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On August 31st, 2022, a new ‘company-restructuring’ regime in the Cayman Islands came into force[1] and, as detailed in the Companies (Amendment) Act, 2021[2] which amends Part V of the Companies Act (2021 Revision)[3], now the Companies Act (2022 Revision), the directors of a company “without a resolution of its members or an express power in its articles of association” may present a petition to the Grand Court of the Cayman Islands (the “Court”) for an order appointing a Cayman Islands ‘qualified insolvency practitioner’ as a ‘restructuring officer’ with the power to ‘restructure’ the company[4].
Prior to August 31st, 2022, a Cayman Islands ‘company-restructuring’ required the appointment of a ‘provisional’ liquidator as the Cayman Islands[5] had no stand-alone statutory company-restructuring regime such as a restructuring in the United States under Chapter 11 of its Bankruptcy Code or an administration in the United Kingdom under its Insolvency Act 1986. However, although the prior ‘company-restructuring’ scheme worked, there was concern that the appointment of a ‘provisional’ liquidator might be perceived to have the unfortunate optical connotation of an irreversible insolvency and, indeed, the appointment of a ‘provisional’ liquidator might have triggered contractual insolvency clauses. The Companies (Amendment) Act, 2021 has addressed these concerns.
Appointment of a ‘Restructuring Officer’: Petition to the Court by the Directors
A company “acting by its directors, without a resolution of its members or an express power in its articles of association” (Section 91B.(2)) “may present a petition to the Court for the appointment of a restructuring officer on the grounds that the company –
a. is or is likely to become unable to pay its debts within the meaning of section 93; and
b. intends to present a compromise or arrangement to its creditors (or classes thereof) either, pursuant to this Act, the law of a foreign country or by way of a consensual restructuring.” (Section 91B.(1))
“The Court may, on hearing of a petition under subsection (1) –
a. make an order appointing a restructuring officer;
b. adjourn the hearing conditionally or unconditionally;
c. dismiss the petition; or
d. make any other order as the court thinks fit, except an order placing the company into official liquidation, which the Court may only make in accordance with sections 92 and 95 if a winding up petition has been presented in accordance with sections 91G and 94.” (Section 91B.(3))
Powers and Functions of a ‘Restructuring Officer’ to be conferred by the Court
A ‘restructuring officer’ appointed by the Court under Section 91B.(3)(a) “shall have the powers and carry out only such functions as the Court may confer on the restructuring officer in the order appointing the restructuring officer, including the power to act on behalf of the company.” (Section 91B.(4))
Interim Appointment of a ‘Restructuring Officer’
A company “acting by its directors, without a resolution of its members or an express power in its articles of association” (Section 91C.(2)) may make an “ex parte application to the Court for the appointment of a restructuring officer on an interim basis pending the hearing of the petition under section 91B(1)” (Section 91C.(1)) and “shall have the powers and carry out only such functions as the Court may confer on that restructuring officer in the order appointing the restructuring officer, including the power to act on behalf of the company.” (Section 91C.(4)
Stay of Proceedings (“other than criminal proceedings”)
“At any time –
a. after the presentation of a petition for the appointment of a restructuring officer under section 91B, but before an order for the appointment of a restructuring officer is made, and when the petition has not been withdrawn or dismissed; and
b. when an order for the appointment of a restructuring officer is made, until the order appointing the restructuring officer has been discharged,
no suit, action or other proceedings, other than criminal proceedings, shall be proceeded with or commenced against the company, no resolution shall be passed for the company to be wound up and no winding up petition may be presented against the company, except with the leave of the Court and subject to such terms as the Court may impose.” (Section 91G.(1))
No Moratorium on the Enforcement of a Creditor’s Security
“Notwithstanding the presentation of a petition for the appointment of a restructuring officer or the appointment of a restructuring officer by the Court under section 91B or 91C, a creditor who has security over the whole or part of the assets of the company is entitled to enforce the creditor’s security without the leave of the Court and without reference to the restructuring officer appointed under section 91B or 91C.” (Section 91H)
