At the recent Chambers Economic Forum, the Cayman government announced its intention to bring in a much-anticipated new regime governing corporate restructuring by the end of 2020. Until then, with the COVID-19 pandemic pushing many groups into the zone of insolvency, the following considerations remain relevant to structures involving a Cayman entity:
- In recent years, the Cayman courts have become increasingly sympathetic to the needs of debtor companies looking to implement a viable restructuring plan.
- Secured creditors can enforce their security in accordance with contractual terms independent of any formal insolvency proceeding and unaffected by the automatic stay arising from such proceedings.
- Solvency in the Cayman Islands is determined by reference to a cash-flow test, but balance sheet solvency will nonetheless be relevant to the exercise of directors' duties and the viability of a restructuring proposal.
- When a Cayman company is within the zone of insolvency, the directors must prioritise the interests of creditors when exercising their fiduciary duties to the company.
- The appointment of voluntary liquidators does not involve a court process or impose a moratorium on legal proceedings, but voluntary liquidators (or any creditor or contributory) may subsequently apply for court supervision where enhanced liquidator powers or a stay on proceedings would be in the best interests of stakeholders.
- A company facing court-ordered liquidation may apply to appoint liquidators on a provisional basis in order to promote a plan of reorganisation, including a scheme of arrangement.
- An onshore liquidation proceeding or restructuring arrangement will generally not bind creditors of a Cayman company that are not subject to the jurisdiction of the onshore court, such that a parallel Cayman process will often need to be considered.
Oliver Payne, partner, contributed to the preparation of this article.
