On the matter of company restructuring, from the latest
regulation updates, to the biggest challenges this legal segment
faces, our next thought leader details his thought leadership in
the Cayman Islands' restructuring arena.
What are the biggest difficulties faced today surrounding
company restructuring and how do you help resolve these on a daily
There are a myriad of difficulties to deal with in any
restructuring, but the key issues are always devising a solution
which (i) should ensure the company's medium to long term
survival, (ii) is realistically capable of being adequately funded,
(iii) will have the requisite support of the key stakeholders, and
(iv) will be effective in compromising creditors' claims and
protecting the company's assets in all relevant jurisdictions.
When a Cayman company is involved it is typically as the holding
company of an onshore / international group, and the Cayman legal
issues which we assist with will be critical in ensuring a
successful global restructuring.
What are the typical errors you see committed by companies
involved in restructuring?
The most common error is leaving it too late to retain legal and
financial advisers to work with the management on a restructuring
solution, and failing to engage with the key creditors sufficiently
far in advance of their debt maturing. This can often lead to
increased restructuring costs, dealing with issues which might
otherwise have been avoided, and more fundamentally it can
jeopardize the company's survival prospects.
Have there been any legal developments pertaining to
restructuring in the Cayman Islands recently?
The most significant development in the last few years has been
the Grand Court's decision in Re China Shanshui Cement Limited
(unreported, Mangatal J, 25 November 2015). China Cement concerned
the question of whether and in what circumstances directors of
Cayman Islands' companies are authorised to seek to commence
court supervised restructuring proceedings (which provide the
protection of a moratorium on unsecured creditor action) by
presenting a winding-up petition and applying for the appointment
of provisional liquidators.
Prior to China Cement, the position pursuant to Re China Milk
Products Limited [2011 (2) CILR 61] had been that if the company
was insolvent (on a cash flow basis), the directors had the
requisite authority to commence the process without needing either
an express power in the articles of association or authorisation by
a shareholders' resolution.
In China Cement, Mangatal J concluded that China Milk had been
wrongly decided. The learned Judge dismissed the insolvent
company's application for the appointment of restructuring
provisional liquidators on the grounds that the directors had not
been authorised to make the application.
Although there are conflicting decisions on the issue, applying
the court's reasoning in China Cement the position is now as
follows. Irrespective of whether a Cayman company is solvent or
insolvent, its directors are only able to instigate a court
supervised restructuring process if they are authorised to do so by
a shareholders' resolution or (if the company was incorporated
after the 1st March 2009) by an express power in the company's
In practice this issue has typically not been addressed
expressly in the articles of Cayman companies, and so the ability
to obtain a shareholders' resolution is likely to be critical.
This can create timing difficulties for insolvent companies which
are in or approaching a financial crisis, particularly when (as is
frequently the case) the Cayman company's shares are publicly
listed on a foreign exchange.
More fundamentally, it can give undue leverage to shareholders
who may no longer have an economic interest in the insolvent
company. It can also leave the directors (whose duty at that stage
is to have regard to the interests of the company's creditors)
in a very difficult position where they are unable to instigate a
court supervised restructuring process which they regard as being
in the interests of the creditors as a whole.
As a thought leader, how have you worked towards adapting and
moulding the restructuring law sphere in the Cayman Islands over
the past decade?
Most recently I have been closely involved in working with
several other leading practitioners on statutory reform to address
the problems arising from the China Cement decision. It is hoped
that a statutory solution addressing those issues and incorporating
various other enhancements to the Cayman Islands restructuring
regime will be ready to be considered by the legislature by the end
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guide to the subject matter. Specialist advice should be sought
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Probably the most significant change from previous practice in Guernsey law under the Companies (Guernsey) Law 2008, which came into effect on the 1 July 2008, was the consignment to history of the concept of capital maintenance, which was discarded in favour of a solvency model as the basis of a company’s ability to pay distributions and dividends.
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