Domestic Procedures
Question | Answer |
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What are the principal insolvency procedures for companies in your jurisdiction? |
Liquidation: voluntary and official. Cayman does not have an equivalent to the English concept of the company administration or to the Chapter 11 process in the United States. Schemes of Arrangement/“Soft Touch Liquidations” allow the company to enter into an agreement with its shareholders and/or creditors. |
Are any of the procedures available on a provisional basis? |
Yes. A provisional liquidator can be appointed on the application of a creditor or member after presentation of a petition but before the making of a winding up order. The Court must be satisfied that: (i) there is a prima facie case for making a winding up order; and (ii) it is necessary to prevent the dissipation or misuse of the company's assets, to prevent the oppression of minority shareholders or to prevent mismanagement or misconduct on the part of the company's directors. In addition, even if the company is not the petitioner, a company can apply ex parte to appoint a provisional liquidator on the grounds that:
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What requirements are to be satisfied for the procedures to be pursued? |
Official liquidation
Voluntary liquidation
Scheme of Arrangement/“Soft Touch Liquidation”
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What is the procedure and how long does it typically take? |
Official liquidation The application to the Court for the winding up of a company is made by petition. For a creditor's or contributory's petition:
Schemes of Arrangement / "Soft Touch" liquidations The following steps are taken:
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Can any procedures be pursued without the involvement of the Court? | Yes. Voluntary (solvent) liquidations do not require Court involvement. |
What is the effect upon control of the company and its assets during those procedures? |
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Is there an automatic moratorium and, if so, when does it come into effect and what is its effect? | Yes (save for in the case of a voluntary liquidation). When a winding up order is made or a provisional liquidator is appointed, no suit, action or other proceedings, including criminal proceedings, shall be proceeded with or commenced against the company except with leave of the Court and subject to such terms as the Court may impose. There is also scope to apply for a stay/moratorium in the period after presentation of a petition and before a winding-up order is made. |
Can companies be forcibly wound up other than when insolvent? |
Yes, if:
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To what extent are the procedures designed to facilitate a rescue of a company's business? |
Neither an official nor a voluntary liquidation is designed to facilitate a company rescue but rather to wind up the company by getting in and distributing the assets of the company to stakeholders in accordance with prescribed priorities. The “soft touch” provisional liquidation practice is designed to facilitate the rescue of a company's business by a scheme or compromise with creditors/ members with insolvency professionals working alongside management. |
Can the procedures be used to facilitate the sale of all or part of the insolvent company's business? | Yes. A liquidator has the power, exercisable with Court sanction, to sell any of the company's property by public auction or private contract. Powers of sale may also be conferred on provisional liquidators and exercised with Court sanction. |
Cross Border
Question | Answer |
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To what extent do the courts in your jurisdiction lend assistance to overseas appointees (through recognition) and in what circumstances? |
Statutory recognition: the Cayman Islands can provide assistance to foreign representatives in respect of foreign entities and make orders ancillary to a foreign bankruptcy proceeding for the below statutory purposes:
In making such an order, the Court will take into account:
Outside the above statutory purposes, the Court may also provide assistance at common law. |
Are there any limitations typically imposed in respect of the recognition of an overseas appointee? |
Yes, if:
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What kinds of overseas appointees have been recognised in your jurisdiction? | Trustees, liquidators or other officials appointed overseas in respect of a debtor for the purposes of a foreign bankruptcy proceeding. |
Do the courts in your jurisdiction assist in applications to subject a company incorporated in your jurisdiction becoming subject to an insolvency procedure in another jurisdiction? |
No. The Court has no jurisdiction to provide judicial assistance under statute upon the application of a foreign representative of an insolvent company appointed by a court in any country other than the country of its incorporation. This is to be contrasted with the approach reflected in the UNCITRAL Model Law which has not been adopted in Cayman. Although the Cayman Islands are not a signatory to any international treaties relating to bankruptcy or insolvency, liquidations that come before the Court frequently involve an international element so the Court will usually adopt a co-operative approach to facilitate the effective winding up of the company. While the Court will not generally assist a foreign officer appointed to a Cayman company, it welcomes concurrent appointments with Cayman insolvency practitioners and has experience of approving international protocols in circumstances where Cayman Islands insolvency practitioners are appointed jointly with representatives from other jurisdictions. The Court may also recognise and assist a foreign liquidator appointed in a place other than the place of the company's incorporation where the relief being sought is an order authorising the liquidators to make an application to present a parallel scheme of arrangement (such that there is unlikely to be a winding up order) and provided that the company has a substantial connection to and has submitted to the jurisdiction of the appointing court, (see In re China Agrotech Holidays Limited). |
Creditors
Question | Answer |
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What are the principal forms of security taken in your jurisdiction in respect of movable and immovable property? | Mortgages, charges (fixed and floating), liens and pledges. |
What is the effect on secured creditors of the commencement of an insolvency proceeding? | None. The assets fall outside of the liquidation estate. To the extent that their debt exceeds the value of their security, they may prove for the unsecured balance in the estate. |
Which creditors are preferred and to what extent? |
Employees, debts due to bank depositors and taxes due to the Cayman Islands Government rank in priority to all other debts. |
What is the position regarding the recoverability and quantum of liquidator's fees and expenses of the insolvency procedure? |
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Avoidance transactions
Question | Answer |
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What, if any, categories of transaction can be avoided/set aside |
Potentially “Voidable Transactions” comprise:
“Voidable preferences”
In order to demonstrate an intention to prefer one creditor over others
Transfers to related parties are deemed to have been made with a view to giving the creditor a preference. A “related party” includes an entity which has the ability to control the company or exercise significant influence over the company in making financial and operating decisions. Avoidance of dispositions made at an undervalue
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Who is responsible for seeking orders to set aside such transactions? | The liquidator. |
Contributions to the liquidation estate and liability of officers
Question | Answer |
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Can directors or shareholders be required to contribute to the liquidation estate? |
Yes, in the case of:
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What liability can directors or other officers attract in respect of an insolvent company? |
Directors, including shadow directors, may be liable for breach of their common law or equitable duties, or negligence for failure to exercise skill and care (note the exculpation and indemnity provisions in a company's articles of association; however under Renova v Gilbertson the “irreducible core” of a fiduciary's obligations, that is the duty to act honestly and in good faith, remains despite the terms of any indemnity). Statutory offences relating to the management and liquidation of a company, including intention to defraud creditors, can give rise to financial penalties and imprisonment. |
In what circumstances can directors be disqualified as a consequence of a company being wound up? |
There are no provisions contained in the laws of the Cayman Islands for the disqualification of directors as a consequence of a company being wound up. However, if the company is regulated by CIMA for which directors are required to be registered and licensed by CIMA, directors may find that their license is revoked if CIMA becomes aware of relevant fraud or dishonesty offences or regulatory sanctions applicable to the registrant. |
Originally published by Ogier, October 2020
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.