The Cayman Islands Court of Appeal has held that a liquidator cannot use his or her statutory power pursuant to Section 112(2) of the Companies Law to rectify the register of members where the effect would be to override investors' proprietary rights. It held that the section does not aim to provide for substitution of incorrect net asset value if, despite its incorrectness, it has been calculated in accordance with a member's contractual rights.
The Cayman Islands Court of Appeal recently provided some clarity on the ranking of priority in the liquidation of amounts owing to shareholders and former shareholders of a company operating as an open-ended investment fund. The decision has confirmed that Section 37(7)(a) of the Cayman Islands Companies Law applies where a shareholder has merely accrued the right to redeem his or her shares, but has not yet completed the redemption process prescribed by the company's articles.
A recent decision by the Supreme Court of New York Appellate Division has affirmed that the law of the Cayman Islands applied on the question of the law applicable to derivative claims brought by a shareholder of a Cayman Islands company in the New York jurisdiction. Any shareholder of a Cayman Islands company that wishes to bring a derivative action must commence the action in the Cayman Islands.
A widely discussed recent Cayman Grand Court decision declined to follow the precedent set in Re China Milk Products Group Ltd, instead striking out a winding-up petition filed by the directors of China Shanshui Cement Group Limited for lack of standing. The decision re-establishes the principles set out in the English case of Re Emmadart Ltd as good law in the Cayman Islands.
Insolvency law is principally regulated by the Companies Law and the Companies Winding Up Rules 2008, supplemented by a wide body of case law. This update summarises their features, including provisions on insolvency, commencement, appointment of a liquidator, priority, set-off, challengeable transactions, misfeasance, debt restructuring schemes, accreditation and cross-border issues.
The Court of Appeal has handed down a long-awaited judgment in a case measuring the liability of directors. The case sent shockwaves through the funds industry in Cayman and the offshore world when it was decided at first instance. The Court of Appeal's judgment allowed the appeal and set aside the order of the trial judge which had ordered the directors to pay damages of $111 million.
The Court Fees Rules 2009 were amended by the Court Fees (Amendment) Rules 2009. As recent court practice illustrates, the amendment to the rules has provided a welcome and attractive addition to the procedure of the court in its supervision of compulsory winding up, enabling the court to weigh the interests of creditors and the interests of justice against the broad public interest taken as a whole.
Three new sets of rules and an amendment to the Grand Court Rules were published in a special issue of the Cayman Islands Gazette, establishing a new insolvency regime. Amendments to the Companies Law that were enacted in 2007 but not brought into force pending the preparation of the rules will now enter into effect at the same time as the new rules on March 1 2009.
The US District Court for the Southern District of New York has upheld the rejection of a petition by liquidators of the Bear Stearns High Grade Structured Credit funds for recognition of their liquidation proceedings in the Cayman Islands. Although this confirms the challenges for many distressed hedge funds that are considering bankruptcy, there may be solutions which allow for a successful Chapter 15 filing.
The Companies (Amendment) Law 2007 will, when brought into force, repeal and replace the existing provisions dealing with the winding-up of companies, simplifying and updating the law in line with modern international standards, while maintaining its 'creditor-friendly' character.
Recent New York Bankruptcy Court decisions have created an impression of judicial xenophobia towards the Cayman insolvency regime. The rulings could disqualify any offshore fund incorporated as an exempted company from being subject to a 'foreign non-main proceeding'. Fund promoters should therefore give consideration to improving their prospects of identifying Cayman as their centre of main interests.
Two recent cases have brought further clarity to the issue of what a creditor must prove in order to petition for the winding-up of a company. It is now clear that the Cayman courts will not entertain a fanciful petition to place a company into liquidation where the amount of the petition debt has not yet been properly determined.