Nigel Meeson QC and Stephen Leontsinis highlight the many benefits to the Cayman Islands of the recently introduced Amendment Law
On 1 March 2009 the Companies (Amendment) Law 2007 came into effect in the Cayman Islands.
The highlights of the Amendment Law are:
- a clarification of existing law and practice;
- the introduction of remedies for fraudulent trading;
- the creation of a new ‘oppression remedy’ for shareholders of companies registered in Cayman;
- new provisions with regard to the ’voluntary winding up of companies’;
- the introduction of ‘international cooperation’ provisions;
- the introduction of new insolvency rules; and
- the introduction of secured creditors.
There is now an express provision that secured creditors are entitled to enforce their security without the permission of the court or reference to the liquidator. There is also clarification regarding the applicability of set-off and netting provisions, meaning that it is now clear that multilateral set-off is included.
Provisional liquidation in aid of reconstruction
The practice of the Cayman court to allow the use of provisional liquidation in aid of reconstruction has been given a statutory basis. The company may apply for a provisional liquidator where it is, or is likely to become, unable to pay its debts and intends to present a compromise or arrangement to its creditors.
Various new offences relating to fraudulent trading or concealment of assets are created that apply to directors (including shadow directors), officers and professional service providers.
In addition, the court has power to declare that business of the company was being conducted with intent to defraud creditors or for a fraudulent purpose and impose liability to make contribution to the company’s assets by anyone knowingly party to the fraudulent trading
The oppression remedy
The Amendment Law introduces new powers in connection with petitions brought by members of a company as contributors, on the ground that it is just and equitable that the company be wound up. This effectively introduces an ‘oppression remedy’ for the first time. However, unlike its English cousin, the ‘unfair prejudice remedy’, it does not exist as a freestanding right, but is framed in terms of alternative relief that the court can grant on a just and equitable winding-up petition.
The court is specifically empowered to make certain orders, for example an order regulating the future conduct of the company’s affairs or providing for the purchase of a minority shareholder’s shares by the company or the majority shareholders.
The voluntary winding up of companies declaration of solvency
Under the Amendment Law, any person, including a director or officer of the company, may be appointed as a voluntary liquidator, which continues the existing practice. However, the voluntary liquidator is required to apply to court within 28 days of the commencement of the liquidation for an order that the liquidation continue under the supervision of the court unless all of the directors have signed a Declaration of Solvency in the prescribed form.
The principles of cross-border cooperation for insolvencies of foreign companies holding assets in Cayman have been codified. The Grand Court is empowered to make ancillary orders to a foreign bankruptcy proceeding on application by a ‘foreign representative’ appointed in respect of a debtor for the purposes of a foreign bankruptcy proceeding.
Such ancillary orders may be made for the following purposes:
- recognising the right of that foreign representative to act in Cayman on behalf of, or in the name of, the debtor;
- enjoining the commencement or staying the continuation of legal proceedings against a debtor;
- staying the enforcement of any judgment against the debtor;
- requiring certain persons to be examined by, and produce documents to, that foreign representative; and
- ordering any property belonging to a debtor to be delivered to that foreign representative.
In making a determination as to whether to make such an ancillary order, the court must consider the circumstances that will best ensure an economic and expeditious administration of the debtor’s estate.
The insolvency rules
The Amendment Law established an insolvency rules committee, which has published the Insolvency Practitioners’ Regulations, the Foreign Bankruptcy Proceedings (International Cooperation) Rules and the Companies Winding-up Rules.
Official liquidators now have to be qualified Cayman insolvency practitioners, although foreign insolvency practitioners may continue to be appointed jointly with a Cayman-regulated, qualified insolvency practitioner.
The Companies Winding-up Rules provide a modern and comprehensive procedural code for Cayman insolvency practice and procedure.
These changes represent a welcome modernisation of Cayman’s insolvency regime that will enable insolvent Cayman companies to continue to be wound up in a transparent, efficient and cost-effective manner to the benefit of their creditors.
In addition, they introduce some welcome sanctions against fraudulent trading and other measures to promote good corporate governance.
Nigel Meeson QC is head of litigation and restructuring and Stephen Leontsinis is an associate at Conyers Dill & Pearman