The Grand Court has handed down an instructive judgment appointing "light-touch" provisional liquidators over Midway Resources International ("Midway"), a pan-African focused upstream oil and gas company, incorporated in the Cayman Islands. The judgment of Segal J will be of particular interest to companies considering the appointment of provisional liquidators intended to work alongside the board of directors to promote a restructuring plan, under section 104(3) of the Companies Act (2021 Revision) (the "Act"). The Grand Court continues to demonstrate a notably commercial and flexible practice in this respect although, as is also clear from the judgment, such applications will be closely scrutinised.
Segal J reaffirmed and clarified the governing principles, noting that under section 104(3) of the Act the Court has jurisdiction to appoint a provisional liquidator upon a company's ex parte application in circumstances where the company (i) is or is likely to become unable to pay its debts within the meaning of section 93 of the Act and (ii) intends to present a compromise or arrangement to its creditors (although it is well established that there is no requirement on the company already to have a pre-formulated plan).
The Learned Judge went on to place particular emphasis on certain matters to which - per Chief Justice Smellie in Sun Cheong Creative Development Holdings Limited (unreported, 20 October 2020) - the Court may have regard when exercising its discretion to make such an appointment, including in particular:
- The express wishes of creditors (though the Court should be cautious not to "count up the claims of supporting and opposing creditors" per Segal J in Grand T G Gold Holdings Limited (unreported, 21 August 2016); and
- Whether there is a real prospect of refinancing and/or a sale as a going concern being effected for the benefit of the general body of the creditors.
It is notable that those two discretionary factors tend to require more of the applicant company than the aforementioned statutory threshold requirements. With regard to the respective positions of creditors, Segal J observed that while it is permissible under section 104(3) of the Act for the company's application to be made ex parte, the Grand Court will, save in exceptional circumstances, wish for the views of the creditors to be ascertained and for creditors to have a proper opportunity to file representations and submissions to the Court if they wish to do so. As can be further seen from this case, if such a creditor wishes to oppose the company's provisional liquidation application they should instruct Cayman Islands attorneys to appear and file properly particularised affidavit evidence.
With regard to the second discretionary factor above, there appears to be an inherent tension between the Court's wish to evaluate the proposed restructuring's prospects of success, and the fact that at the time of the application the company needs only an intention to present a compromise or arrangement to its creditors. Segal J noted that the rationale underpinning the fact that no pre-formulated restructuring plan is required, is to provide companies with "breathing space" before the actions of creditors might interfere with attempts to reach a consensual restructuring or if that should prove not to be possible, a scheme of arrangement (see Re CW Holdings Limited, unreported, 3 August 2018 (in which Walkers also acted)). However, clearly each case will turn on its own facts, and where an application to appoint provisional liquidators is made some time after the company has entered into financial difficulty, and restructuring proposals are necessarily more advanced, the Court will want to be satisfied that there is a "real prospect of" those proposals being put to creditors and being approved. Segal J held that important considerations in this case as to the viability of restructuring proposals included whether there was sufficient time for the proposals to be documented and implemented, the provision of information as to the funding of the proposed provisional liquidators and how it was anticipated they could perform a useful role.
An interesting element of this case was that it was necessary for restructuring proposals to be made and approved first at the level of Midway's subsidiary operating company (in administration in Mauritius), before a compromise would be presented to Midway's creditors. As such, the Grand Court was primarily concerned with the viability of the restructuring proposals to creditors of the subsidiary operating company. In having such regard to the relevance of the restructuring of a subsidiary company when determining a parent company's application to be placed into provisional liquidation, the Grand Court has again shown itself alive to the fact specific issues of these kinds of cases and willing to adopt a commercial and flexible approach to "light touch" (Segal J's preferred terminology, as opposed to "soft touch") provisional liquidation applications.
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