Legislation What is the primary legislation governing insolvency and restructuring proceedings in your jurisdiction?
Part V of the Companies Law (2016 revision) provides for the voluntary and involuntary winding up of Cayman Islands incorporated companies (including limited liability companies), as well as foreign companies which:
- have property located in the Cayman Islands;
- carry on business in the islands;
- are the general partner of a limited partnership; or
- are registered as a foreign company under Part IX of the Companies Law.
Other types of Cayman Islands legal entity may also be wound up under Part V of the Companies Law. For example, exempted limited partnerships and limited liability partnerships may be wound up under Part V, except to the extent that there are inconsistencies with the Exempted Limited Partnership Law or the Limited Liability Partnership Law, in which case those statutes will prevail over the Companies Law. Segregated portfolio companies may be wound up in their entirety under Part V, while individual segregated portfolios may be the subject of a receivership appointment pursuant to Section 224(1). The receiver may be granted the same powers as a liquidator (Re OP SPC1 & SP SPC4 [2013(1) CILR 330]).
Restructuring within a court process in the Cayman Islands will typically involve the promotion of a scheme of arrangement under Part IV of the Companies Law. In the context of an insolvent liquidation, schemes are promoted within a provisional liquidation so that claims against the company are stayed automatically. Accordingly, Part V is also relevant for restructuring, being the means by which the liquidation is initiated.
The legislature is presently considering the possibility of creating a standalone restructuring moratorium proceeding, which will benefit from a stay on claims against the company that arise on filing. This would avoid the need to promote a scheme within a provisional liquidation.
Rules In relation to both insolvency and restructuring, the rules of court are the Companies Winding-up Rules as well as the Grand Court Rules. The Insolvency Practitioners Regulations set out requirements of qualification independence, insurance and residence for insolvency practitioners and govern the remuneration of liquidators and the manner of its approval.
Regulatory climate On an international spectrum, is your jurisdiction more creditor or debtor friendly?
The Cayman Islands has generally been regarded as a creditor-friendly jurisdiction. Creditors are treated equally irrespective of where they are domiciled.
Sector-specific regimes Do any special regimes apply to corporate insolvencies in specific sectors (eg, insurance, pension funds)?
No distinct insolvency regimes apply to entities from different sectors (although different regulatory regimes will apply).
Reform Are any reforms to the legal framework envisaged?
The legislature is considering a proposal to establish a standalone restructuring moratorium proceeding. This would involve the appointment of restructuring officers and an automatic stay on claims would arise on filing the petition for the restructuring moratorium proceeding.
As the law stands, for the restructuring of a company’s debts to have the benefit of an automatic stay, it must take place within a provisional liquidation.
Director and parent company liability
Liability Under what circumstances can a director or parent company be held liable for a company’s insolvency?
A director is a fiduciary of the company. Accordingly, if he or she breaches that duty and causes loss to the company such that it becomes insolvent, he or she may be personally liable for damages to the insolvent company if the liquidator successfully brings a claim.
In the Cayman Islands, a director is not exposed to personal liability merely because a company trades when insolvent. However, under Section 147 of the Companies Law, a director can be declared to be liable to “make such contributions, if any, to the company’s assets as the Court thinks proper” if it is found during the winding up that the company’s business was carried out with the intent to defraud creditors of the company or creditors of any other person or for any fraudulent purpose.
A parent company, like any other person, might be liable in respect of a voidable transfer that is in fact voided on the application of the liquidator, such as:
- a disposition made at an undervalue with intent to defraud creditors (under Section 146(2) of the Companies Law); or
- a voidable preference.
In relation to voidable preferences, the parent company is likely to be deemed to have been preferred as a related party.
Defences What defences are available to a liable director or parent company?
Directors may be expressly indemnified by the company under its articles of association in respect of claims arising out of their acts or omissions, save that it is impossible to exclude liability for fraud, dishonesty or wilful default.
Due diligence What due diligence should be conducted to limit liability?
