The Cayman Islands Court of Appeal has allowed the appeal of a
creditor against a bankruptcy order made against two Cayman Islands
resident debtors, the primary purpose of which was to enable their
trustee in bankruptcy to apply for Chapter 15 relief in the United
Mr and Mrs Millard are longstanding Cayman Islands residents
whose primary assets consist of shares in wholly owned Cayman
Islands-incorporated investment holding companies. Those
companies in turn own real property in a number of jurisdictions,
including the Cayman Islands and Florida. The Millards'
debts included alleged debts owing to the Government of the North
Marianas Islands (the "Marianas"), an
overseas territory of the United States, in respect of unpaid taxes
accrued while they were resident in that jurisdiction. The
Marianas had obtained default judgments against the Millards in the
Marianas but had apparently taken no steps to enforce the judgments
for 17 years. By January 2014, the Millards owed the Marianas
a sum in excess of US$123 million, including accrued interest.
The Millards alleged that they had not become aware of the
default judgments until 2011 when the Marianas commenced
enforcement proceedings against them in the United States.
They commenced proceedings to have the default judgments set aside;
however, a Florida court ruled that the issue should instead be
determined in the Marianas courts.
Following that, the Millards filed for bankruptcy in the Cayman
Islands. They claimed they were entitled to a bankruptcy
order because, as a result of the default judgments, their
worldwide assets were less than the amount of their total
liabilities by a substantial margin. The Grand Court found
that sufficient reasons had been established to exercise its
discretion and made the bankruptcy orders and appointed a trustee
Once the Orders for bankruptcy were made, the trustee in
bankruptcy applied for, and obtained, recognition as a foreign
representative under Chapter 15 of the United States Bankruptcy
Code, and a stay on the Marianas' enforcement proceedings in
New York and Florida. The Marianas appealed.
The Court of Appeal held:
(a) A debtor on his own
voluntary bankruptcy petition must prove that he is
(b) Although the
debtor's worldwide assets would be taken into account for the
purpose of establishing the debtor's insolvency, only
liabilities enforceable in the Cayman Islands could be included.
Foreign judgments in respect of taxes, such as the judgments
obtained by the Marianas, were not enforceable in a
(c) It would be illogical to
take account of a debt which would not be provable in the
debtor's bankruptcy estate in the resulting
(d) Once the Millards'
debt to the Marianas was taken out of the solvency calculation the
Millards were clearly solvent, and so the bankruptcy orders must be
Although the Court of Appeal overturned the Millards'
bankruptcy orders, it is important to note that the decision turned
on the application of the correct test for insolvency and
ascertaining the true assets and liabilities that may be properly
brought into account for that purpose. The Marianas'
submission that the Millards had acted improperly by seeking their
own bankruptcy for the purpose of applying for Chapter 15 relief
(to relieve them of their liability to the Marianas) was not
adopted by the Court – rather, the Court recognised that
there may well be cases where bankruptcy orders could be made for
the purpose of bringing US assets under the control of a trustee in
The decision affirms the longstanding orthodox approach to
foreign tax liabilities, which may now be firmly considered to form
part of Cayman Islands law. The relationship between Cayman
Islands insolvency proceedings and Chapter 15 recognition is
expected to remain unchanged.
1 The Government of the Commonwealth of the Northern
Mariana Islands v Millard (unreported, 15 April
2 Applying the established principles set out in
Government of Indiav Taylor  AC 491
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