions of individuals that they acted solely in order to deal with it, particularly when the action they took was unusual or even extreme.”

[105]Flowing from this, the courts adopt a structured and staged frame of analysis when seeking to discern whether the directors have acted for a proper purpose. Lord Wilberforce in Howard Smith v Ampol provides authoritative guidance as to the proper approach to be adopted: “In their Lordships’ opinion it is necessary to start with a consideration of the power whose exercise is in question, in this case a power to issue shares. Having ascertained, on a far view, the nature of this power, and having defied as can best be done in the light of modern conditions the, or some, limits within which it may be exercised, it is then necessary for the court, if a particular exercise of it is challenged, to examine the substantial purpose for which it was exercised, and to reach a conclusion whether that purpose was proper or not. In doing so it will necessarily give credit to the bona fide opinion of the directors, if such is found to exist, and will respect their judgment as to matters of management; having done this, the ultimate conclusion has to be as to the side of a fairly broad line on which the case falls.”

[106]In summary, the stages of the court’s enquiry are to (i) identify the power that has been exercised; (ii) identify the proper purpose for which that power was delegated to the directors; (iii) identify the substantial purpose for which the power was exercised; (iv) determine whether that purpose was proper or not. This has been called the substantial purpose test and has been endorsed in the BVI as the applicable test: Antow Holdings Ltd. v Best Nation Investments Ltd; Nam Tai Property Inc v IsZo Capital LP and Independent Asset Management Company Ltd v Swiss Forfaiting.

[107]In practice, problems arise when, although the power to issue shares has been exercised in accordance with a company’s memorandum or articles, the contention is that it was not exercised for a proper purpose, but solely in pursuit of the directors’ self-interest or for the purpose of creating a shift in the voting power within the company. Such purposes would be improper as being in breach of the directors’ fiduciary duties.

[108]It has to be said that the McKenzie Parties attempt to draw a parallel between the present case and Independent Asset Management Company Ltd v Swiss Forfaiting to suggest that the present case should be regarded as involving a power struggle resulting in a shift in the balance of the voting power is misplaced. Given the distribution of shares prior to the debt-for-equity swap with Circle holding 70% and Amstel 30% and Mr. Evrengun being the sole director, this could hardly be analogous with the situation in the Swiss Forfaiting case. The restructuring of the Company’s share capital and the debt-for-equity swap, though resulting in a diminution of Amstel’s shareholding, did nothing to alter the balance of voting power within the Company.

[109]It happens too that on occasions there are dual or multiple purposes actuating the exercise of the power, one of which may be for a proper purpose, such as to raise capital for the company, but others are not. The principle is that although primarily the power is given for the purpose of raising capital for the company, there are occasions when the directors may fairly and properly issue shares for other reasons provided those reasons relate to a purpose benefiting the company as a whole.

[110]The conventional approach in such cases is to interrogate what was the “substantial” or “primary” or “dominant” purpose underlying the exercise of the power and to ask whether issuing the share for that purpose was made honestly in the interests of the company. See Ampol, 836, d – e, EP 418.

[111]Turning now to the present case. Mr. Hall Taylor KC criticizes the judge’s conclusion that the debt-for-equity swap was not done for an improper purpose and further criticizes the proper purposes ascribed by the judge in so far as he mentioned the purpose of avoiding a winding-up, contending that that finding was based on a case not pleaded by the Evrengun Parties and therefore not open to him. It is further said that the findings were, in any case, unsupported by the evidence, contradicted by the contemporary documentary evidence and were in all the circumstances perverse.

[112]For the Evrengun Parties, Mr. Woolgar submitted that though ground 2 is dressed up as one raising questions of law, it is in truth purely factual. He submitted that the case the judge found proved was the pleaded one, namely that the purpose of the swap was to improve the Company’s financial position. While the judge did go on to say that the reason for that was because Mr. Evrengun feared a winding-up petition, that was not a matter which needed to be pleaded and that that finding was open to the judge on the evidence.

[113]Furthermore, submitted Mr. Woolgar, the critical part of the test for determining improper purpose, i.e. for what purpose did the director act, is a subjective one, which may require an objective assessment of the surrounding evidence in order to ascertain what subjectively the director’s purpose was. However, the question whether the purpose was proper is itself an objective one. There can be no substitute for a factual analysis of what was actually in the minds of the directors. The pleadings and the judge’s reasoning on improper purpose

[114]The pleading to which Mr. Hall Taylor KC specifically draws attention to make good his case on this issue is paragraph 74 of the Evrengun Parties’ defence to the Ancillary Claim. To place it in context, however, one must see the pleadings to which it was responding.

[115]At paragraph 78 of the Re-Amended Statement of Ancillary Claim it is averred: “On 26 June 2019 and in the course of carrying out routine BVI company searches, Mr. McKenzie discovered that on 30 May 2019 the Board of Directors of the Company, i.e. Mr. Evrengun, had passed a resolution increasing the authorized share capital of the Company from $50,000 to $500,000 divided into 500,000 shares each with a par value of $1.00. It is averred that this initial step amounted to an unlawful and improper attempt to dilute Amstel’s Shareholding in the Company. It is further averred that this initial step is a further instance of unfairly prejudicial conduct and moreover, a breach of fiduciary duty by Mr. Evrengun in that he failed to exercise his power as a director for a proper purpose.”

[116]Paragraphs 80 – 84 of the Re-Amended Statement of Ancillary Claim address further the passing of the 31st May 2019 resolution issuing the new shares to Circle and Corepoint in exchange for the release of debts owed to them by AMS. That resolution had posited that the reason for restructuring of the Company’s capital and the issue of new shares was to raise capital and reduce the debt obligations of the Company. Seemingly, to meet this contention the McKenzie Parties pleaded at paragraph 83: “It is denied that the purpose of the restructure of the Company’s share capital and the issue of new shares in the Company was to raise capital and reduce the debt obligations of the company.”

[117]In summary, the improper purpose pleaded by the McKenzie Parties’ at paragraph 78 of the Re-Amended Statement of Ancillary Claim was the attempt to dilute Amstel’s shareholding. This is the context in which paragraph 74 of Mr. Evrengun Parties’ defence to the Re-Amended Statement of Ancillary Claim has to be viewed. It states: “74. Paragraph 78 of the Ancillary Claim is admitted save that the director’s resolution of the Company dated 30 May 2019 did not amount to an unlawful and improper dilution of Amstel’s shareholding in the Company nor did this amount to unfairly prejudicial conduct or breach of fiduciary duty by Mr. Evrengun. Pursuant to section 12 of the Company’s Memorandum of Association and section 2 of the Company’s Articles of Association, it is within the power and discretion of the directors of the Company to increase the authorized share capital of the Company and to issue new shares. As was expressed in a letter from Conyers to Cary Olsen dated 4 July 2019 the purpose of the share capital increase was to improve the financial position of the company by allowing it to issue additional shares as a means of reducing its debt obligations and not for any ulterior purpose as alleged.”

