Vol 13 (2016) - Issue 3

Article preview

Participation by International Stakeholders in Cayman Islands Insolvencies

Introduction
Companies incorporated in the Cayman Islands usually conduct operations and hold assets elsewhere than in the Cayman Islands and Cayman Islands corporate insolvencies therefore commonly have a significant international dimension. Corporate insolvencies are conducted under the supervision of the Financial Services Division of the Grand Court of the Cayman Islands and the requirements of Cayman law mean that the insolvency practitioners (the liquidators) require court approval ('sanction' in the language of the statute) before they can take certain significant steps in the liquidation. Those steps include: bringing and defending legal proceedings, carrying on the corporate business, making compromises or arrangements with creditors and compromising claims. Another feature of Cayman corporate insolvencies is the liquidation committee: a committee of creditors must be established in respect of every insolvent company being wound up by the court. The liquidators must report to the members of the committee and when the liquidators require sanction the members of the committee are entitled to be heard on the application for sanction. A recent decision In the matter of PAC Ltd (in official liquidation) shows that these features of liquidations in the Cayman Islands can be used to provide an opportunity for creditors based overseas to play an informed and potentially decisive role in important decisions in the liquidation.

The committee’s role
Liquidation committees have a role both in solvent and insolvent liquidations. Following their appointment, Cayman liquidators must determine whether the company is solvent, insolvent or of doubtful solvency and call appropriate meetings of creditors (if insolvent), shareholders (if solvent) or both (if of doubtful solvency). At these meetings, the liquidators will seek to form a liquidation committee: a representative body of creditors and/or shareholders (as appropriate depending upon the solvency determination). Where the company is determined to be insolvent only creditors are eligible to serve on the liquidation committee. Following the appointment of a committee, liquidators have limited obligations to continue to report to those who are not on the committee.
The committee on the other hand is entitled to have frequent reports of all such matters as are of concern to the committee with respect to the winding up. The liquidators must also seek the committee’s views on their remuneration before applying for court approval and must serve every application for sanction of the exercise of their powers (a 'sanction application') on each member of the committee. In practice therefore, there is usually an ongoing dialogue between the liquidators and the committee, which is provided with information in order to participate in the dialogue on an informed basis.