Directors should carefully and regularly monitor the cash-flow and balance-sheet solvency of their companies and should seek advice from lawyers and other professional advisers as appropriate. They should maintain appropriate directors’ and officers’ liability insurance cover and seek wide indemnities under the company’s articles of association.
Position of creditors
Forms of security What are the main forms of security over moveable and immoveable property and how are they given legal effect?
The main forms of security include charges (including mortgages), liens and pledges.
Ranking of creditors How are creditors’ claims ranked in insolvency proceedings?
Creditors’ claims are ranked in the following order:
- liquidation expenses, including liquidators’ fees and disbursements.
- preferential debts, which are:
- certain sums due to employees;
- certain taxes due to the Cayman Islands government; and
- for specific Cayman Islands banks, certain sums due to depositors.
- ordinary debts which are not otherwise secured and not subject to subordination or deferral agreements, save for claims for redemption proceeds following a redemption in law or purchase of shares by the company before the winding up;
- debts incurred by the company in respect of the redemption or purchase of its own shares, provided that the redemption or purchase took place before the liquidation commenced, as well as sums due to the holders of redeemable shares in the company whose shares were liable to be redeemed before the liquidation but were not due to the company’s default;
- ordinary debts that are subject to subordination or deferral agreements;
- in an official liquidation lasting more than six months, interest accruing on the company’s debts since commencement of the liquidation; and
- amounts due to preferred shareholders (under the company’s articles of association).
Any surplus remaining after payment of the above amounts is returned to the company’s shareholders in accordance with its articles or any shareholders’ agreement.
Can this ranking be amended in any way?
No, save for the contractual and deferral agreements referred to above.
Foreign creditors What is the status of foreign creditors in filing claims?
A foreign creditor, like any domestic creditor, may file a proof of debt in the liquidation of a Cayman Islands company in relation to its debt. The act of filing a proof of debt may constitute a submission to the Cayman Islands’ jurisdiction.
Unsecured creditors Are any special remedies available to unsecured creditors?
Debt recovery By what legal means can creditors recover unpaid debts (other than through insolvency proceedings)?
Creditors may seek to enforce any contractual security directly. They may also bring a writ action for the debt or damages. If necessary, they may need to bring enforcement proceedings, seeking a charging order over the judgment debtor’s assets.
It is possible to seek permission to serve out of the jurisdiction on a defendant who is ordinarily resident outside the jurisdiction. Accordingly, it is conceivable that a foreign creditor may file a claim against a foreign debtor – for example, in relation to a debt governed by Cayman Islands law.
However, by virtue of being resident abroad, foreign creditors that file claims in the Cayman Islands may be ordered to provide security for the debtor’s legal costs of a writ action brought on the debt.
Is trade credit insurance commonly purchased in your jurisdiction?
No. Many, if not most, exempted limited companies incorporated in the Cayman Islands are funds or holding companies, not trading companies.
Eligibility What are the eligibility criteria for initiating liquidation procedures? Are any entities explicitly barred from initiating such procedures?
Voluntary winding up
A company can be voluntarily wound up:
- when the period, if any, fixed for the duration of the company by its memorandum or articles of association expires;
- on the occurrence of an event which its constitution provides should lead to a voluntary winding up;
- if the company resolves by special resolution that it be voluntarily wound up; or
- if the company in general meeting resolves by ordinary resolution that it should be voluntarily wound up because it is unable to pay its debts as they fall due.
Compulsory winding up A creditor (existing, future or contingent) may petition to wind up a company on the grounds that it is unable to pay its debts. The insolvency test is a cash-flow test; the company must be said to be unable to pay its debts now or in the reasonably near future.
A shareholder or, more unusually, a creditor may petition to wind up a company on the grounds that it is just and equitable to do so. There are many bases on which just and equitable grounds can be advanced.
The court may also order that a company be wound up in other circumstances, including if the company has passed a special resolution requiring it to be wound up or, in the case of a regulated entity, on petition by the Cayman Islands Monetary Authority (CIMA).
Procedures What are the primary procedures used to liquidate an insolvent company in your jurisdiction and what are the key features and requirements of each? Are there any structural or regulatory differences between voluntary liquidation and compulsory liquidation?