[118]The Evrengun Parties addressed paragraph 83 of the Re-Amended Statement of Claim as follows: “Paragraph 83 of the Ancillary Claim is poorly particularised but it is denied that the purpose of the restructuring of the Company’s share capital and issuance of shares was for a purpose other than that stated at paragraph

[119]It is fair to say that the Evrengun Parties did not expressly plead the avoidance of a winding-up as a purpose motivating the restructuring of the Company’s share capital and issuance of shares. It seems, however, that it was raised on behalf of the Evrengun Parties during opening submissions as reflected at paragraph

[120]Mr. Hall Taylor KC cites the judge’s statements at paragraphs

[121]To those comments one must add what the judge’s conclusions were as expressed at paragraphs

[122]The judge’s reasoning has to be looked at as a whole and in context. The judge clearly did not accept the improper purpose pleaded by the McKenzie Parties. Mr. Hall Taylor KC contends that he was wrong to have rejected this for a number of reasons including that: (a) the debt-for-equity swap, though raised in October 2018, was resurrected only after service of the McKenzie Parties’ Letter Before Action which threatened an unfair prejudice petition; (b) the question of the redemption of Amstel’s shares was raised in correspondence to counsel in July 2019, very soon after the 30th May 2019 debt-for-equity-swap, suggestive of a “pre-decided plan” which was “of a piece” with the redemption that followed it; (c) the judge “set out an obviously erroneous treatment of the chronology which led to his wrong conclusion that the debt-for-equity swap was a reaction to Mr. Mckenzie’s repeated threats to wind up the Company; (d) the debt-for-equity-swap did nothing to enable the company to meet the debts owed to Amstel and Cavendish; and (e) Mr. Evrengun had informed his legal advisers in correspondence in July 2019 that the redemption was the last part of the Company’s financial reorganisation.

[123]Mr. Hall Taylor KC relies on these matters to ground his submission that the only proper conclusion for the judge to have drawn on the evidence was that the proposal of a debt-for-equity swap was first raised by Mr. Evrengun at a time when there was not an extant threat of liquidation but was rather raised in the context of a lack of progress about a consensual purchase of the Amstel shares. These errors, submitted by Mr. Hall Taylor KC, led the judge to an erroneous conclusion on the issue of proper or improper purpose.

[124]These submissions clearly invite this Court to take a different view of the facts from those formed by the trial.

[125]The circumstances in which an appellate court is entitled to interfere with findings of fact made by a trial judge based on the oral evidence of witnesses has been described by the Privy Council as “severely circumscribed.” In Kwok Kin Kwok v Yao Juan the Board restated the guiding principles that should inform the approach of an appellate court in reviewing a trial judge’s findings of fact. In summary, an appellate court should not interfere with a judge’s findings of primary fact unless they are “plainly wrong”, in the sense that either there was no evidence to support the finding, or the finding was based on a misunderstanding of the evidence, or the finding was one that no reasonable judge could have reached. Rarely would it be justifiable for an appellate court to overturn a finding of fact which turns on the credibility of the witnesses. It should not do so unless it is satisfied that any advantage enjoyed by the trial judge by having seen and heard the witnesses could not be sufficient to explain or justify his conclusions. This restraint extends to the judge’s evaluation of the facts and any inferences to be drawn from them.

[126]The Board succinctly explained the reason for such appellate restraint in the following way: “43. The reasons for such appellate restraint are not limited to the advantage enjoyed by the trial judge of having seen and heard the witnesses. They include the recognition that the judge who presides over the trial is immersed in the evidence in a way that an appeal court cannot replicate. The judge will be totally familiar with the evidence at trial, and is likely to gain a far deeper insight from living with the case over several days than the appeal court, whose view of the case will be circumscribed by the issues raised on appeal.

[127]The trial judge was very much immersed in this trial and in his comprehensive judgment has demonstrated intimate familiarity with the pleadings and evidence in the case. The structure of his judgment, in which he devotes a considerable portion of it ([311] – [345]) to his assessment of the credibility of the protagonists, signals that credibility played an important role in the fact-finding exercise.

[128]The suggestion that the judge set out an erroneous chronology in approaching the issue of proper or improper purpose is simply unfounded. It is important to remind oneself of some salient markers in the chronology. In May 2018 the Statutory Demand was served. The evidence established that the idea of the debt-for-equity swap was first floated by Mr. Evrengun on 8th October 2018. It was raised in the context of Mr. McKenzie’s suggestion on 3rd October 2018 that the Company be sold. This was not aligned with Mr. Evrengun’s strategic expansion plans. On 10th October 2018, Mr. McKenzie made it clear he was not interested in converting his shareholder loan and debt to equity. Clearly, he wanted out, subject of course to a fair price for his shares.

[129]Two months later, on 14th December 2018, Mr. Evrengun initiated discussions with BDO with a view to the preparation of a valuation report for the shares in AMS in contemplation of the debt-for-equity swap. It was not until the following year on 17th May 2019 that the McKenzie Parties served the Letter Before Action. BDO submitted its valuation report on 20th May 2019. The judge did not see anything sinister about the timing of this submission. He expressed the view that it was to be expected that the preparation of such a report would take some time. On 30th May 2019 the resolution relating to the debt-for-equity-swap was passed. On 4th July 2019, counsel for the Evrengun parties wrote to counsel for the McKenzie Parties raising the question of the redemption of Amstel’s shares. On 15th July 2019 Mr. McKenzie was invited to nominate an appraiser for the purpose of having the shares in the company valued by independent appraisers. Amstel failed to appoint an appraiser. On 8th August 2019, the redemption notice was issued.

[130]Against the full background and chronology, therefore, it was for the judge to determine whether the trigger for the 30th May 2019 resolution relating to the debt-for-equity-swap was the Letter Before Action, as contended by the McKenzie Parties, or otherwise, and whether the subsequent letter to counsel for the McKenzie Parties raising the question of the redemption of Amstel’s shares was suggestive of a “pre-decided plan” which was “of a piece” with the redemption that followed it on 8th August 2019.

[131]The judge’s treatment of the relevant chronology commences at paragraph

[132]As can be seen from the foregoing, the judge clearly did not confine his review of the chronology to the narrow window that the McKenzie Parties wished. He was right to do so and there is nothing erroneous about the chronology set out in those paragraphs. The real complaint seems to be the inferences drawn or not drawn by the judge from the sequence of events that unfolded.