Power to Compromise with Creditors or Members
“Where a restructuring officer is appointed to a company and a compromise or arrangement is proposed between the company and its creditors or any class of them, or the company and its members or any class of them, the Court may, on the application of the restructuring officer, order a meeting of the creditors or class of creditors, or of the members of the company or class of members, as the case may be, to be summoned in such manner as the Court directs.” (Section 91I(1))
Creditors: “If a majority in number representing seventy-five per cent in value of the creditors or class of creditors, as the case may be, present and voting either in person or by proxy at the meeting, agree to any compromise or arrangement, the compromise or arrangement shall, if sanctioned by the Court, be binding on all the creditors or the class of creditors, as the case may be, and also on the company.” (Section 91I(2)
Members: “If seventy-five per cent in value of the members or class of members, as the case may be, present and voting either in person or by proxy at the meeting, agree to any compromise or arrangement, the compromise or arrangement shall, if sanctioned by the Court, be binding on all the members or class of members, as the case may be, and also on the company.” (Section 91I(3))
Provision for Facilitating the Construction and Amalgamation of Companies
“Where an application is made to the Court under section 91I for the sanctioning of a compromise or arrangement proposed between a company and any such persons as are specified in that section, and it is shown to the Court that the compromise or arrangement has been proposed for the purpose of or in connection with a scheme for the reconstruction of any company or companies or the amalgamation of any two or more companies, and that under the scheme the whole or any part of the undertaking or the property of any company concerned in the scheme (in this section referred to as “a transferor company”) is to be transferred to another company (in this section referred to as “the transferee company”) the Court, may either by the order sanctioning the compromise or arrangement or by any subsequent order make provision for –
a. the transfer to the transferee company of the whole or any part of the undertaking and of the property or liabilities of any transferor company;
b. the allotting or appropriation by the transferee company of any shares, debentures, policies, or other like interests in that company which under the compromise or arrangement are to be allotted or appropriated by that company to or for any person;
c. the continuation by or against the transferee company of any legal proceedings pending by or against any transferor company;
d. the dissolution, without winding up, of any transferor company;
e. the provisions to be made for any person who within such time and in such manner as the Court directs dissents from the compromise or arrangement; and
f. such incidental, consequential and supplemental matters as are necessary to secure that the reconstruction or amalgamation is fully and effectively carried out.” (Section 91J.(1))
First Appointment
By an Order of the Grand Court of the Cayman Islands dated 11 November 2022 the first restructuring officers were appointed with a joint appointment between a Hong Kong insolvency practitioner and two Cayman insolvency practitioners.
Footnotes
[1] Companies (Amendment) Act, 2021 (Commencement) Order, 2022
http://gazettes.gov.ky/portal/pls/portal/docs/1/13132651.PDF
[2] https://legislation.gov.ky/cms/images/LEGISLATION/PRINCIPAL/1961/1961-0003/CompaniesAct_2022%20Revision.pdf
[3] Part V is now headed ‘Company Restructuring and Winding up of Companies and Associations’ rather than ‘Winding up of Companies and Associations’
[4] The Court may appoint a ‘foreign practitioner’ to act as a joint ‘restructuring officer’ with a Cayman Islands ‘restructuring officer’ but the ‘foreign practitioner’ may not act as a sole ‘restructuring officer’.
[5] Prevention of “dissipation or misuse of the company’s assets” / “oppression of minority shareholders” / “mismanagement or misconduct on the part of the company’s directors: An application for the appointment of a provisional liquidator may continue to be made by a company’s creditor or contributory “on the grounds that — (a) there is a prima facie case for making a winding up order; and (b) the appointment of a provisional liquidator is necessary in order to — (i) prevent the dissipation or misuse of the company’s assets; (ii) prevent the oppression of minority shareholders; or (iii) prevent mismanagement or misconduct on the part of the company’s directors.” (Section 104(2))
BDO invites enquiries regarding resources and other ways our firm can provide assistance with such matters to Declan Magennis (DMagennis@bdo.ky) or Russell Smith (RSmith@bdo.ky).