Cayman Islands: Cayman Islands Funds: What Does 2015 Teach Us About The Year Ahead?

Last Updated: 23 June 2016
Article by David Butler and Marc Kish

Increase in winding-up petitions

In the PRC, a potentially toxic mix of a slowing economy and an ever-increasing corporate debt burden (as a proportion to GDP) is already leading to impaired loans in a number of key sectors, including steel and real property. If contagion eventuates, we may see increased insolvency and restructuring of Cayman Islands companies which have been used to raise offshore finance for PRC operating subsidiaries. In these circumstances, we take a look at some of the decisions made by the Grand Court of the Cayman Islands in 2015 and early 2016 involving winding up petitions. In 2015, the Harneys litigation and insolvency team acted on two thirds of all insolvency cases commenced in the Cayman Islands, and represented China Shanshui Investment Company Limited (CSI), Rhone Holdings LP, and Harbinger Class PE Holdings (Cayman) Ltd in the cases discussed below.

Re China Shanshui Cement Group Limited

Following a unanimous resolution of its board of directors, China Shanshui Cement Group Limited (CSCG) presented a winding up petition to the Court and applied for provisional liquidation orders. The Court heard certain noteholders and shareholders (including CSI) on the application and agreed with CSI's argument that the directors of CSCG did not have standing under section 94 of the Companies Law (2013 Revision) to present the petition or apply for the appointment of provisional liquidators, in the absence of either an ordinary resolution of CSCG's shareholders or an express provision in its articles of association authorising the directors to present the petition. Mangatal J declined to follow Jones J's decision in Re China Milk Products Group Ltd, which arrived at a contrary interpretation of section 94and allowed the directors of an insolvent company to present a winding up petition.

Re Rhone Holdings LP

The petitioners (all limited partners of Rhone Holdings LP) were precluded by their partnership agreement from presenting a winding up petition in respect of the partnership. Mangatal J struck out their petition, concluding that the agreement did not offend any public policy principle. In any event, any such principle could not override the clear statutory provision of subsection 95(2) of the Companies Law, which requires the Court to dismiss or adjourn a winding up petition where a petitioner is contractually bound not to present one. Mangatal J also concluded that common law recognition of the ability of partners to agree that a partnership should be determinable only by mutual agreement has survived both the Partnership Law (2013 Revision) and the Exempted Limited Partnership Law, 2014, and that nothing in the ELPL is inconsistent with or renders section 95(2) of the Companies Law inapplicable to exempted limited partnerships.

Re Harbinger Class PE Holdings (Cayman) Ltd

Until the Court of Appeal clarifies the test for loss of substratum, it is likely that a petitioner will need to show that the main object of closed ended entity has been rendered impossible, following Clifford J's decision in Re Harbinger. Clifford J confirmed that the test for winding up of a closed ended entity for loss of substratum is whether the attainment of the main object for which a company was formed has been rendered "impossible in some sense". This conclusion contrasts with the lower threshold articulated by Jones J in Re Belmont Asset Based Lending Ltd in respect of open ended entities, which the Court will wind up where it has become "impractical" for the open ended entity to carry on its investment business.

Recently, in Re Washington Special Opportunity Fund Inc, Mangatal J decided that it was not necessary to resolve the tension between Jones J's decision and decisions in other jurisdictions because the petitioner had not shown it was impossible or impractical for the fund to carry on its business.


The outcomes in these cases might be interpreted by some as a growing reluctance by the Court to make winding up orders and, in particular, reluctance by the Court make such orders where it is really dealing with a shareholders' dispute. It will be interesting to see if it is possible to draw such a conclusion following what we expect will be a year in which the Court will consider a high number of winding up petitions.

Increase in derivative actions

The Grand Court could see an increase in derivative actions following the decision of the New York Supreme Court in Davis v Scottish Re Group Ltd. The Court dismissed certain derivative claims where the plaintiff had failed to comply with Order 15, Rule 12A of the Grand Court Rules (which requires a plaintiff to seek the leave of the Grand Court to bring a derivative claim against a Cayman Islands company), noting that compliance with the rule is a substantive (rather than procedural) condition precedent to the continuation of a derivative action in New York.

This decision is consistent with the position taken by courts in Hong Kong and England and means that US shareholders, some of whom bring nuisance suits in the US hoping to extract a settlement, will first have to show the Grand Court that there is a case to answer.

In contrast, the Grand Court could see fewer winding up applications for companies with significant Hong Kong based subsidiaries following the decision of the Final Court of Appeal of Hong Kong in Kam Leung Sui Kwan v Kam Kwan Lai and Ors. The FCAHK determined that it could wind up a BVI holding company with a 'sufficient connection' to Hong Kong, which connection could be established though the holding company's shareholders and subsidiaries (its shareholders and directors were resident in Hong Kong and its underlying assets and the business carried on by its sub-subsidiaries were located in Hong Kong).

Increasing awareness of regulatory developments

On 9 February 2016, the Cayman Islands Monetary Authority issued the first edition of its bi-annual Supervisory Issues & Information Circular to Licensees. The Circular aims to raise awareness of common regulatory issues and highlight regulatory developments for the financial sector, and "to emphasise regulatory matters which might not be particularly problematic at this time but are important to [CIMA's] regulatory objectives".

While the overriding focus of the Circular was Anti-Money Laundering and Countering Terrorist Financing, it also identified data security as an area that CIMA expects licensees to consider in conducting business and developing business strategies. The Circular states that Cayman Islands based firms "are exceptionally vulnerable to data breaches" and that CIMA "will review licensees' approaches to data security risk management".

Although the Cayman Islands is yet to enact data protection legislation (The Data Protection Bill, 2016 was released on 1 April 2016), CIMA's interest in data security is not surprising, nor is it unprecedented. Data security has caught the attention of other financial regulators. For example, the Australian Securities and Investment Commission has indicated in that it intends to play a role in the cyber risk management of its regulated population. We expect that CIMA's focus on data protection will continue to intensify following the recent Mossack Fonseca data breach.

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 Video
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