[133]Significantly also, the judge addressed frontally what he called “the high point” of the McKenzie Parties’ case at paragraph [366]: “[366] In a nutshell, the McKenzie Parties say the debt for equity swap was part of an improper scheme to force redemption of Mr. McKenzie’s shares. The highpoint of their evidence in this regard is that Mr. Evrengun had informed his legal advisers that the redemption was the last part of the Company’s financial reorganisation. The context of that statement had been that in July 2019 Mr. Evrengun was negotiating with that firm over the fees for dealing with the redemption part of it, in circumstances where the redemption part was taking place several weeks after the debt for equity swap, and the case handler that Mr. Evrengun had first dealt with then happened to be absent. The Court does not know the outcome of that exchange (whether that firm agreed to do the work within the ambit of the previously agreed fee arrangement or whether a separate fee was ultimately agreed).

[134]In short, the judge was not prepared to view that statement by Mr. Evrengun in isolation but to place it in a wider context and to consider it in tandem with other contemporaneous material and the chronology. Having done so, he determined that it did not bear the sting urged on him by the McKenzie Parties. I can see no fault in the approach the judge took in relation to that specific point.

[135]In my view, taking the judge’s reasoning as a whole, it cannot be said that his findings were plainly wrong in the sense that either there was no evidence to support the finding, or the finding was based on a misunderstanding of the evidence, or the finding was one that no reasonable judge could have reached. The substantial purpose found by the judge

[136]Having rejected the McKenzie Parties’ case, the judge therefore proceeded to identify what was the substantial purpose for which the power was exercised and whether that purpose was a proper one.

[137]In my view, the critical finding is at paragraph [394]. “[394] For the reasons given, I concluded in my respectful judgment 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).

[138]In the underlined words, the judge clearly articulates that the substantial purpose was to increase the capital of the company and reduce its debts. This accords with the Evrengun parties’ pleadings. The positioning of the words, ‘as was the stated reason’ immediately after that finding tends to confirm that the judge clearly understood and accepted the Evrengun Parties’ expressly pleaded case. The fact that the judge went on to assign a reason for, or a “collateral advantage” to be achieved by, the Evrengun Parties pursuing that purpose, namely to put the company in a better position to defend an application for the appointment of a liquidator, does not detract from the fact that he had expressly accepted the pleaded purpose and found it to be a proper purpose for the benefit of the company. This finding was open to him on the evidence which established that Mr. McKenzie was fully aware of and was very concerned about the level of Amstel’s indebtedness as recounted by the judge.

[139]Even if it might be said that the judge found an additional or collateral purpose, that is a matter within the remit of the judge. Stage 3 of the substantial purpose test requires him to assess and analyse all of the evidence in the case, including inferences to be drawn therefrom, and determine as a question of fact what was the substantial purpose for which the impugned power was exercised. If the evidence so admits, it is open to a judge to identify a duality or plurality of purpose.

[140]In a case where there are multiple purposes, some proper and some improper, the directors’ decision will be set aside only if the primary or dominant purpose for which it was made was improper: Eclairs Group Ltd v JKX Oil & Gas PLC. An alternative formulation was posited which says that “regardless of whether the impermissible purpose was the dominant one or but one of a number of significantly contributing causes, the allotment will be invalidated if the impermissible purpose was causative in the sense that, but for its presence, ‘the power would not have been exercised.” Lord Sumption considered that although Lord Wilberforce did not in Howard Smith v Ampol express the point in terms of causation, it was clear that by “substantial or primary purpose” he meant the purpose which accounted for the Board’s decision. Lord Mance (with whom Lord Neuberger agreed) did not think that Lord Sumption’s interpretation of Lord Wilberforce’s speech was “necessarily or clearly what Lord Wilberforce meant”. As to the ‘but for’ test, Lord Mance had this to say: “…although I have sympathy with Lord Sumption’s view that “but for” causation offers a single, simple test, which it might be possible or even preferable to substitute for references to the principal or primary purpose, I am not persuaded that we can or should safely undertake what all parties consider would be “a new development” of company law, without having heard argument.”

[141]This Court in Antow Holdings declined to adopt the ‘but for’ test.

[142]All that said, however, the present case was not a case where the judge found there to be a mix of proper and improper purpose and needed to determine which was the substantial or primary or dominant purpose. Indeed, the McKenzie Parties put the case on the footing that there was only one purpose, which was an improper one.

[143]The important point is that the judge found no improper purpose at all. Instead, he accepted the Evrengun Parties’ pleaded purpose and concluded that it was a proper one, which was the substantial or dominant purpose. Even if it may be said that he identified a collateral purpose, he found this other purpose to be a proper one also. The facts found and inferences drawn by the judge on this issue were open to him on the evidence.

[144]I therefore find no merit in this ground of appeal. Ground 3 – The retroactive interest rate

44.Moreover, not every detail of The relevant evidence need be or can be captured in the reasons given by the judge for his findings. As Lord Hoffman said in Piglowska v Pigolwski [1999] 1 WLR 1360, 1372, citing from his own judgment in Biogen Inc v Medeva plc [1997] RPC 1, 45: “[The judge’s] expressed findings are always surrounded by a penumbra of imprecision as to emphasis, relative weight, minor qualifications and nuance…of which time and language do not permit exact impression, but which may play an important part in the judge’s overall evaluation.”

[145]This last ground can be taken shortly. The decision to increase the interest rates formed part of the resolution of 31st May 2018, to which reference has been previously made in this judgment. It was companion to the resolution of even date to repay the debt owed to Amstel and Cavendish by monthly instalments of $20,000.00.

[146]Mr. Hall Taylor KC submitted that the judge erred in failing to find that there had been unfair prejudice to Amstel by Mr. Evrengun when on 31st May 2018, he unilaterally and retrospectively caused the Company to increase the interest payable upon the debts, and therefore the sums due to Circle and Corepoint from 0 to 8% and 8 to 10% respectively. The judge was invited, but declined, to find that the unilateral increase in interest rate was a further breach by Mr. Evrengun of his director ‘s duties and amounted to unfairly prejudicial conduct. The judge’s error is said to be in approaching the question on the basis of what might have been commercially reasonable in the round, rather than considering whether Mr. Evrengun had complied with his duties owed to the Company as a director and/or taken any adequate steps to manage the obvious and acute conflict of interest that he had. It is said that viewed in this way, the only proper conclusion was that Mr. Evrengun had preferred his own interests (as creditor and shareholder via Corepoint and Circle respectively) to those of the Company in a manner that was unfairly prejudicial to Amstel in its capacity as a minority shareholder. It is alternatively contended that even to the extent that the prospective increase in interest on the Corepoint and Circle debts was not unfairly prejudicial, the retrospective increase in interest from 1st January 2018 was.