The principal means of winding up an insolvent company is an official liquidation where an insolvent company enters voluntary liquidation. During this process, the voluntary liquidators must seek the appointment of official liquidators if the directors of the company have not signed declarations of solvency within 28 days of the commencement of the voluntary liquidation by making an application for court supervision. Following the presentation of a winding-up petition by the company, creditor, shareholder or (in the case of a regulated company) CIMA, or on the making of a supervision application by a voluntary liquidator, the court will consider the petition and decide whether to appoint one or more official liquidators. If so appointed, the liquidators will collect the books, records and assets of the company with a view to paying off creditors and distributing any surplus to shareholders in accordance with the statutory order of priorities.
Official liquidation is available for Cayman Islands incorporated companies, other bodies incorporated under other Cayman Islands statutes (including limited liability companies, exempted limited partnerships and limited liability partnerships) and foreign companies that:
- carry on business or have property located in the Cayman Islands;
- are the general partner of a limited partnership registered in the Cayman Islands; or
- are registered as foreign companies under the Companies Law.
Provisional liquidation A creditor, shareholder, the company itself or (in respect of regulated businesses) CIMA may present a winding-up petition and seek the appointment of provisional liquidators between presentation and hearing of the winding-up petition.
The purpose of a provisional liquidation is to:
- preserve and protect the company’s assets, if there is evidence of management wrongdoing, until the hearing of a winding-up petition and the appointment of official liquidators; or
- facilitate the proposal of a compromise or arrangement to creditors.
Voluntary liquidation Although an insolvent company may initially be wound up voluntarily, an application must be made to bring a voluntary liquidation under the supervision of the court if any of the directors are unable or unwilling to swear the requisite statutory declaration of solvency, at which point the liquidation becomes an official liquidation.
How are liquidation procedures formally approved?
The court has oversight of official and provisional liquidations. The Grand Court must approve certain actions by the liquidators. So-called ‘sanction applications’ are typically made by the liquidators but may also be made by a creditor. The court retains an inherent supervisory jurisdiction and the liquidator or a creditor can invoke this jurisdiction to seek the advice, guidance and direction of the court with respect to any issue arising in the course of liquidation.
In a voluntary liquidation of a solvent company, the shareholders have oversight, since the liquidator calls and reports in general meetings on the progress of the winding up. However, even in the case of voluntary liquidations, the liquidator or any contributory may apply to the court to determine any question or exercise powers that would be exercised if the voluntary liquidation were proceeding subject to supervision.
What effects do liquidation procedures have on existing contracts?
Other than employment contracts, the winding-up process will have no effect on contracts unless there is a specific contractual provision to that effect. Further, liquidators have no statutory power to disclaim onerous contracts under Cayman Islands law. Therefore, the parties must perform their outstanding obligations, although in practice a liquidator may repudiate the contract and instead adjudicate whatever claim the contractual counterparty seeks to prove in the liquidation as a result of the repudiation. Liquidators must give effect to any contractual rights of set-off or netting of claims between the company and any persons, subject to any agreement to waive or limit such rights. In the absence of any set-off provision, account must be taken of what is due from each party to the other in respect of their mutual dealings, and set-off is applied in relation to those amounts.
What is the typical timeframe for completion of liquidation procedures?
Voluntary liquidations of special purpose vehicles that have served their purpose or of solvent funds that are being wound down may be completed swiftly within a matter of months.
There is no typical timeframe for the completion of an official liquidation. Insolvent funds may have contingent assets in the form of international claims against third parties, including directors and service providers; the liquidation will remain open while such assets are being valued and pursued. Holding companies at the top of a large structure may take time to liquidate, given that the liquidators need time to gain control of companies lower down the structure – which may not be Cayman Islands companies – in order to collect in assets and begin the process of liquidating the whole structure from the bottom up.
Role of liquidator How is the liquidator appointed and what is the extent of his or her powers and responsibilities?
