Vol 5 (2008) - Issue 5

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Changes to the Cayman Islands Insolvency Regime: A Brief Review

The enactment of the Companies (Amendment) Law 2007 (the ‘Law’) heralded the first major revision to the Cayman Islands’ insolvency regime since its inception in 1961. The enactment of the Law replaces, in its entirety, the previous legislation most recently set out in Part V of the Companies Law (2007 Revision) (the ‘Old Law’).

The substantive provisions of the Law are yet to come into effect. Pursuant to s. 1(2) of the Law, only sections 154 and 155 are currently in force and provide for the establishment of an Insolvency Rules Committee to draft and implement Cayman Islands Insolvency Rules. All other provisions will come into force on such date or dates as may be appointed by the Governor. It follows that at the time of writing the Old Law continues to apply.

The Law is largely the work of the Law Reform Commission (the ‘Commission’), which concluded that the existing law suffered from being unduly complex being a combination of 19th century legislation, inappropriate foreign rules and local case law. The Law is designed to remedy these difficulties. This article aims to highlight, in brief, the major changes brought about by the Law and examines the introduction of a new Part XVI on international cooperation.

Commencement of a winding up

Under the Old Law a number of issues in respect of winding up were unclear. Firstly, it was unclear whether s. 133(1) permitted a company to be put into liquidation automatically at the expiry of a fixed term or upon the occurrence of an event. Secondly, it was unclear whether the Court had jurisdiction to wind up a foreign company, and thirdly it was unclear whether a prospective or contingent creditor had standing to petition.

In respect of an automatic liquidation, s. 90(b)(ii) and (iii) clarifies the Old Law and confirms that a company may be wound up (a) because the period fixed for the duration of the company by its articles of association has expired or (b) on the occurrence of an event upon which the articles of association provide that the company shall be wound up.

As to the winding up of a foreign company, s. 91(d) of the Law allows the Court to make such an order providing the company has property located in the Islands; is carrying on business in the Islands; is the general partner of a limited partnership; or is registered under Part IX of the Old Law. Quite how, and to what extent, the Court will exercise its discretion remains to be seen. It is likely that in the first instance, the Court will rely on the established English authorities. However, practitioners will watch with interest how this new jurisdiction develops within the context of the Cayman Islands.

In respect of standing to petition, s. 94(i)(b) allows a contingent or prospective creditor to petition. This is designed to remedy the inequitable position under the Old Law whereby a petition could only be brought by the company itself, a creditor or a contributory to the company.