[147]The judge’s reasons for not finding that increasing the interest rate was a breach of fiduciary duty and unfairly prejudicial are recorded at paragraphs

[148]In summary, the judge found that it was not unfair because priority was being given to the Amstel and Cavendish debts. Based on evidence in relation to third party lending rates, he found that the rates were at a commercially reasonable and unexceptional rate. The judge also considered the matter from the Company’s perspective and held that it was not against its interests to be asked to pay 2% more on interest when that was still within commercial bounds. Nor was it contrary to its interests to be asked to pay 8% interest where hitherto it had paid none.

[149]With respect to the retroactive interest, the judge found that to be unobjectionable. The start date he found coincided with the breakdown of the relationship between Mr. Evrengun and Mr. McKenzie, which he marks as 20th December 2017 and culminating with Mr. Evrengun’s demand for Mr. McKenzie’ resignation as director on 5th January 2018. In circumstances where both parties had decided to fall back on their strict legal rights in relation to debts owed to them, the judge found the actions of Mr. Evrengun to be justifiable.

[150]Notwithstanding the judge’s assessment of what was commercially reasonable, which was a relevant consideration, he was effectively saying that there was no breach of fiduciary duty by Mr. Evrengun and that the transactions increasing the interest rate did not amount to unfairly prejudicial conduct. I can discern no basis for saying that the judge failed to consider whether Mr. Evrengun had complied with his fiduciary duties owed to the company. This ground of appeal fails. Summary of conclusions

[393]–

[151]I have concluded that while the judge should have found that the debt-for-equity swap was conducted at an undervalue of at least 37%, nonetheless, that fact without more in the circumstances of this case does not amount to unfair prejudice. Secondly, the judge did not err in holding that the debt for equity swap was conducted for a proper purpose. Thirdly, the judge did not err in failing to hold that the increase in interest rates in relation to the Circle and Corepoint debts was a breach of fiduciary duties and unfairly prejudicial. Disposition

[384]to

[152]The appeal is dismissed. The orders of the trial judge are affirmed. The matter is remitted to the trial judge for consideration of consequential directions. The appellants shall pay the respondents’ costs of this appeal and in the court below to be assessed by a judge of the Commercial Court if not agreed within 28 days of the date of delivery of this judgment. I concur. Esco L. Henry Justice of Appeal I concur. Kimberly Cenac-Phulgence Justice of Appeal [Ag.] By the Court Chief Registrar

[385]The McKenzie Parties’ core submission was that the debt for equity swap was a reaction to Mr. McKenzie’s threat of ‘litigation’. This is a seductive but fundamentally incorrect submission. On a high, superficial level, it is correct. It was indeed the case that the debt for equity swap was a reaction on Mr. Evrengun’s part to threats of ‘litigation’ made by Mr. McKenzie. But we have to interrogate this by asking what type of ‘litigation’, and when those threats were made. Looking at the correspondence, it can be seen that the answers to these questions are: (1) threats to apply to the BVI courts for a liquidator to be appointed over AMS; and (2) these threats were made well before the 17th May 2019 letter before action (as well as in that letter before action itself). In other words, the debt for equity swap was not a reaction to the McKenzie’s threats of ‘litigation’ contained solely in their 17th May 2019 letter before action. It was a reaction to Mr. McKenzie’s threats to apply to the BVI courts seeking the appointment of a liquidator over the Company, i.e., to wind up the Company.

[386]In an earlier part of this Judgment I have set out in quite some detail the salient content of the correspondence over the relevant prior period. One can read there that there was a ‘watershed’ exchange of emails between Mr. Evrengun and Mr. McKenzie culminating in an email on 10th November 2017 which marked a point of irretrievable breakdown in their business relationship. On 3rd May 2018, Mr. McKenzie threatened to serve Statutory Demands. On 18th May 2018 he did so. On 25th May 2018 Mr. Evrengun indicated that he had taken legal advice and that he was thinking of having the Company adopt a ‘scheme of arrangement’. By this, I understand him to be referring to a ‘scheme of arrangement’ as provided for by section 179A. of the BCA. He accurately summarized the key attributes of such a scheme. It was clear from that email that Mr. Evrengun thought and hoped that a ‘scheme of arrangement’ could be used to defeat a Statutory Demand. In the event, by 31st May 2018 he and Mr. McKenzie had agreed that the debts which had been the subject of the Statutory Demands would be paid off by way of monthly instalments of US$20,000 (which would see these debts paid off in 2020) and ‘enforcement’ of the Statutory Demands through an application to appoint a liquidator over the Company would be put on hold. In their negotiations which ensued, on 18th August 2018 Mr. Evrengun raised the possibility of a redemption in respect of Mr. McKenzie’s shares, on the basis that he (Mr. Evrengun) would not be able to buy Mr. McKenzie out. Some time then passed. On 3rd October 2018, Mr. McKenzie revived threats. They could reasonably be understood as threatening to apply for the appointment of a liquidator over the Company. It was five days later, on 8th October 2018, in response to this, that Mr. Evrengun indicated that ‘we are in advanced discussions with the major lenders to convert the loans into share capital’. On 19th October 2018 Mr. McKenzie increased the pressure on Mr. Evrengun, by notifying Mr. Evrengun that he was going to revive his Statutory Demands. That could only be understood to mean that he would be applying to the BVI courts for the appointment of a liquidator if the Company did not satisfy the Statutory Demands. Then, on 29th October 2018, Mr. McKenzie reiterated that he was going to apply for the appointment of a liquidator over the Company. He made further, similar, threats on 5th, 9th and 13th November 2018. It was in the context of those threats to apply for the appointment of a liquidator that Mr. Evrengun went to see the Company’s auditors, BDO, on 14th December 2018 to commission a valuation report for a debt for equity swap. Then, on 15th December 2018, the Company (obviously at Mr. Evrengun’s instigation) resolved to appoint the leading BVI law firm previously mentioned as the legal advisors and BDO as the financial advisers in relation to the swap. The reason given there for the swap was stated at point 1 of the resolution’s preamble, as quoted already above: “It was noted that due to the financial position of the Company and in particular its equity to debt ratio, the Company intended to explore options to raise capital and/or reduce the debt obligations of the Company.”

[387]Obviously, an ‘officially stated’ motive or reason may not be the predominant, nor even any true, purpose at all. But it can be seen that the debt for equity swap was instigated as a reaction to Mr. McKenzie’s repeated threats to apply to the BVI courts for the appointment of a liquidator over the Company.