Provisional liquidators are appointed by the court. They are subject to the court’s supervision and only carry out the functions which the court confers on them. Their powers are prescribed by the order appointing them and the scope of these will depend on the reason for their appointment. If a company restructuring is proposed, existing management may remain in control of the company subject to the supervision of the court and provisional liquidators, although in other cases the management will be displaced entirely by the provisional liquidators. The court may direct that a provisional liquidation committee be established.
Official liquidation Official liquidators are also appointed by the court and their authority always displaces that of the company’s directors. The official liquidators control the company’s affairs, subject to the court’s supervision, with statutory duties to:
- investigate the reason for the company’s failure to wind down its affairs;
- distribute the company’s assets in accordance with the pari passu principle and the statutory order of priority; and
- report to the court and the company’s stakeholders with respect to the winding up.
Some of their powers are exercisable without the court’s approval, whereas others cannot be exercised without court approval. A liquidation committee must be established in every official liquidation. Its role is to act as a sounding board for the liquidators with respect to the issues arising in the liquidation and to scrutinise liquidators’ fees.
Voluntary liquidation If the articles of association specify who will act as voluntary liquidator, this person will be appointed at the commencement of the voluntary liquidation. Otherwise, this is decided in a general meeting. The appointment takes effect when a consent to act is filed by the voluntary liquidator with the Registrar of Companies. Once a voluntary liquidator is appointed, the directors’ powers cease, except to the extent that the company (through a general meeting) or the liquidator approves the continuance of those powers.
Court involvement What is the extent of the court’s involvement in liquidation procedures?
The court will not be involved in a voluntary winding up unless a petition is presented to bring it under the court’s supervision or the voluntary liquidator or any contributory applies to the court to determine any question arising in the voluntary liquidation or with regard to the exercise of powers which the court might exercise in a court-supervised liquidation.
By contrast, the court will be actively involved in both provisional liquidations and official liquidations. The liquidators must take certain steps as the liquidation progresses, including filing reports.
Creditor involvement What is the extent of creditors’ involvement in liquidation procedures and what actions are they prohibited from taking against the insolvent company in the course of the proceedings?
Creditors or contributories of the company may apply to the court for orders and directions with regard to the exercise or proposed exercise of the provisional liquidators’ powers (these are known as ‘sanction applications’).
A provisional liquidation committee formed of creditors and/or shareholders may (but will not always) be established in a provisional liquidation. The composition and function of liquidation committees are addressed in more detail below in the context of official liquidations.
There is no restriction on the enforcement of security during a provisional liquidation, but the appointment of provisional liquidators triggers an automatic stay on the commencement or continuance of proceedings against the company without the leave of the court.
Official liquidation Creditors or contributories of a company may also make sanction applications with regard to the exercise or proposed exercise of the official liquidators’ powers.
In addition, a liquidation committee must be appointed unless the court orders otherwise. The principal purpose of a liquidation committee is to act as a sounding board for the liquidators and to consider the basis and amount of their remuneration. The committee comprises three to five creditors (if the liquidator has determined that the company is insolvent) or shareholders (if the liquidator has determined that the company is solvent). If the liquidator determines that the company is of doubtful solvency, the committee must comprise three to six members of whom a majority must be creditors and at least one must be a shareholder. Members are elected at meetings of creditors and/or shareholders (as appropriate). Liquidation committees also have standing to make sanction applications.
There are no prohibitions or restrictions on the rights of secured creditors to enforce their security during an official liquidation but, as in provisional liquidations, no proceedings can be commenced or continued against the company without the court’s leave.
Voluntary liquidation Voluntary liquidators must pay debts owed to creditors as they fall due. If they fail to do so, there is nothing to stop a secured creditor from enforcing its security or to prevent any creditor from commencing ordinary litigation or winding-up proceedings against the company.
Director and shareholder involvement What is the extent of directors’ and shareholders’ involvement in liquidation procedures?
In a voluntary liquidation a director or shareholder may be appointed as a voluntary liquidator.
Directors have a statutory obligation to cooperate with the liquidator. This may include an obligation to:
- prepare and submit a statement as to the affairs of the company in order for this to be examined by the liquidator; and
- deliver up all of the company’s property or documents.
Shareholders may participate in a solvent liquidation or if the liquidators have determined that the company is of doubtful solvency – for example, in the liquidation committee. However, in insolvent liquidations, shareholder involvement will be limited given the absence of an economic interest in the estate.
A contributory may apply to the Grand Court to determine any question arising in the voluntary winding up or with regard to the exercise of all or any of the powers which the court might exercise if the company were being wound up under the court’s supervision.
Eligibility What are the eligibility criteria for initiating restructuring procedures? Are any entities explicitly barred from initiating such procedures?
A company, creditor, member or, where the company is being wound up, the liquidator, may petition the court for orders convening a meeting of creditors or contributories to consider a scheme of arrangement and, if approved by the requisite statutory majorities, to approve a scheme of arrangement if the scheme is to proceed outside of any liquidation process and therefore without the protection of a moratorium on claims.
Schemes of arrangement intended to rescue a company as a going concern are usually promoted within a provisional liquidation in order to take advantage of the moratorium on claims that arise against the company. In these circumstances, the company often presents the winding-up petition and the scheme petition.
However, as the law stands, the directors of an insolvent company may not themselves resolve to present a winding-up petition for the purposes of appointing provisional liquidators, unless expressly permitted by:
- the articles of association; or
- an ordinary resolution.
A practice has developed whereby a ‘friendly’ creditor is approached to present the winding-up petition, and the company then piggybacks on the creditor’s petition to seek the appointment of provisional liquidators to help promote the scheme. However, there is some uncertainty as to whether the court rules strictly permit this mechanism.
Anticipated legislative reform is expected to establish a standalone restructuring moratorium proceeding and empower company directors to resolve to present a petition for the restructuring of the company through the restructuring moratorium proceeding. That would side-step the issue identified in the previous paragraph.
Procedures What are the primary formal restructuring procedures available in your jurisdiction and what are the key features and requirements of each?
It is possible to implement informal work-outs in the Cayman Islands, provided that they are supported by the requisite stakeholders.
However, the principal mechanism used to restructure a company’s liabilities is a scheme of arrangement between the company and its creditors or shareholders, or classes of creditors or shareholders, pursuant to Section 86 of the Companies Law. If a scheme is approved by more than 50% by number and 75% by value of those attending and voting in each class, and is subsequently approved by the court, it will bind all scheme participants (including any dissentient minority) and compromise their rights in accordance with the scheme terms.
Schemes can be promoted by the management outside of any insolvency process, but they are commonly combined with the presentation of a winding-up petition and the appointment of provisional liquidators in order to obtain the benefit of an automatic stay of actions against the company while the scheme is undertaken.
A scheme implemented during a provisional liquidation may still be promoted by the directors with the provisional liquidators merely having a supervisory role (in what are known as ‘light touch’ provisional liquidations), or the provisional liquidators can temporarily displace the directors in order to promote the scheme. If the scheme is approved by the court, typically:
- the winding-up petition will be dismissed;
- the provisional liquidators will be discharged; and
- the restructured company will be returned to the full control of its management.
In some instances, restructurings have been implemented without a scheme of arrangement, by using a Cayman provisional liquidation to obtain an automatic stay and to facilitate and give effect to an overseas restructuring process.
Debt for equity swaps are a common feature of Cayman schemes. Pre-packaged sales are also possible but are less common in practice.
How are restructuring plans formally approved?
Typically, the company negotiates with key stakeholders to arrive at a restructuring proposal in the form of a scheme of arrangement (or various interrelated schemes of arrangement in the case of a group restructuring).
The company then seeks an order from the court that class meetings be convened so that the creditors or shareholders may meet together to consider the merits of the scheme. Any proposed scheme must be approved at each class meeting that is convened; the threshold for approval is a majority by number and at least 75% by value of those attending and voting in each class.
If all classes approve the scheme, a further court hearing is necessary for the court to consider whether to approve the scheme, taking into consideration, among other things, whether the scheme is fair and reasonable.
