A Cayman Islands company may be wound up either voluntarily according to its articles of association or compulsorily by the Grand Court. This article provides an overview of the compulsory process. In certain circumstances, the Grand Court may recognise the appointment of foreign liquidators to a Cayman company, but this article focuses on winding-up proceedings within the Cayman Islands. Similarly, it is possible to seek in the Grand Court the winding up of a non-Cayman entity, but that is beyond the scope of this article.
A petition seeking the winding up of a Cayman company may be presented to the Grand Court by:
- the company itself;
- any creditor or creditors of the company (including any contingent or prospective creditors);
- any contributory or contributories of the company; or
- the Cayman Islands Monetary Authority.
The standing of the petitioner may require further analysis:
- If the petitioner is the Cayman company itself, the Grand Court must be satisfied that its board of directors has the requisite authority under its articles of association to present a petition without a shareholder resolution.
- A petitioning creditor must have a debt that is due, payable and not disputed. If the Cayman company denies the liability to repay the debt, the Grand Court may determine the standing of the creditor, although the existence of an arbitration clause or foreign proceedings relating to the debt in question may lead to a dismissal or stay of the petition.
- A petitioning contributory must have held the legal title to the relevant shares for at least six months, be fully paid up and must not have agreed not to present a petition.
The primary grounds for winding-up petitions which come before the Grand Court are that:
- the Cayman company is unable to pay its debts; or
- it is just and equitable to wind up the Cayman company.
For these purposes, solvency in the Cayman Islands is determined by reference to a cash-flow test. There is a statutory provision deeming a Cayman company to be unable to pay its debts if it has neglected to pay (or secure or compound) for three weeks a statutory demand for a sum of at least CI$100.
That presumption is rebuttable – in particular, where there are grounds to suggest that the debt is disputed on bona fide and substantial grounds (for further details please see "Snapshot: determining whether a petition debt is disputed on substantial grounds"). The Grand Court has discretion to determine such disputes in favour of the petitioner or may stay or dismiss the petition as an abuse of process. If the statutory presumption of insolvency is not available, the creditor may nonetheless establish to the satisfaction of the Grand Court that the Cayman company is unable to pay its debts and the court may infer an inability to pay from an unreasonable refusal to pay on the part of the Cayman company.
The alternative basis for compulsory winding up on the just and equitable ground provides the Grand Court with a broad discretion to make a winding-up order or grant alternative remedies. Just and equitable winding-up petitions may proceed against the Cayman company as defendant (like an insolvency petition) or, if the Grand Court considers that the Cayman company is more appropriately the subject of a dispute between shareholders, the court may allow the petition to continue as an inter partes dispute between the shareholders.
Examples of circumstances in which the Grand Court may wind up a company on the just and equitable ground include loss of confidence in management arising from lack of probity, failure of purpose, fraud or a falling out of shareholders whose relationship amounted to a quasi-partnership.
Consequences of presentation of a petition
If a winding-up order is granted, there is a moratorium on creditor action and therefore no race to enforcement – although secured creditors may enforce security at any time. If the Grand Court makes a winding-up order, the date of presentation of the petition is the deemed commencement date of the winding up and therefore the look-back periods for any avoidance actions crystallise as at that date. Given that any disposition of the assets of a Cayman company are void following the deemed commencement date of the liquidation, this can make counterparties wary following the presentation of a petition, but the act of presenting the petition does not itself change the Cayman company's contractual rights and a prospective validation of the court may be sought in circumstances where a transaction is objectively in the best interests of the Cayman company's stakeholders.
Ultimately, the decision to make a winding-up order is discretionary and the Grand Court may always order an adjournment or stay of the petition, require further evidence or give directions concerning outstanding issues. If the Grand Court considers it appropriate to wind up the Cayman company, it will appoint an official liquidator (often joint official liquidators for practical purposes). The nominated official liquidator must have the requisite independence, qualification and expertise to conduct the liquidation of the Cayman company but can be appointed jointly with a foreign liquidator, such as an officeholder based in the primary jurisdiction in which the Cayman company has assets.
Oliver Payne, partner, assisted in the preparation of this article.
