Cayman Islands: More Schemes For SPhinX

A recent decision from the Grand Court of the Cayman Islands demonstrates a flexible use of the scheme of arrangement process to achieve a commercial resolution of an application to remove the SPhinX Group's joint official liquidators ("JOLs"). 

The SPhinX Group of Companies consists of 22 Cayman Islands investment funds that were placed into liquidation in the Cayman Islands in 2006 as a result of the collapse of Refco.  The companies were solvent and the JOLs expected to have a large surplus available for distribution to investors.  However, the liquidation raised complex issues caused by the intermingling of assets between the different funds and there were significant difficulties in determining the priority of stakeholder claims in respect of different companies and share classes.  

These issues were resolved by way of a scheme of arrangement pursuant to section 86 of the Companies Law (2013 Revision), which was sanctioned by the Court in November 2013 ("First Scheme").  Pursuant to the terms of this scheme, the assets of the companies were pooled and procedures were put in place for quantifying claims.  

The JOLs were appointed as scheme supervisors and charged with administering the terms of the First Scheme.  Substantially all of the claims against the SPhinX Companies have now been quantified and investors have been paid out a first distribution under the First Scheme. 

The relationship between the JOLs and stakeholders had unfortunately soured over the years – to the point where a stakeholders meeting concluded by an overwhelming majority that confidence in the JOLs had been lost.  The JOLs refused to step aside and three key stakeholders ("the Removal Applicants") filed an application with the Court seeking to remove the JOLs and appoint new liquidators.      

Ultimately, a commercial deal was struck without the need for the Court to decide whether or not to remove the JOLs from office.  It was agreed that a further scheme ("Amendment Scheme") would be promoted that would have the effect of amending the First Scheme to provide for the following key points: 

(a) Partners of KPMG would be appointed as scheme supervisors in place of the JOLs to administer the terms of the scheme ("New Scheme Supervisors").

(b) The New Scheme Supervisors would have carriage of all litigation by and against the SPhinX Companies in lieu of the JOLs without the need for further sanction of the Court.

(c) The New Scheme Supervisors would also be responsible for the majority of outstanding issues in the liquidation, including dealing with future distributions and the majority of the reserves that were being held by the JOLs.

(d) A new scheme committee would be appointed which would effectively take over the role of the liquidation committee.

(e) The Removal Applicants would obtain the dismissal of the Removal Application.

(f) Once the Amendment Scheme became effective, the JOLs would remain in office with responsibility for the ultimate wind down and dissolution of the SPhinX Companies but with the New Scheme Supervisors effectively managing the liquidation process until that time.   

At the initial hearing, the Court considered four threshold jurisdictional questions:

1) Whether the Removal Applicants rather than the JOLs had standing to apply to the Court to commence the scheme process.

2) Whether or not the Amendment Scheme constituted a compromise or arrangement for the purposes of section 86 of the Companies Law.

3) Whether the Court could sanction the Amendment Scheme in circumstances where the Amendment Scheme proposed to implement a process which departed from the procedures envisaged under the insolvency regime.  In particular, the Court wished to be satisfied that it had jurisdiction to sanction a scheme where the JOLs were effectively relinquishing or delegating substantially all of their fiduciary powers and responsibilities to the New Scheme Supervisors even though the JOLs were to remain in office.

4) Whether the Court had jurisdiction to sanction the Amendment Scheme given the proposed disbanding of the liquidation committee. 

At a hearing on 2 May 2014, the Court granted liberty to the SPhinX Companies to convene the meetings of investors to vote on the Amendment Scheme.  The statutory majorities were obtained at these Court meetings (at which all stakeholders constituted one class, unlike the multiple classes necessary under the First Scheme given the then different stakeholder interests), and at the hearing of the Petition on 10 June 2014, the Court agreed to sanction the Amendment Scheme.  By way of a written ruling dated 23 July 2014, the Court set out its reasoning in relation to the four jurisdictional questions as follows:

1) Did the Removal Applicants have standing?