If approved, once filed with the Registrar of Companies, the scheme will bind all scheme participants (including any dissentient minority) and compromise their rights in accordance with the scheme terms.
What effects do restructuring procedures have on existing contracts?
Save as otherwise provided in the existing contract itself, the contract will be unaffected by the company’s decision to restructure its liabilities, whether by an informal work-out or scheme of arrangement. The rights and obligations under the contract may be affected by the terms of the restructuring, once it becomes effective.
What is the typical timeframe for completion of restructuring procedures?
A scheme may proceed from presentation of the scheme petition to the class meetings to approve it within around 12 weeks, subject to the availability of the court in relation to the two required court hearings.
Court involvement What is the extent of the court’s involvement in restructuring procedures?
Schemes of arrangement must proceed through a court process. There are two court hearings on either end of the process. At the first hearing, the court considers whether to order the convening of scheme meetings and, among other things, how many different classes there should be. If the scheme is approved by all class meetings, there will be a further hearing, where the court considers whether to approve the scheme.
Creditor involvement What is the extent of creditors’ involvement in restructuring procedures and what actions are they prohibited from taking against the company in the course of the proceedings?
In an informal work-out, creditors and the company negotiate in an attempt to arrive at a consensual restructuring. An informal work-out involves no automatic stay on claims against the company.
Where there are limited prospects of unanimity, the scheme of arrangement is used in order to cram down dissentient creditors. A company seeking to restructure its liabilities through the promotion of a scheme of arrangement will negotiate directly with key creditors before presenting the scheme petition. Creditors may participate:
- at the court hearing at which the company seeks orders convening creditors’ meetings;
- at the meetings themselves where creditors meet to vote on the scheme; and
- at the court hearing at which the company seeks court approval of the scheme (if approved by each creditor meeting).
Secured creditors cannot be crammed down in the Cayman Islands. They are free to enforce their contractual security at any stage. More often than not, this means that the company being schemed will need to pay the secured creditors in full or come to some other agreement with them outside the scheme process.
Under what conditions may dissenting creditors be crammed down?
In a scheme of arrangement, if the scheme achieves the relevant statutory majorities at the scheme meetings and is subsequently approved by the court, the dissenting creditors will be crammed down. Apart from this, secured creditors cannot effectively be crammed down through this or any other restructuring process in the Cayman Islands, since they are entitled to enforce their contractual security.
Director and shareholder involvement What is the extent of directors’ and shareholders’ involvement in restructuring procedures?
With schemes of arrangement promoted within a provisional liquidation, directors may remain in place, not only running the company’s day-to-day business but also negotiating with stakeholders and preparing the scheme that will be presented.
Shareholders will be involved in members’ schemes of arrangement, most typically involving a merger process. If the only rights to be compromised by the scheme are creditors’ rights, shareholders will not be involved in the scheme at all and will not participate in class meetings.
Informal work-outs Are informal work-outs available for distressed companies in your jurisdiction? If so, what are the advantages and disadvantages in comparison to formal proceedings?
Informal work-outs are available. They do not involve a judicial process, which has the potential to save time and cost. However, they require full support from all those whose rights are being affected; there is no means of cramming down dissentients.
Setting aside transactions What rules and procedures govern the setting aside of an insolvent company’s transactions? Who can challenge eligible transactions?
If directors dispose of the company’s property at an undervalue with the intention of wilfully defeating an obligation owed to a creditor, the transaction is voidable. An application to set aside a transaction at an undervalue may be made only by an official liquidator; such an application must be made within six years of the relevant transaction.
A transaction may also be set aside if it constitutes a voidable preference. This rule will catch a disposal by the company to a creditor in the six months before the commencement of the liquidation of the company, insofar as:
- the company was unable to pay its debts as they fell due at the time of the transaction; and
- the dominant intention of the company’s directors in executing the transaction was to give that creditor a preference over other creditors.
An application to set aside a voidable preference is available only to an official liquidator.
Operating during insolvency
Criteria Under what circumstances can a company continue to conduct business during an insolvency procedure?
