Appointment of Restructuring Officers
In late 2023, in the case of Holt Fund SPC, the Grand Court ordered the first appointment of Restructuring Officers over particular segregated portfolios of a segregated portfolio company (SPC). As many readers will be aware, SPCs are different from typical Cayman Islands companies in that the assets and liabilities of each segregated portfolio (SP) are segregated from each other during the life of the SPC (and in liquidation), which is often referred to as the 'segregation principle'.
Typically, where a particular SP has insufficient assets to meet claims of creditors, a receiver may be appointed for the purpose of an orderly closing down of the business of that SP. However, until the Holt judgment, it was not clear that Restructuring Officers could be appointed in relation to a specific SP, given that it is not a separate legal entity.
This decision illustrates the flexibility of the restructuring regime. However, the application to appoint Restructuring Officers was unopposed, so it will be interesting to see if such appointments are subject to challenge in future.
Remuneration Position
In a more recent development in the same proceedings, in the face of opposition from another stakeholder, the Grand Court concluded that it is permissible for an order to be made for the payment of the Restructuring Officers' reasonable fees and expenses out of the assets of the insolvent SP over which they have been appointed. This is because, in part, any subsequent winding up will lead to a priority for the Restructuring Officers' fees and expenses in any event.
One of the requirements for the presentation of a Restructuring Officer petition is that the relevant entity is or is likely to become unable to pay its debts. With that financially-distressed lens in mind, Mr Justice Kawaley confirmed that "restructuring officers are entitled to be paid for attempting to avoid the need for recourse to winding up proceedings even where a company is actually insolvent. Full stop."
Bringing the Process to an End
Finally, it was confirmed that the Grand Court is empowered, on the hearing of an application for the discharge of the Restructuring Officers, to make any order it considers fit (except an order placing the company into official liquidation), including to discharge the Restructuring Officers.
It was noted that it is helpful for the Grand Court to consider the purpose for which the Restructuring Officers were appointed, as this may inform whether that appointment may be brought to a conclusion.
With that starting point in mind, Mr Justice Kawaley reached the conclusion that "it must be a potentially valid ground for discharging restructuring officers without replacing them that a "consensual restructuring" is no longer viable."
Takeaway
This latest guidance is welcome news for stakeholders and officeholders alike. There is now increased certainty for all involved in responding to, advising on and bringing these applications. Prospective officeholders can rest easier knowing that they will be properly compensated for analysing restructuring options and that they may be discharged once it becomes clear that a restructuring is not (or is no longer) viable.
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.