Where a company is being wound up by the Court, section 86(1) of the Companies Law provides that an application to commence the scheme process by way of seeking liberty to convene the Court meetings can only be brought by the JOLs2.  However, in the circumstances of this case, although the Removal Applicants, rather than the JOLs, had made the application, the JOLs supported the Amendment Scheme and the scheme process.  Accordingly, the Court considered that the approval of the JOLs had properly enlivened the jurisdiction of the Court to convene the Court meetings and that accordingly the requirements of section 86(1) had been satisfied and the Removal Applicants could proceed with their application. 

2) Was the Amendment Scheme a compromise or arrangement?

It was clear that the issue to be compromised was whether or not the JOLs should be removed or not.  In return for the investors agreeing that the Removal Application would be dismissed and the JOLs would remain in office, the JOLs would agree that certain of their fiduciary responsibilities would be ceded to the New Scheme Supervisors. 

Although this was an extremely unusual arrangement, for which there was no comparable precedent, the Courts have not historically sought to define or limit the terms "compromise or arrangement".  The Court was satisfied that the Amendment Scheme included the necessary element of "give and take" between the parties and therefore constituted a compromise or arrangement for the purpose of section 86 of the Companies Law.

3) Could the Amendment Scheme properly divest the JOLs of their powers?

The Amendment Scheme would involve a significant departure from the statutory Cayman Islands liquidation regime because it would divest the JOLs of their statutory powers and duties and effectively repose them in the New Scheme Supervisors without requiring the New Scheme Supervisors to seek further directions or sanction from the Court prior to exercising those powers.  From a review of the authorities, it was clear that the Court did have jurisdiction to sanction a scheme of arrangement which ousted aspects of the statutory insolvency regime in circumstances where the scheme had been approved by those with the economic interest in the estate3, and as here, the JOLs themselves.  

Indeed the authorities recognised that where those having the economic interest in a liquidation sought to alter the statutory regime applicable on insolvency, the appropriate mechanism to do so, in the absence of unanimous consent, was by way of a scheme of arrangement4.

In respect of the New Scheme Supervisors taking over all litigation claims by and against the SPhinX Companies, where a company is in liquidation, it is well established that upon liquidation, the right to conduct litigation on a company's behalf vests in the liquidator.  However, even in an official liquidation, there is a long line of authority that establishes that the Court has jurisdiction to authorise any person having a proven interest in the liquidation estate to pursue a claim in the name of the company in liquidation in lieu of the liquidator5.  There was no departure from this principle here.  In the present case, it is proposed that the New Scheme Supervisors will act as the representatives of the SPhinX Companies (and ultimately their stakeholders) in conducting the litigation. 

The Court also noted that the transfer of powers to the New Scheme Supervisors in this manner under the Amendment Scheme should be distinguished from any unilateral transfer or delegation of powers by liquidators outside of a scheme of arrangement process.  The unilateral assignment of liquidators' powers in this manner is not envisaged by the insolvency regime and should not be permitted.

4) Could the liquidation committee be disbanded?

Under the procedural rules governing liquidations in the Cayman Islands, the Court has a discretion to dispense with the requirement for a liquidation committee.  Accordingly, the proposal that the liquidation committee be disbanded under the Amendment Scheme, and replaced by the Scheme Committee caused no jurisdictional difficulties.  

The New Scheme Supervisors have now been appointed and are carrying out their functions under the Amendment Scheme.  This decision shows the willingness of the Cayman Islands Court to permit the creative use of schemes of arrangement in order to secure the commercial objectives of stakeholders and showcases the flexibility of the scheme procedure itself.


1 In the matter of the SPhinX Group of Companies (in official liquidation), Grand Court unrep., 23 July 2014

2 This can be contrasted to the position where a company is not in liquidation, where it is expressly stated that any creditor or member can bring the application with the support of the company.

Anglo-American Insurance Co [2001] 1 BCLC 755, BCCI SA (No. 3) [1993] BCLC 1490 and Kempe v Ambassador Insurance Co. (in liquidation) [1998] 1 BCLC 234

Re Trix [1970] 1 WLR 1421

5 Starting with Bank of Gibraltar and Malta (1865) LR 1 Ch App 69 and recently reconfirmed in Fargro v Godfroy [1986] 1 WLR 1134

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Caroline Moran
Similar Articles
Relevancy Powered by MondaqAI
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions