Cayman Islands: Ocean Rig – Schemes Of Arrangement In The Cayman Islands

Introduction

In one of the world's largest ever restructurings, Ocean Rig UDW Inc (UDW), a leading international contractor of offshore deep-water drilling services, and three of its subsidiaries have been successful in their application for the sanction of four schemes of arrangement by the Grand Court of the Cayman Islands, and recognition and enforcement of the schemes under Chapter 15 in the United States of America.

The schemes restructured the Scheme Companies' core financial indebtedness of approximately US$3.7 billion (plus accrued interest), making use of Cayman's 'light touch liquidation' process, and sanction was given last month.

The four scheme companies were all originally incorporated in the Republic of the Marshall Islands.  The parent company, UDW, transferred to the Cayman Islands by way of continuation as an exempted company in April 2016, in advance of the restructuring.  Each of the subsidiary Scheme Companies were registered as foreign companies in the Cayman Islands in October 2016.  As a result of the transfer (in the case of UDW) and the registrations (in the case of the subsidiaries), the four companies were able to benefit from the Cayman Islands' scheme of arrangement regime – of which there is no equivalent in the Marshall Islands – and also the well-established statutory framework and highly regarded Court system in the Cayman Islands.  The provisional liquidation of the subsidiaries represents the first time foreign registered companies have made use of the 'light touch' provisional liquidation process available under the law of the Cayman Islands.

Background to the restructuring

As a result of the decline in oil and gas prices and other changes in the offshore drilling sector, the Ocean Rig group needed to take urgent steps to implement a restructuring of its financial indebtedness, to manage liquidity and to stabilise its business.  As a result of discussions with certain key stakeholders in March 2017, the Scheme Companies agreed in principle the terms of a restructuring support agreement which provided for the appointment of joint provisional liquidators (JPLs) to each Scheme Company and for a financial restructuring of the existing debt to be proposed to creditors by way of the Schemes.

On 24 March 2017, each of the Scheme Companies presented winding up petitions and filed applications seeking the appointment of the JPLs under section 104(3) of the Companies Law (2016 Revision).  The Scheme Companies were placed into provisional liquidation and Simon Appell of AlixPartners London and Eleanor Fisher of Kalo Cayman were appointed as the JPLs on 27 March 2017.

The primary objective of the restructuring was to avoid a value destructive liquidation process given evidence that creditors would do materially worse in a liquidation than they would under the Schemes.  A plan was put in place to implement a new capital structure to weather the ongoing difficult market conditions in the global oil and gas market.

Schemes of arrangement in the Cayman Islands

Under the provisions of sections 86 and 87 of the Companies Law, the Grand Court can sanction a compromise or arrangement between a company and its creditors or members or any class of them.

Section 86 does not confer the benefit of a statutory moratorium on proceedings against the company during the period of negotiation or presentation of the scheme.  Accordingly, many companies tend to use the 'light touch' restructuring tool available under section 104(3) of the Companies Law, by appointing one or more provisional liquidators.  Companies proposing to implement a scheme of arrangement may apply to the Court for the appointment of a provisional liquidator to benefit from the automatic stay of claims while the scheme are pursued.

While the scheme is being promoted the directors will generally remain in control of the company and can formulate the terms of the proposed scheme, in conjunction with the insolvency practitioners appointed as provisional liquidators. The role and powers of the provisional liquidators are determined by the court order appointing them. In this case, the provisional liquidators played a central role in the restructuring process and were ordered, amongst other things, to supervise the day to day operations of the company, and the actions of the directors, and to consider whether to promote the proposed schemes of arrangement. This ensured that the restructuring was overseen by independent officers of the court.

Schemes of arrangement are available to any company liable to be wound up under the Companies Law, however the articles of association of the company must permit the kind of compromise or arrangement proposed by the scheme. If the scheme is approved by a majority in number representing 75% in value of the creditors or members present, either in person or by proxy, and is thereafter sanctioned by the Court, it becomes binding on all parties to the scheme.

  1. A scheme of arrangement has three substantive procedural steps:
    1. the hearing of the summons (Convening Hearing);
    2. the meeting of the creditors (Creditors' Meeting); and
    3. the substantive hearing of the petition (Sanction Hearing)

Step 1 – the Convening Hearing

The main issue for the Court to determine at the Convening Hearing is whether it is appropriate to convene meetings of separate classes of members/creditors and the composition of those classes.  This is to ensure that meetings will only be convened of those classes of members/creditors whose rights will be directly affected by the scheme.

The Court must be satisfied that each meeting consists of members/creditors whose rights against the company which are to be released or varied under the scheme, are not so dissimilar as to make it impossible for them to consult together with a view to their common interest.  The Court will also consider issues relevant to the jurisdiction of the Court to sanction the scheme and whether the explanatory statement gives adequate information to the members/creditors.

The Convening Hearing in relation to the Scheme Companies took place in the Grand Court on 11-13 July 2017, before the Honourable Mr. Justice Raj Parker.  Having heard submissions from, amongst others, the Scheme Companies, the JPLs and Highland (a dissenting UDW Scheme creditor), the Judge ordered that single meetings of the relevant class of creditors for each of the Scheme Companies be convened on 11 August 2017.

Step 2 – the Creditors' Meeting

On 11 August 2017, the Scheme Companies convened meetings of their creditors for the purpose of considering, and if thought fit, approving the schemes of arrangement.

The DFH, DOV and DRH schemes were each approved by 100% in value of those scheme creditors voting. The UDW scheme was approved by more than 97% in value of those scheme creditors voting (Highland, the sole dissenting UDW Scheme creditor, voted against the UDW scheme).

Step 3 – the Sanction Hearing

Notwithstanding that the requisite majority of a class of members/creditors has voted in favour of a scheme, the Court still retains a discretion whether or not to sanction it. In order to sanction the scheme, the Court will consider a number of matters. Firstly, that the classes have been properly constituted. Secondly, that the meetings were convened and held in accordance with the directions of the Court. Thirdly, that the scheme has been properly  explained to the members/creditors and it is one that an intelligent and honest man, who is a member of the relevant class might reasonably approve.

The Sanction Hearing of the Schemes is was heard by Justice Parker on 4 to 6 September 2017, and on 15 September 2017 he made orders sanctioning each of the Schemes.

Proceedings in the United States

In conjunction with the Scheme proceedings in the Cayman Islands, the Scheme Companies filed for Chapter 15 bankruptcy protection in the U.S. Bankruptcy Court in New York on 27 March 2017 (Chapter 15 Filings).

The Chapter 15 Filings were made in order to protect the restructuring of the Scheme Companies in the Cayman Islands by enabling them to obtain protection from creditors looking to seize assets in the U.S.

Chapter 15 proceedings are commenced by a "foreign representative" filing a petition for recognition of a "foreign proceeding". After notice and a hearing the U.S. Court is authorised to issue an order recognising the foreign proceeding as either a "foreign main proceeding" (a proceeding pending in a country where the debtor's centre of main interests are located) or a "foreign non-main proceeding (a proceeding pending in a country where the debtor has an establishment, but not its centre of main interests).

Having initially opposed the Chapter 15 Filing in relation to UDW, Highland, the dissenting UDW creditor, subsequently notified the Bankruptcy Court that it did not intent to object to recognition of the Scheme proceedings at the Chapter 15 hearing, which took place before the Bankruptcy Court on 16 August 2017 (Recognition Hearing).  The Bankruptcy Court granted recognition of the Cayman proceedings as "foreign main proceedings" on 24 August 2017, overruling an objection from a shareholder of UDW.

The JPLs also filed an application for an order of the Bankruptcy Court recognising and giving full force and effect to the Schemes in the United States. At a hearing on 20 September 2017, the Honourable Judge Glenn made an order enforcing of the Schemes in the United States.

Conclusion

The restructuring became effective on 22 September 2017, within 6 months of the appointment of the JPLs, and resulted in an exchange by creditors of approximately $3.7 billion of debt for new equity in UDW, approximately $288 million in cash and $450 million of new secured debt.  It is almost certainly the Cayman Islands' largest ever successful restructuring, and is a leading example of how the Cayman Islands "light touch restructuring" tool can be used to achieve successful restructurings of complex and cross-border financing arrangements.

Ogier acted for the JPLs in relation to the provisional liquidations and the Schemes.

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 Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
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
Tools
Print
Font Size:
Translation
Channels
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
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (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 www.mondaq.com

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 Mondaq.com’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.

Disclaimer

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.

Registration

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 by clicking here .

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 unsubscribe@mondaq.com 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.

Cookies

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.

Links

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.

Mail-A-Friend

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.

Emails

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 .

Security

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 webmaster@mondaq.com.

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 EditorialAdvisor@mondaq.com.

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 enquiries@mondaq.com.

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