The frustration of funds and investment houses, holding
beneficial interests in notes issued by defaulting Asian
corporates, in not being able to cause a trustee to take effective
and swift steps to enforce creditor rights, is commonplace, and has
been the reason behind a number of faltering enforcements and
restructurings in Asia in recent times.
In the recent breakthrough case In the matter of China
Forestry Holdings Co Ltd ("China Forestry") Walkers
has successfully represented the beneficial interest holders of
certain notes issued by China Forestry in obtaining a winding up
order against the company, without the involvement of the
The order made by the Grand Court of the Cayman Islands (the
"Court") in FSD 31 of 2015 is a decision which should
assist other beneficial interest holders to be able to take action
against defaulting issuers in similar circumstances, and should be
seen as a welcome development in what is a complex area of law.
Cayman Islands incorporated entities are commonly used as the
debtor entity in Asian corporate and financing structures, issuing
notes to investors for the purpose of raising capital for the
underlying group. Such notes are commonly held through depository
and trustee arrangements whereby the beneficial interest holder of
the note is not the registered holder of the note.
It is commonplace, on the occurrence of an event of default
under the notes, for the trustee to be contractually obliged to
take steps against the issuer if (i) it is instructed to do so by a
requisite majority of note holders and (ii) there is an acceptable
indemnity in place for it doing so. It is these two pre-requisites
that create the majority of issues for note holders in practice. In
the China Forestry case, however, rather than asking the trustee
(or registered holder) to take action, the beneficial interest
holders took steps themselves.
Section 94(1)(a) of the Companies Law (2013 Revision) provides
that a petition to the Court for an order winding up a company may
be presented by, inter alia, any creditor or creditors, including
(relevantly) any contingent or prospective creditor or
The Court agreed with the arguments raised by the note holders
that they had standing to petition for the winding up of China
Forestry as contingent creditors by virtue of their right to become
certificated holders of the notes on the occurrence of certain
events. The Court also accepted that the note holders had
adequately demonstrated the company's insolvency by virtue of
the steps they had taken on behalf of the registered holders of the
notes, to which the company had not adequately responded. The Court
made the winding up order sought, and effected the appointment of
officeholders to China Forestry who will be able to pursue a
restructuring for the benefit of the company's creditors as a
As far as we are aware, this is the first time that a beneficial
interest holder of notes has obtained a winding up order from the
Court without the involvement of the trustee. For beneficial
interest holders in note issuances who may want to take direct
unilateral action without the need to galvanise support from other
note holders or to provide an indemnity to the trustee, it is
important to ensure that the documentation for the notes includes
appropriate authorisation language, that the beneficial interest
holders' rights are sufficient to allow it to be classed as a
contingent creditor, and that there is no contractual prohibition
on the presentation of a winding up petition in the express terms
of the indenture.
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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A guide which outlines the procedures to wind up Jersey registered companies, the circumstances in which transactions entered into by an insolvent company may be set aside, and the circumstances in which a company’s officers and managers may incur civil or criminal liability.
issue a certificate of dissolution in the approved form certifying that the company has been dissolved.
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