[2]CIRCLE CAPITAL LIMITED

[3]SUKRU EVRENGUN Respondents Before: The Hon. Mr. Trevor M. Ward Justice of Appeal The Hon. Mde. Esco L. Henry Justice of Appeal The Hon. Mde. Kimberly Cenac-Phulgence Justice of Appeal [Ag.] Appearances: Mr. Alex Hall Taylor KC with him Mr. Simon Hall and Mr. Tom Roscoe for the Appellants Mr. Ben Woolgar, Ms. Tameka Davis and Mr. Andre Sheckleford for the Respondents __________________________________ 2024: October 29 and 30; 2025: March 27. __________________________________ Commercial Appeal – Appeal against learned judge granting fixed date claim and dismissing ancillary claim – Fiduciary duty – Unfair prejudice – Improper purpose – Whether the learned judge erred in failing to hold that the debt-for-equity swap was carried out at an undervalue and further erred in failing to hold that the fact that the debt-for-equity swap was at an undervalue also amounted to unfair prejudice – Whether the judge erred in finding that the debt-for-equity swap was carried out for a proper purpose which was not pleaded by the respondents – Whether the judge erred in failing to find that there had been unfair prejudice to Amstel by the unilateral and retrospective increase of the interest payable upon the Circle and Corepoint debts This appeal stems from a dispute between shareholders in the first respondent, AMS Holdings Limited (“AMS”). The first appellant, Amstel Investment Holdings Limited (“Amstel”) was the minority shareholder in AMS. The second appellant, Mr. Christopher McKenzie is the sole shareholder of Amstel. The third appellant, Cavendish Management Enterprises Limited (“Cavendish”) is a wholly owned subsidiary of Amstel and is beneficially owned by Mr. McKenzie. AMS is a limited company incorporated in the BVI on 13th February 1995. It is the group parent holding company of the AMS Group, which conducts business in the offshore financial services sector. The second respondent, Circle Capital Limited (“Circle”) is a limited company incorporated in the BVI and was the majority shareholder in AMS. The third respondent Mr. Sukru Evrengun is the sole shareholder and sole director of Circle. Mr. Evrengun is also the sole director of Corepoint Select Strategies Limited (“Corepoint”), a company incorporated in the Virgin Islands. In 1997 Mr. McKenzie became a shareholder in AMS, holding 16.85% of the shares which he subsequently transferred to his corporate vehicle, Amstel. On 10th January 1998 he was appointed as a director of AMS. In July 2012, Mr. Evrengun, through his wholly owned corporate vehicle, Circle, acquired a majority shareholding of about 67.955% in AMS by buying out other shareholders. In July 2012, Mr. Evrengun became a Director of AMS. The remaining 15.195% shares in AMS were then held by Sun Investments Limited (“Sun”) which was owned by Mr. Andrew Bickerton (“Mr. AB”) who was also a director of AMS. Discussions between Mr. Evrengun and Mr. McKenzie from about 2012 had produced an agreement that Mr. McKenzie would be engaged in the role of Group Managing Director, Corporate and Trust, within the AMS Group. There was an informal arrangement whereby it was agreed that AMS would pay Mr. McKenzie the sum of US$350,000 per annum for management services provided by Cavendish. It was also agreed that Mr. Evrengun would have an executive role in AMS as Group Managing Director and would be paid US$300,000.00 per annum. By July 2014, Mr. AB was bought out so that Sun ceased to be a shareholder in AMS. Through a series of agreed transactions, as at the end of 2014, Circle held 70% of the shares in AMS with the remaining 30% held by Amstel. It was also agreed that AMS owed Amstel a sum of $US400,000.00 by way of shareholders’ loan assigned by Circle to Amstel (the “Amstel Loan”). Circle was also owed a substantial amount in the form of various sums which were contributed to AMS by Mr. Evrengun and/or his compensation was retained in AMS and recorded against Circle’s loan account with AMS. In the early years following Mr. Evrengun’s takeover, several cash loans were made to AMS through Corepoint. In total, between November 2013 and December 2014, Corepoint made 5 such loans to AMS through which the acquisitions were made of Circle Trust Services (BVI) Ltd, Sentinel Management LLC, Fidelius, Nexman BV and a portfolio of clients held by Superior Trust and Management Company. In late 2017, the relationship of trust and confidence between Mr. McKenzie and Mr. Evrengun broke down. In November 2017 it was agreed that Mr. McKenzie would leave AMS. Both sides agreed that Amstel’s 30% shareholding should be bought out, and on 19th December 2017 Mr. Evrengun indicated that he would offer at least US$1.274m for Amstel’s 30% shareholding, among other terms. However, disagreement between the parties in relation to the value of AMS, the extent of its debts, the reasons for those debts, the effect of these debts on the value of the company and the state of company’s financial records all stood in the way of an amicable and mutually acceptable parting of the ways. Protracted communications ensued between Mr. Evrengun and Mr. McKenzie concerning a fair valuation for Mr. McKenzie’s shares until on 3rd May 2018 Mr. McKenzie threated to make a formal statutory demand if an amicable agreement on the future repayment of his debts and the Amstel shareholder loans was not agreed. On 18th May 2018, Mr. McKenzie made good on this threat when he caused statutory demands to be served on AMS in relation to the Amstel Loan and payment of receivables payable to Cavendish. As a result on 30th May 2018, Mr. Evrengun and Mr. McKenzie reached an agreement that the combined debts would be settled by 2020 by the payment of monthly instalments of US$20,000. In return, Mr. McKenzie undertook not to enforce the statutory demands without giving a minimum of 21 days prior notice. The discussions seeking to find common ground as to the way Mr. McKenzie’s shares might be bought out and the valuation of AMS continued but were unproductive. Mr. Evrengun made a final offer on 29th October 2018, offering Mr. McKenzie US$950,00.00 for his shares to be repaid together with the remaining shareholder loan debt at US$25,000.00 per month over 4.5 years. Mr. McKenzie did not accept. Instead, he replied by threatening to place AMS into liquidation and to advise the BVI Financial Services Commission (“FSC”) of the petition and notify them ‘perceived fraudulent and deceptive account practices…’. The parties continued to exchange emails in the ensuing months, in which Mr. McKenzie threatened to appoint a liquidator and commence unfair prejudice proceedings. In December 2018, Mr. Evrengun initiated discussions with the AMS Group’s auditors, BDO BVI, with a view to the preparation of a valuation report for the shares in AMS in contemplation of a debt for equity swap. AMS’s Board also passed a resolution for BDO to conduct a valuation of AMS to determine a fair value for the debt for equity conversion. On 20th May 2019 BDO submitted their valuation report which valued AMS at US$1,244,500 or US$24.89 per share as at 31st December 2018. On 30th May 2019, by written resolution of the sole director, Mr. Evrengun, the authorised capital of AMS was increased from US$50,000 to US$500,000.00, divided into 500,000 shares with a par value of US$1.00 each. On 31st May AMS passed a written resolution of the sole director Mr. Evrengun to issue new shares in AMS to Corepoint and Circle (the ‘new shares’) in exchange for the release by Corepoint and Circle of the Corepoint and Circle Debts. Corepoint also directed AMS to issue Corepoint’s portion of the new shares to Circle, on the basis that Circle would hold those shares on terms agreed between Corepoint and Circle. On 31st May 2019, AMS’s register of members was updated to reflect the issuance of 218,691 ordinary shares to Circle. The result was that Circle was then a holder of 94.4% of the shares in AMS, with Amstel then holding 5.6% of the issued shares of the Company. By reducing Amstel’s shareholding to below the 10% threshold, the Company was thereby placed in a position to invoke its right of compulsory redemption of the Amstel shares under the provisions of section 176 of the BVI Business Companies Act (the “BCA”). On 8th August 2019, pursuant to section 176 of the BCA, Circle, being the registered holder of more than ninety per cent of the votes of the issued shares in the Company, issued a redemption notice seeking to compulsorily redeem all the shares held by Amstel as a minority shareholder. The Redemption Notice also provided that, subject to Amstel’s right to dissent, the shares were to be redeemed by the Company on 15th August 2019 (the “Redemption Date”) at a price of US$19.91 per share. Amstel dissented on 14th August 2019 on the basis, among others, that the redemption price of US$19.91 did not represent fair value. Amstel further alleged a lack of information and access to the Company’s documents and accounts, and that the redemption process was unfairly prejudicial and thus illegal. Following further protracted correspondence bearing no fruit, the respondents (claimants in the court below) filed a Fixed Date Claim Form in the Commercial Court of the BVI. They essentially sought a declaration that the share redemption process is valid, an order to compel Amstel to appoint an appraiser pursuant to section 179 of the BCA and for consequential directions related to the appraisal process. The appellants (respondents in the court below) responded by filing an ancillary claim alleging that Mr. Evrengun had committed breaches of director and other fiduciary statutory duties and/or breaches of a shareholder’s agreement and had engaged in unfairly prejudicial conduct of the affairs of AMS. They sought declarations that the affairs of AMS had been conducted in an unfairly prejudicial manner and that Amstel remains a 30% shareholder in the company. They further sought orders requiring Circle, Mr. Evrengun and AMS to acquire Amstel’s shares in the company at a fair price or compensation for the diminution in the value of Amstel’s shares in AMS. The learned judge identified two major themes in the proceedings below: whether the Corepoint and Circle debts were legitimate and in particular, whether they were disclosed to Mr. McKenzie at or around the time that they were incurred; and whether the debt for equity swap was legitimate. On the first theme, the learned judge found that Mr. Evrengun was open with Mr. Mckenzie about the AMS’s debt position and did not conceal it from him. There was no indication that any borrowing concerned was improper or had any purpose other than to provide AMS business with much needed cash in order to continue to operate. In relation to the debt for equity swap, the learned judge concluded that it was not at an undervalue and that it was done for the proper purpose of increasing the company’s financial position in response to Mr. McKenzie’s threats to present a winding up petition. The learned judge therefore rejected the appellant’s ancillary claim and allowed the respondent’s fixed date claim as well as ordering that a further hearing would be required on matters involving a buy-out of Amstel’s shares in AMS and the valuation of those shares. The appellants appealed by notice of appeal filed on 12th January 2024. The issues, distilled from the grounds of appeal, are reduced to the following: (1) whether the learned judge erred in failing to hold that the debt-for-equity swap was carried out at an undervalue and further erred in failing to hold that the fact that the debt-for-equity swap was at an undervalue also amounted to unfair prejudice; (2) whether the judge erred in finding that the debt-for-equity swap was carried out for a proper purpose which was not pleaded by the respondents and; (3) whether the judge erred in failing to find that there had been unfair prejudice to Amstel by the unilateral and retrospective increase of the interest payable upon the Circle and Corepoint debts. Held: dismissing the appeal and affirming the orders of the trial judge, remitting the matter to the trial judge for consideration of consequential directions and ordering that the appellants pay the respondent’s costs to be assessed if not agreed within 28 days of the date of delivery of this judgment, that:

