Family Law in the Cayman Islands

Insolvency law in the Cayman Islands Cayman Islands insolvency law is principally codified in 5 main statutes and statutory instruments:

  1. The Bankruptcy Law (1997 Revision)

  2. The Companies Law (2013 Revision)

  3. The Companies Winding Up Rules (2008)

  4. The Insolvency Practitioners Regulations

  5. The Foreign Bankruptcy Proceedings (International Coperation) Rules 2008.

 

The above are supplemented by a number of practice directions of the Cayman Islands courts and a wide body of case law. 

 

Recent reforms in the bankruptcy law in the Cayman Islands have focused on corporate insolvency as opposed to personal bankruptcy. Modern options have been introduced for the benefit of creditors and measures have been included for cross-border assistance in international insolvencies.

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We are specialist advocates and have significant experience in all aspects of litigation in the Cayman Islands including corporate, commercial, family law.

Introduction: Insolvency in the Cayman Islands
Liquidation of Assets

A liquidation (of any type) involves the liquidator collecting and realising the assets of the company and then distributing them for the benefit of creditors in accordance with statutory priority. The liquidator is thereafter released and the company wound up. Currently, there are no alternative corporate ‘rescue’ mechanisms equivalent to Chapter 11 procedures in the Cayman Islands. However, a company may place itself into provisional liquidation which will secure a moratorium on the enforcement of any third party claims.

 

Notwithstanding, whilst this may provide some ‘breathing space’ to seek negotiated arrangements with creditors, this procedure is not a long-term solution.

Types of liquidation

There are 5 mechanisms for company liquidation:

  1. Voluntary liquidation (unsupervised);

  2. Court-supervised voluntary liquidation;

  3. Compulsory liquidation;

  4. Provisional liquidation; and,

  5. Schemes of arrangements.

The court supervises all insolvency mechanisms except in circumstances where there is a voluntary liquidation and the Directors’ are able to sign a declaration that the company will be able to pay its debts in full, within 12 months of the liquidator’s appointment; i.e., it is a solvent company.

 

Subject to the Articles of Association of the company, voluntary liquidation may be entered into by:

(a)   Members passing a special resolution of the company; or,

 

(b)  if the company resolves, by ordinary resolution, that it should be wound up voluntarily because it is unable to pay its debts as they fall due.

 

There are two circumstances in which a company can be wound up voluntarily without requiring further shareholder approval:

1.   Where the period set for the duration of the company by its memorandum or articles expires (fixed duration winding up); or,

 

2. On the occurrence of an event specified by the memorandum or articles (event winding up).

 

Unless the Directors sign the declaration of solvency, the liquidator (who does not need to be an insolvency practitioner or accountant), must bring the liquidation under the supervision of the court.

Restructuring

A scheme of arrangement is a court sanctioned compromise agreement between the company and its creditors or any class of them; the closest the law in the Cayman Islands comes to a corporate rescue mechanism.

 

This may be used in tandem with the appointment of provisional liquidators to give a company the benefit of the statutory moratorium and thereby giving the company the time needed to realise the best value for assets and restructure as appropriate.

The Application is commenced by Petition, which seeks the court's (preliminary) approval of the scheme, which may be brought by:

(a)   The company; 

 

(b)   A shareholder; 

 

(c)   The company's liquidator;

 

(d)  The company's creditors.

 

Contemporaneous to filing of the petition, the liquidator files an interlocutory summons for an order for directions to convene a meeting of the creditors or class(es) thereof.

 

There will be at least two hearings of the Petition. At the first hearing, the Court will determine:

1.   the constitution of the relevant class(es) for voting purposes; and,

 

2.   consider whether the explanatory memorandum to be sent to the creditors and/or members, contains sufficient information.

 

The company must then send each member of each class a notice:

(a)   summoning a meeting;

 

(b)   a copy of the scheme document;

 

(c)    a copy of the explanatory memorandum; and,

 

(d)   a proxy form.

 

The resolution to approve the scheme is then proposed at the creditors' meeting(s), as convened by the Court.

 

The proposed scheme must be approved by a majority in number representing 75% in value of the creditors or class thereof who are present and/or voting by proxy. This requirement is sometimes referred to as the "double majority" or "statutory majority".

 

The scheme must then be ultimately approved by the Court at a second hearing, which is held in open Court. Prior to granting an order sanctioning the scheme, the Court must be satisfied that the interests of all relevant parties have been considered and are not prejudiced.The Court has jurisdiction to impose conditions on the scheme if it sees fit, and indeed may refuse to make an order, particularly if minority rights are being unfairly prejudiced.

 

Once approval is given and filing requirements fulfilled, the scheme is binding on all creditors and all members.

 

In the event that the scheme is being effected by provisional liquidators in the context of a distressed company, it is usual for the scheme to appoint the provisional liquidators as scheme administrators to oversee the distribution of new debt/equity to shareholders, creditors and so on.

 

Once the effective rights and obligations in and of the company have been dealt with by way of the scheme, the provisional liquidation is no longer required. It is usual that shortly after the scheme has been approved, the provisional liquidators apply for their discharge.

Voluntary Liquidation (members' liquidation)
Court supervised voluntary liquidation

The failure of the Directors’ to sign the declaration of solvency within 28 days of the liquidator’s appointment, will require court supervision. The liquidator will have materially the same powers as a liquidator appointed under the compulsory liquidation process.

Compulsory Liquidation (which may include provisional liquidation)

The failure of the Directors’ to sign the declaration of solvency within 28 days of the liquidator’s appointment, will require court supervision. The liquidator will have materially the same powers as a liquidator appointed under the compulsory liquidation process.

 

Compulsory Liquidation (which may include provisional liquidation)


The Grand Court may wind up a company on a Petition from:

(a)   The company itself;

 

(b)   A creditor (including contingent or prospective creditors);

 

(c)   A shareholder; or,

 

(d)  The directors (where expressly authorised to do so by the articles); or,

 

(e) The Cayman Islands Monetary Authority (for specific regulatory breaches).

The application process

corporate insolvency in the Cayman Islands

Appointment of Provisional Liquidator

After a petition for a compulsory winding up has been filed, but prior to it being considered by the court, the court may immediately appoint a provisional liquidator. This power will only be invoked where:

 

1.   there is a prima facie case for a winding up order; and, 

 

2. the appointment of a provisional liquidator is deemed necessary either to prevent:

 

(a)  the misappropriation or misuse of company assets; 

 

(b) oppression of minority shareholders; or, mis-management by the company's directors.

 

Such an application may be made without notice in appropriate circumstances.

insolvency in the cayman islands

The grounds upon which the court may wind up a company are:

1.  The company has passed a special resolution requiring the company to be wound up;

 

2.   The company does not carry out business for a whole year; 

 

3.  A specified date or event which is set out in the company's articles, is reached or occurs (fixed duration or event winding up);

 

4.  The company is unable to pay its debts; 

 

5.  The court is of the opinion that it is just and equitable for the company to be wound up.

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