Cayman Islands: Cayman Insolvency Update: Petitioning For Change?

Last Updated: 8 February 2016
Article by David Butler, Ian Mann and William Peake

Despite the absence of a formal restructuring regime, the Courts in Cayman (and latterly by way of the Companies Law) have developed a flexible and pragmatic approach, deploying provisional liquidators to provide breathing space for a company in distress. A recent decision may well limit that ability for many Cayman incorporates.

"China Milk" spilt; tears may follow

In the absence of an equivalent to an administration or Chapter 11 type regime, Cayman companies have often sought "light touch" provisional liquidation orders to give them some safety and latitude while they restructure. The recent decision of the Grand Court in Re China Shanshui Cement Group Limited (unreported, 25 November 2015) however may have reinstated a rather unhelpful roadblock for most Cayman companies seeking protection pending a restructuring.

China Shanshui was incorporated as a Cayman exempt company in April 2006 as a holding company for a group of operating subsidiaries in the PRC, primarily engaged in the production and sale of cement. Its principal debt of US$500m Senior Notes were listed on the Hong Kong Stock Exchange and issued to some 300 institutions through a New York indenture trustee.

Unable to pay a debt said to be immediately due under the Notes but being balance sheet solvent, the Company's directors presented a winding-up petition and applied for the appointment of provisional liquidators to effect a restructuring (a so-called "light touch" provisional liquidation). The company's majority shareholders opposed the petition (as did a number of the Noteholders, none of whom had been consulted in advance about it) and applied to have it struck out on the basis that the directors did not have the authority to present the petition without first having obtained the approval of the company's shareholders.

Section 94(2) was enacted for the first time in the Companies (Amendment) Law 2007 and provides that:-

Where expressly provided for in the articles of association of a company the directors of a company incorporated after the commencement of this Law have the authority to present a winding up petition on its behalf without the sanction of a resolution passed at a general meeting

It came into force in March 2009 as one of a number of measures designed to assist with the response to the financial crisis. However, it was argued that the provision did not apply to China Shanshui which had been incorporated before 1 March 2009, and therefore the directors required members' approval to present the petition (even if there was specific power given to the directors in the articles of association to petition to wind up).

Alternatively, could the directors apply pursuant to section 94(1)(a) as "the company"? In Re China Milk Products Group Ltd [2011] (2) CILR 61 the court concluded that the reference to the company in section 94(1)(a) included, in the case of an insolvent company, its directors. The judge in China Milk construed the words "the company" to include its directors:

"In my view, there are sound policy reasons why the board of directors of an insolvent company should be allowed to present a winding-up petition.....When a company becomes insolvent, its shareholders cease to have any economic interest and the directors must act in the interests of its creditors. In my view, it is wrong in principle that the directors' ability to commence insolvency proceedings, and seek the protection of the automatic stay [of proceedings] imposed by s.97 [of the Companies Law], should be dependent upon the terms of the company's articles of association or the co-operation of shareholders who no longer have any economic interest."

The consequence was that section 94(2) only authorised the directors of a solvent company incorporated after 1 March 2009 to apply for a winding up if that was expressly provided for in the company's articles of association

The majority shareholders in China Shanshui argued that China Milk was wrongly decided. The terms of section 94(1) of the Companies Law had not been altered and thus remained unaffected by the review mentioned by the judge in China Milk. The position was supported by the pre-1986 English authority (Re Emmadart Ltd [1979] 1 Ch 540).

Notwithstanding the company's valiant struggle, the judge agreed with the majority shareholders that China Milk was wrongly decided and struck out the petition.

Repercussions for Cayman restructuring

In summary, directors of insolvent companies incorporated before 1 March 2009 cannot present winding up petitions in the Cayman Islands in aid of a restructuring effort without seeking shareholder approval. This is likely to have serious repercussions for restructurings going forward. First, the decision prevents the boards of most Cayman Islands companies from petitioning to wind up unless they have shareholder consent. In the case of listed companies such consent may not be easy to obtain and will involve high transaction costs as the EGM seeking such consent will need to be notified to the relevant Stock Exchange.

If the board cannot petition then there is a risk that a salvageable company will be lost: if a creditor petitions to wind up the company there is no clear basis at present for the company to cross-apply for the appointment within that petition of a restructuring provisional liquidator. The creditor is entitled to his winding up order ex debito justitiae so long as he can prove his debt, the company is or is deemed insolvent and there is not overwhelming opposition from other creditors. China Shanshui may lead companies to solicit groups of friendly creditors to oppose a creditors' petition on the basis that it is premature to wind it up without first considering a restructuring.

Further, if a company cannot petition for its own winding up to explore restructuring and obtain the appointment of light touch PLs there is no clear road map in the legislation at present showing how a provisional liquidator might come to have his powers extended for that purpose. The only party at present who can apply for a restructuring provisional liquidator is the company itself (with shareholder backing); creditors and shareholders can apply only for the traditional "asset preservation" provisional liquidators. In Re China New Lumena Materials Ltd (Unreported, Grand Court, August 2015) the court extended the scope of an order extending the appointment of asset preservation provisional liquidators so they could also promote a scheme of arrangement, but this was supported by the company as it was common ground from the outset that restructuring PLs were necessary and the dispute was really only about who should take the provisional liquidator appointment.

At a time when there are many restructurings of Cayman companies already on foot or being actively considered, the decision in China Shanshui for all of its correctness may come quickly to be regarded as an unhelpful impediment to effective restructuring efforts. If that is the consensus then it is to be hoped that, consistent with the position taken in England 30 years ago, the Companies Law will be amended swiftly to overrule it.

Other notable Cayman decisions

Non petition clause upheld in partnership agreement

China Shanshui is not the only notable decision to have been produced by the Cayman Islands courts in the last few months. There have been two others of significance. In Re Rhone Holdings L.P. (unreported, Court of Appeal, 19 November 2015) the Cayman Islands Court of Appeal dismissed an application for leave to appeal a decision of the Grand Court striking out a petition as an abuse of process where the constitutional documents of the partnership concerned included a clause prohibiting the limited partners to commence winding up proceedings. This is likely to come as a surprise to Cayman practitioners who had previously thought that section 95(2) of the Companies Law, which gave statutory recognition to non-petition clauses, was intended only to apply to contracts with third parties, not constitutional documents.

Loss of substratum (again)

The debate continues in the offshore world as to whether it is appropriate to wind up a company for loss of substratum when it ceases to be viable, rather than when it becomes impossible for the company to carry out its objects. In Re Harbinger Class PE Holdings (Cayman) Ltd (unreported, Grand Court, 10 November 2015), a case concerning a company that was not an open ended Cayman mutual fund, the Grand Court distinguished the line of Cayman authority that had invented the viability test and held that the impossibility test applied.

The acceptance of the impossibility test by the Grand Court in Re Harbinger may reopen the debate as to whether the viability test for loss of substratum – unique to Cayman open ended mutual funds – is appropriate. The Cayman Islands Court of Appeal expressly left the point open in ABC Co SPC v J & Co Ltd [2012 (1) CILR 300] when considering the different positions taken in Cayman and the BVI. Even though an appeal has been filed in Re Harbinger it is unlikely that the issue will arise for decision on the appeal due to the way the case was argued at first instance.

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”

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
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

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