Over the past two or three years, we have seen an increasing
number of cases where a client holds and wishes to sell or transfer
shares in a Cayman Islands company which is in official
liquidation1, or is seeking to purchase shares in
such a company from another party. In those circumstances,
the transfer of the shares would be void absent the validation of
the Grand Court of the Cayman Islands, as a result of section 99 of
the Companies Law (Revised) (Section
99). Section 99 is in the following
"99. When a winding up order has been made, any
disposition of the company's property and any transfer of
shares or alteration in the status of the company's members
made after the commencement of the winding up is, unless the Court
otherwise orders, void."
Traditionally, applications for the Court's validation of
the transfer of shares were made by issuing a Summons within the
liquidation proceedings, but the applications were ordinarily dealt
with by the Court administratively, without the need to attend a
Court hearing, following the decision of the Honourable Chief
Justice in In re Bayou Offshore Master Fund Limited [2007
CILR 434]. In that case, which concerned the transfer of
shares in Cayman mutual fund which was in liquidation, the Chief
Justice stated that "in order to save the costs of what
are anticipated to be routine applications, any such application
may be made in writing and may be considered administratively by a
On 21 January 2013, the Insolvency Rules Committee issued the
Companies Winding Up (Amendment) Rules, 2013, which amended the
Companies Winding Up Rules 2008 (the CWR) to,
inter alia, include provisions which expressly address the
transfer of shares of companies in liquidation. That
amendment can be found in Order 19 of the CWR and it provides, at
rules 4 and 5, that an application pursuant to Section 99
"for an order validating the transfer or proposed transfer
of any shares of a company may be made by its liquidator or by the
transferor or transferee of the shares in question" and
"provided that the shares in question are fully paid and the
liquidator does not object to the transfer, the application shall
be made by a letter addressed to the Judge to whom the proceeding
is assigned." Such an application "shall
be supported by an affidavit, confirming that the shares are fully
paid and that the liquidator has no objection to the transfer, and
a draft of the order sought by the applicant."
In cases where either of those pre-conditions are not met (i.e.
the shares are not fully paid, or the liquidator objects to the
transfer), the application would have to be made by Summons and the
supporting affidavit would have to contain a full explanation of
the reason for the transfer and the applicant's response to the
liquidator's objections. The Summons would then have to
be served on the liquidator, and the matter would proceed to a
hearing before the assigned Judge.
In most cases, however, the shares will be fully paid and the
liquidator will not have any objection to the transfer of the
shares. In those cases, the affidavit in support of the
application will normally include a summary of the history of the
shares (when the shares were subscribed for and when any partial
redemptions were made) and details of the reason the transfer is
sought (such as the sale of the shares, a transfer to a liquidating
trust or a transfer from a custodian to the beneficial owner, in
order to reduce administration costs). The application and
the affidavit will usually be provided to the liquidator in draft
form in the first instance, so that the liquidator can fully
consider the proposed transfer, and, in the case of applications
made by the transferor or the transferee, the liquidator will
confirm that he does not object to the transfer by way of a letter
which can then be exhibited to the affidavit in support.
1 In cases of companies which are in voluntary
liquidation, a court application is not necessary, but any
transfers of shares made after the commencement of the voluntary
liquidation which are not sanctioned by the voluntary liquidator
are void, as a result of section 125 of the Companies
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.
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