A company in official liquidation is in a terminal process. However, official liquidators may carry on the business of the company as is necessary for its beneficial winding up, but only if the court approves such action following an application by the liquidator.
A company in provisional liquidation, with provisional liquidators ‘holding the ring’ before the winding-up petition being heard, will carry on functions as the court may confer on them and the powers may be limited by the order appointing them.
As with official liquidation, a voluntary liquidation is intended as a terminal process; the object is to cease trading and wind up the business. However, the voluntary liquidator may continue the company’s business where this beneficial for its winding up.
Stakeholder and court involvement To what extent are relevant stakeholders (eg, creditors, directors, shareholders) and the courts involved in any business conducted during an insolvency procedure?
The power of an official liquidator to carry on the business of the company as necessary for its beneficial winding up is exercisable only with court approval. The authority of the directors is displaced by the making of the winding-up order, but they may be obliged to cooperate with the liquidator if the company’s business is to continue. Creditors or shareholders will be involved only in the approval process.
A provisional liquidator’s power to conduct business will be expressly prescribed by court order, or else the provisional liquidator will have no such power.
In a voluntary liquidation, on the appointment of a voluntary liquidator all the powers of the directors cease, except as far as the company in a general meeting or the liquidator approves their continuance. It is conceivable, therefore, that directors of the company may be involved in conducting business during a voluntary liquidation. Shareholders in a solvent voluntary liquidation may continue to pass resolutions in general meetings.
Financing Can an insolvent company obtain further credit or take out additional secured loans during an insolvency procedure?
Official liquidators have the power to raise or borrow money and grant security over the property of the company, but only with court approval.
Provisional liquidators will have no such power unless granted by the court at the time of their appointment.
A voluntary liquidator may raise finance or grant security without needing to seek court approval, save to the extent that the liquidator’s powers have been limited by the resolution in the general meeting appointing the liquidator.
Effect of insolvency on employees How does a company’s insolvency affect employees and the company’s legal obligations to employees?
A winding-up order will, as a matter of common law, terminate all contracts of employment of a company in official liquidation.
A voluntary or provisional liquidation will have no legal effect on employees save to the extent, if any, provided for in their employment agreement.
Employees’ rights will be affected by a scheme of arrangement only if and to the extent that it purports to compromise their rights as creditors under their employment agreements. This is unusual in practice.
Recognition of foreign proceedings Under what circumstances will the courts in your jurisdiction recognise the validity of foreign insolvency proceedings?
On application by a foreign representative (defined as a trustee, liquidator or other official appointed for the purposes of a foreign bankruptcy proceeding), the court can make orders ancillary to the foreign bankruptcy proceedings to:
- recognise the foreign representative’s right to act in the Cayman Islands on behalf, or in the name, of the debtor;
- grant a stay of proceedings or the enforcement of a judgment against the debtor;
- require certain persons with information concerning the debtor’s business or affairs to be examined by, and produce documents to, the foreign representative; or
- order the turnover of the debtor’s property to the foreign representative.
Winding up foreign companies What is the extent of the courts’ powers to order the winding up of foreign companies doing business in your jurisdiction?
The court can wind up a foreign company if it:
- has property in the Cayman Islands;
- is carrying on business in the Cayman Islands;
- is the general partner of a limited partnership; or
- is a registered foreign company under Part IX of the Companies Law.
Centre of main interests How is the centre of main interests determined in your jurisdiction?
Cross-border cooperation What is the general approach of the courts in your jurisdiction to cooperating with foreign courts in managing cross-border insolvencies?
It is common for international bankruptcies and liquidations to involve the Cayman Islands and other jurisdictions. In such cases, the Cayman Islands courts adopt a flexible and cooperative approach to ensure the most effective winding up of the company’s affairs and protection of the interests of its creditors, wherever these are situated.
Further, Cayman Islands officeholders must consider whether it is appropriate to enter into an international protocol with any foreign officeholder. An international protocol may facilitate the orderly administration of the estate of a company in liquidation, avoid duplication of work and avoid the possibility of conflict between the official liquidator and the foreign officeholder.
News source: Lexology