1.A petitioner must demonstrate both unfairness and prejudice in order to succeed in an unfair prejudice petition under section 184I of the BCA. The court’s mandate in adjudicating an unfair prejudice claim is to do what is just and equitable to achieve fairness, which must be applied judicially, and what constitutes fairness must be determined upon rational principles. Ultimately, the concept of fairness must be informed and shaped by context and background. There are two features constituting the background which must be kept in mind when considering unfair prejudice. The first is that the manner in which the company’s affairs are conducted is regulated by its articles of association and sometimes by collateral agreements between shareholders (the legal background). A member of a company will therefore not ordinarily be entitled to complain of unfairness unless there has been some breach of the terms on which he agreed that the affairs of the company should be conducted. The second feature is that there may be cases in which equitable considerations will prevent those having conduct of the affairs of the company from insisting on their strict legal rights. O’Neill v Phillips [1999] 1WLR 1092 applied; JF Ming Inc et al v Ming Suit Hung, Ronald et al BVIHCMAP2016/0039 (delivered 30th June 2016, unreported) followed; Grace v Biagioli [2005] EWCA Civ 1222 applied.

2.In relation to whether the debt-for-equity swap was carried out at an undervalue and whether that fact, as a matter of law, amounted to unfair prejudice, it cannot be said on a proper analysis of Re Sunrise Radio, a decision on which the appellants rely, that the compulsory redemption of a shareholder’s shares at an undisputed significant undervalue is necessarily unfairly prejudicial. The determinative factor in that case was the breach of fiduciary duty which constituted the unfairness. It was prejudicial because the failure of the directors to have regard to all relevant considerations resulted in the majority shareholders obtaining the shares at a much lower price and diluted the minority shareholding to a much greater extent than would have resulted had those matters been considered. The principle to be extracted from Re Sunrise Radio case indicates that a share issue/dilution at an undervalue will be unfairly prejudicial if the directors are in breach of their fiduciary duties by reason of failing to give proper consideration to the price at which the share issue should occur. The appellants’ submission that the mere dilution of the minority shareholding will necessarily establish unfair prejudice therefore cannot be maintained. That proposition is too broadly cast and would suggests that in any case where the minority converts debt to equity or otherwise issues new shares at a price which the court subsequently determines was too low unfair prejudice would be established. Such an approach ignores the principle that whether in any given case the conduct complained of is unfairly prejudicial is a matter to be determined on the particular facts and circumstances of a case, as opposed to by reference to any pre-defined set of circumstances. The judge’s finding that there was no unfairness because there was no evidence to establish that Mr. Evrengun engineered the valuation error which led to the undervalue and that he was unaware of said error was entirely open to him on the evidence. The undervalue, without more, cannot be said to be necessarily unfairly prejudicial. Additionally, it was not wrong or improper for the judge to defer the valuation issue until liability had been established, particularly considering that the ascertainment of the correct value required expert evidence, and the judge seemed not to have reposed full confidence in either of the parties’ experts. Re Sunrise Radio [2009] EWCH 2893 (Ch) applied; Re Cardiff City Football Club (Holdings) Ltd [2022] EWHC 2023 (Ch) considered.

3.As it relates to the issue whether the judge erred in finding that the debt-for-equity swap was carried out for a proper purpose which was not pleaded by the respondents, the starting point is that a matter such as the raising of finance is a management call within the remit of the directs, and it would be wrong for the court to substitute its opinion for management’s or to question the correctness of management’s decision if bona fide arrived at. Nonetheless, when a dispute arises whether the directors of a company made a particular decision for one purpose or for another or whether, there being more than one purpose, one or another purpose was the substantial or primary purpose, the court must look at the situation objectively in order to estimate how critical or pressing, or substantial or, per contra, insubstantial an alleged requirement may have been. If it finds that a particular requirement, though real, was not urgent, or critical, at the relevant time, it may have reason to doubt, or discount, the assertions of individuals that they acted solely in order to deal with it, particularly when the action they took was unusual or even extreme. The stages of the court’s enquiry are to (i) identify the power that has been exercised; (ii) identify the proper purpose for which that power was delegated to the directors; (iii) identify the substantial purpose for which the power was exercised; (iv) determine whether that purpose was proper or not. Howard Smith Ltd v Ampol Ltd [1974] AC 821 applied; Antow Holdings Ltd. v Best Nation Investments Ltd BVIHCMAP2017/0010 (delivered 21st September 2018, unreported) followed; Nam Tai Property v IsZo Capital LP BVIHCMAP2021/0010 (re-issued 6th October 2021, unreported) followed; Independent Asset Management Company Ltd v Swiss Forfaiting BVIHCMAP2016/0034 (delivered 24th November 2017, unreported) followed.

4.The trial judge was very much immersed in this trial and in his comprehensive judgment has demonstrated intimate familiarity with the pleadings and evidence in the case. The suggestion that the judge set out an erroneous chronology in approaching the issue of improper purpose is simply unfounded. It was for the judge to determine whether the trigger for the 30th May 2019 resolution relating to the debt-for-equity-swap was the Letter Before Action, as contended by the appellants, or otherwise, and whether the subsequent letter to counsel for the appellants raising the question of the redemption of Amstel’s shares was suggestive of a “pre-decided plan” which was “of a piece” with the redemption that followed it on 8th August 2019. The learned judge very clearly identified that the substantial purpose was to increase the capital of the company and reduce its debts and described this as the Evrengun parties’ stated purpose. That finding accords with the pleadings. The judge therefore found no improper purpose at all. Instead, he accepted the Evrengun Parties’ pleaded purpose and concluded that it was a proper one, which was the substantial or dominant purpose. The fact that the judge went on to assign a reason for, or a “collateral advantage” to be achieved by, the Evrengun Parties pursuing that purpose, namely to put the company in a better position to defend an application for the appointment of a liquidator, does not detract from the fact that he had expressly accepted the pleaded purpose and found it to be the substantial or dominant and a proper purpose for the benefit of the company.

5.An appellate court should not interfere with a judge’s findings of primary fact unless they are “plainly wrong”, in the sense that either there was no evidence to support the finding, or the finding was based on a misunderstanding of the evidence, or the finding was one that no reasonable judge could have reached. Rarely would it be justifiable for an appellate court to overturn a finding of fact which turns on the credibility of the witnesses. It should not do so unless it is satisfied that any advantage enjoyed by the trial judge by having seen and heard the witnesses could not be sufficient to explain or justify his conclusions. This restraint extends to the judge’s evaluation of the facts and any inferences to be drawn from them. In this case it cannot be said that the judge’s findings in relation to proper purpose were plainly wrong in the sense that either there was no evidence to support the finding, or the finding was based on a misunderstanding of the evidence, or the finding was one that no reasonable judge could have reached. The facts found and inferences drawn by the judge on this issue were open to him on the evidence. Kwok Kin Kwok v Yao Juan [2022] UKPC 52 followed.

6.The appellants’ argument that, the judge erred in failing to find that there had been unfair prejudice to Amstel by Mr. Evrengun when he unilaterally and retrospectively caused the Company to increase the interest payable upon the debts, and therefore the sums due to Circle and Corepoint from 0 to 8% and 8 to 10% respectively must also fail. The judge found that it was not unfair because priority was being given to the Amstel and Cavendish debts. Based on evidence in relation to third party lending rates he found that the rates were at a commercially reasonable and unexceptional rate. The judge also considered the matter from the Company’s perspective and held that it was not against its interests to be asked to pay 2% more on interest when that was still within commercial bounds. Nor was it contrary to its interests to be asked to pay 8% interest where hitherto it had paid none. With respect to the retroactive interest, the judge found that to be unobjectionable. The start date he found coincided with the breakdown of the relationship between Mr. Evrengun and Mr. McKenzie which he marks as 20th December 2017 and culminating with Mr. Evrengun’s demand for Mr. McKenzie’ resignation as director on 5th January 2018. In circumstances where both parties had decided to fall back on their strict legal rights in relation to debts owed to them, the judge found the actions of Mr. Evrengun to be justifiable. The judge was effectively saying that there was no breach of fiduciary duty by Mr. Evrengun and that the transactions increasing the interest rate did not amount to unfairly prejudicial conduct. Accordingly, there is no discernable basis for saying that the judge failed to consider whether Mr. Evrengun had complied with his fiduciary duties owed to the company as contended by the appellants. JUDGMENT

[1]WARD JA: This appeal stems from a dispute between shareholders in the first respondent, AMS Holdings Limited (“AMS” or “the Company”). The first appellant, Amstel Investment Holdings Limited (“Amstel”) was the minority (30%) shareholder in AMS. The second appellant, Mr. Christopher McKenzie (“Mr. McKenzie”) is the sole shareholder of Amstel. The third appellant, Cavendish Management Enterprises Limited (“Cavendish”) is a wholly owned subsidiary of Amstel and is beneficially owned by Mr. McKenzie. The first respondent, AMS, is a limited company incorporated in the BVI on 13th February 1995. It is the group parent holding company of the AMS Group (“the Group”), which conducts business in the offshore financial services sector. The Group has operational subsidiaries in a number of jurisdictions, including in the BVI where one such subsidiary, AMS Trustees Limited (“AMS Trustees”) is incorporated. AMS Trustees is regulated by the BVI Financial Services Commission (“FSC”). The second respondent, Circle Capital Limited (“Circle”), is a limited company incorporated in the BVI and was the majority (70%) shareholder in AMS. The third respondent Mr. Sukru Evrengun (“Mr. Evrengun”) is the sole shareholder of Circle and, since 17th January 2018, its sole director. Mr. Evrengun is also the sole director of Corepoint Select Strategies Limited (“Corepoint”), a BVI incorporated company. In this judgment, the appellants may be referred to together as “the McKenzie Parties” and the respondents as “the Evrengun Parties”. The background

[2]Many aspects of the relevant background to this case were not in controversy at trial or in this appeal. Accordingly, the summary that follows draws in large part on that provided by the learned trial judge and the factual background provided by the parties but only to the extent necessary to address the issues engaged on this appeal. History of the shareholding

[3]Mr. McKenzie initially became a shareholder in AMS in 1997, holding 16.85% of the shares in AMS, which he subsequently transferred to his corporate vehicle, Amstel. On 10th January 1998 he was appointed a director of AMS.

1.That I want to sell my shares subject receipt of a fair price; and

2.I certainly do not want to convert my shareholder loan and debt to equity. I should also specify for the record that I do not agree with my equity being diluted in any way without first being paid for (sic) a fair price for it. Converting “debt”, the legitimate validity (and quantum) of which has still not been properly explained or proven to me is absolutely not agreed to. No proper explanation has ever been given for this debt , nor have the terms or documents been produced and certainly no proper internal approvals or procedures were followed when taking this debt on. It is also in breach of our shareholder agreement (the enforceability of which I appreciate you don’t accept)…”

103.Further and alternatively, Mr. Evrengun has acted in breach of his fiduciary dues owed to the Company thereby causing Amstel unfair prejudice.”

[394]For the reasons given, I concluded in my respectful judgment 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).

[395]In my respectful judgment that was clearly of benefit to the company and was a proper purpose.”

[399]–

[400]As to the McKenzie Parties’ point that the BDO valuation, being as at 31st December 2018, was unreliable and unfair, this is met by the Evrengun Parties’ submission that their expert reached a similar valuation for May 2019. I accept the figures are defensible. I also accept that to the extent that the similar figures are thus defensible, there is no substantive unfairness arising from the fact that Mr. Evrengun proceeded to use a valuation as at 31st December 2018 for the debt for equity swap in May 2019.”

[466]–

[467]of the judgment: “[466] I have refrained from commenting upon their evidence and from indicating which of their respective analyses I am more taken with. In part that is because I think it opportune to leave it to the parties to try to use their respective experts as appraisers, if possible, without undermining either side more than the other- in other words, to preserve both sides on a relatively equal footing.

[467]That said, I am afraid that in my respectful view, both sides’ experts could be viewed as partial towards their respective instructing parties. I was also of the impression that each adopted a valuation method, with data inputs, which curiously led to precisely the valuation levels that their instructing parties would like to see. This is perhaps being unfair to these two experts and the main reason I have taken care not to name them in this judgment. These observations on my part do not mean that they should not be used for the section 179 appraisal process.”

[2]above.”

[363]of the judgment where the judge rehearses the submissions of the McKenzie Parties. By the same token, it is fair to say that the McKenzie Parties did not plead at paragraph 78 of the Re-Amended Statement of Ancillary Claim that the purpose was to dilute Amstel’s shareholding below 10% in order to trigger the ‘squeeze-out’ provisions although it was an issue at the trial. The judge’s conclusions on purpose

[387]that the debt-for-equity swap was ‘a reaction to Mr. McKenzie’s repeated threats to apply to the BVI courts for the appointment of a liquidator of the company’; and further, the judge’s answer to his own question ‘why or how would a debt for equity swap assist the Evrengun Parties in the event that Mr. McKenzie would make good on his threats to apply for the appointment of a liquidator’, which he answered by saying at paragraph

[392]‘the most important purpose for Mr. Evrengun was to improve the Company’s chances of avoiding a winding up order’.

[393]– [395]: “[393] I have no reason to believe that Mr. Evrengun was not aware of the Court’s statutory discretion. On balance I believe it is more likely that he was aware of it. He had shown himself to have been well-informed (on taking legal advice or otherwise) about the legal details of BVI ‘schemes of arrangement’. It is clear that he had given careful thought to the steps he could cause the Company to take to protect it from Mr. Mckenzie’s attacks, apparently upon taking legal advice. I would be extremely surprised if Mr. Evrengun had been unaware of the Court’s discretion in this regard. In this regard, there is no reason to suppose that on such crucial existential matters Mr. Evrengun had been content to rely upon his own assumptions or informal, ad hoc, advice from colleagues in the manner that Mr. McKenzie, for his own part, appears to have done.

[394]For the reasons given, I concluded in my respectful judgment 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).

[395]In my respectful judgment that was clearly of benefit to the company and was a proper purpose.” (emphasis added)

[384]and culminates in his conclusions at paragraphs

[395]as set out at paragraph 121 above. Paragraphs

[387]bear quoting: “[384] The McKenzie Parties treat the first key date in their chronology behind this argument as 17th May 2019. That was the date the McKenzie Parties sent the Evrengun Parties a letter before action. The second key date for the McKenzie Parties is 20th May 2019, when, they say, the BDO valuation report ‘landed’ with Mr. Evrengun, ‘apparently out of the blue’. They submit that ‘[I]t is an obvious inference that Mr. Evrengun had chased for its preparation in response to the 17th May 2019 letter before action’. The next key dates (for the McKenzie Parties) are 30th and 31st May 2019 respectively, when the documents for the share issue and debt for equity swap were signed. The McKenzie Parties nod lightly (too lightly, as I will explain below) towards earlier dates, in observing that ‘Mr. Evrengun seems to have come up with the idea of a debt-for-equity swap in negotiations with Mr. McKenzie in October 2018. Some steps were taken to progress the plan in December 2018 (e.g., making contact with BDO and [the leading BVI law firm which became his legal advisers on the transaction])

[367]I accept that what Mr. Evrengun told that firm can be taken as contradicting his case that the debt for equity swap was not done in order to force redemption of Mr. McKenzie’s shares. So, this may be an instance in which Mr. Evrengun has been shown to be making a self-serving statement which contradicts his own formal case. But, at the same time, that firm itself appears not to have been aware of the debt for equity swap and redemption being part of a single scheme, because that firm appears to have wished to charge separately for the redemption work.

[368]The most, or at least more, reliable evidence for the contemporaneous motivation for the debt for equity swap can more appropriately be gleaned from the contemporaneous correspondence and the pertinent chronology.

[395]In my respectful judgment that was clearly of benefit to the company and was a proper purpose.” (emphasis added)

[410]onwards.