Cayman Islands: Bank Insolvency, Trusts And Depositor Protection In The Cayman Islands

The Grand Court of the Cayman Islands has held that depositor protection provisions in Cayman Islands law only apply in respect of depositors with deposits of CI$20,000 (US$24,400) or less.1 Depositors with more than CI$20,000 on deposit do not benefit from such provisions at all, even for their first CI$20,000. This means that, for persuasive policy reasons, the position in the Cayman Islands differs from the position in the EU under the deposit guarantee scheme. Under the deposit guarantee scheme all depositors receive a certain amount of protection, irrespective of the total amount on deposit.

Clear guidance was also provided by the Grand Court on the rules to be applied in determining the ownership of funds transferred to a bank at or around the time of the suspension of the bank's operations. This guidance does not turn on any Cayman Islands specific legislation and so may also be persuasive in other common law jurisdictions.


Caledonian Bank Ltd ("Caledonian") received a large number of payments for the credit of the account of a number of Caledonian's depositors at or around the time of the suspension of all of Caledonian's operations (the "Suspension"). Following the Suspension a winding-up order was made in respect of Caledonian.

Caledonian's joint official liquidators sought the directions of the Cayman Islands Grand Court as to whether these payments were beneficially owned by Caledonian or held on trust for the originator of the payment. Directions were also sought in relation to the interpretation of the preferential debt provisions in Cayman Islands law relating to bank depositors (the "Depositor Protection Provisions").


The general rule is that an intended payment between the originator of the transfer and the beneficiary is complete when the beneficiary's bank: (i) receives directly (or indirectly through a correspondent bank) payment instructions from the originator's bank and decides to make an unconditional credit to the beneficiary's account in the equivalent amount; and (ii) has the beneficiary's actual or ostensible authority to accept the transfer on the beneficiary's behalf.

A constructive trust will arise by operation of law whenever the circumstances are such that it would be unconscionable for the owner of property to assert his own beneficial interest in the property and deny the beneficial interest of another. Therefore where money is paid to someone by mistake and the recipient knows of the mistake, but retains the money, the recipient will be a constructive trustee of the money for the payer. The trust arises from the date that the recipient became aware of the mistake and there is no need for there to have been some dishonesty or theft on the part of the recipient. Where a company receives funds after it has decided to cease trading (as was the case with Caledonian after the Suspension) such payments are held by the company as constructive trustee from the moment that the funds had been received (or accepted).2


Ownership of payments

Monies received by Caledonian before the Suspension and credited automatically to the Caledonian depositor's account belonged beneficially to Caledonian. Caledonian had the authority of each of its customers to accept money wired to it for the account of its customers. The fact that the relevant sum had been automatically credited to the customer's account before the Suspension constituted an unconditional acceptance of the money by Caledonian so completing its transfer both in law and equity.

Monies received before the Suspension, but which were never credited to the Caledonian depositor's account, were held on constructive trust by Caledonian for the relevant originator. This was because such payments had not been formally completed as there had been no decision by Caledonian to make an unconditional credit to the beneficiary's account.

Monies received after the Suspension belonged beneficially to the relevant originator irrespective of whether or not they were credited to the customer's account. A constructive trust was imposed in respect of those monies in favour of the relevant originator. Either Caledonian had no authority to receive payments on behalf of its customers or it must have been obvious to Caledonian that such payments were made by mistake (as it was inconceivable that an originator would have made the payment if it had been aware of the Suspension).

The decision of the Grand Court represents a useful application of established principles in the realm of bank insolvency. Banks which become subject to a suspension of operations and then potentially formal insolvency proceedings will receive a large number of transfers for the credit of depositors. The clear guidance from the Grand Court as to how the standard rules apply in this context will be useful, not just to Cayman Islands bank insolvencies, but potentially to bank insolvencies in other common law jurisdictions.

Depositor protection – preferential debts

It was only depositors with deposits of CI$20,000 or less who benefitted from the Depositor Protection Provisions (i.e. those depositors whose total deposit was CI$20,000 or less were preferential creditors for the value of their deposit – those depositors with more than CI$20,000 on deposit were not preferential creditors for any amount).

The decision turned on the wording of particular provisions of the Companies Law (2013 Revision), which provide that preferred creditor claims include "Any sum due to eligible depositors who have deposits with a company...and which does not exceed the deposit limit." The deposit limit is set at "twenty thousand dollars in respect of each eligible depositor...". It was held that the words "and which does not exceed the deposit limit" meant a limit referable to the total amount of a depositor's deposit(s). The provisions therefore sought to isolate certain depositors whose claims in the liquidation total CI$20,000 or less from those whose claims in the liquidation exceed CI$20,000. On one view, this might be seen as a curious result. Depending on the dividends ultimately paid, a depositor with a balance of CI$19,000 may recover more than a depositor with a balance of CI$21,000. However, the legislation was interpreted as being intended to protect small investors, rather than providing a blanket protection up to a certain level for all depositors. Further, the early payout of small depositors would ease the administration of the estate by reducing the number of constituents resulting in overall economies of scale for the entire liquidation.


1. In the matter of Caledonian Bank Limited (in official liquidation), Grand Court of the Cayman Islands Financial Services Division, Smellie CJ, 23 July 2015, FSD 27 of 2015 (ASCJ)

2. Re Farepak Food and Gifts Ltd [2006] EWHC 3272 (Ch)

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.

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
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