The Cayman Islands legislature gazetted the Companies (Amendment) Bill, 2021, on 21 October, which introduced a new corporate restructuring process. The bill represents a welcome development to the restructuring regime in the Cayman Islands and once again fortifies the Cayman Islands’ reputation as a leading offshore financial hub and a popular destination for foreign investment opportunities. This article examines the amendments introduced in the bill and the implications for existing and prospective investors in the Cayman Islands.
Current position under the Cayman Companies Act, 2021. Before the introduction of the bill, there was no formal restructuring regime in the Cayman Islands akin to the UK’s administration process or to Chapter 11 proceedings in the US. Under the act, the only option available to a company in distress is to appoint provisional liquidators, which will trigger a moratorium that will in turn allow the company breathing space and, where appropriate, enable it to propose a restructuring to its creditors.
In practice, this means that a winding-up petition against the company will first have to be presented for it to undergo any restructuring. That can be done by the company – through a shareholders’ special resolution – its creditors or contributories. Further, directors may present a winding-up petition on the company’s behalf without needing the sanction of a shareholders’ special resolution provided that such power is expressly provided for in the company’s articles and assuming it was incorporated after 1 March 2009.
At the hearing of a winding-up petition, the court has jurisdiction to, inter alia, make appropriate orders to facilitate a restructuring of the company. This would ordinarily involve the appointment of provisional liquidators to facilitate the restructuring process. The presentation of a winding-up petition alone will not give rise to a moratorium. Only the making of an order for the appointment of a provisional liquidator, or an official liquidator, will have that effect.
The new regime under the bill. With the introduction of the bill, part V of the act will be amended to include provisions for a company restructuring. The new provisions introduce a formal, standalone restructuring procedure for companies outside the traditional winding-up regime prescribed in the act.
The new regime establishes the concept of a “restructuring officer”, a qualified insolvency practitioner who acts as an officer of the court, and who will supervise the company’s restructuring process.
A company’s directors are empowered under that regime to present a petition for the appointment of a restructuring officer. This can be done without a shareholders’ resolution or any express power in the company’s articles. That being said, the company’s members may have grounds to restrain the directors from doing so where there is a provision in the company’s articles that expressly prohibits this.
Under the proposed section 91B, a company may present a petition to the court for the appointment of a restructuring officer on the basis that the company is, or is likely to become, unable to pay its debts and intends to present a compromise or arrangement to its creditors, or classes of creditors, either pursuant to the act, the law of a foreign country, or by way of a consensual restructuring.
It will therefore no longer be necessary for a winding-up petition to be presented as a precursor to a court-supervised restructuring, and the court will not have the power to wind up the company when presented with a petition to appoint a restructuring officer. Pending the hearing of that application, the company may also apply ex parte to the court for the appointment of an interim restructuring officer.
An automatic moratorium would be triggered upon the presentation of a petition to appoint a restructuring officer. This would prevent the continuation or commencement of any proceedings against the company without the leave of a court, including all foreign proceedings and any proceedings to wind up the company. However, secured creditors will still be able to enforce their security against the company, without needing court sanction and without seeking the approval of the restructuring officer.
The powers conferred on a restructuring officer are generally flexible and will be subject to the court’s discretion.
Where the restructuring officer proposes to pursue a scheme of arrangement as part of the company’s restructuring plan, he/she may make an application within the restructuring proceedings without the need for separate proceedings under the act for sanction of that scheme. As a result, there will be significant time and cost savings for a company already in distress.
In addition to the introduction of a standalone restructuring regime, there is another notable amendment in the proposed legislation. That amendment will allow directors of companies incorporated after the bill comes into force to present a winding-up petition on behalf of the company on the grounds that the company is unable to pay its debts as they fall due or, where a winding-up petition has been presented, to apply on the company’s behalf for the appointment of a provisional liquidator.
As stated above, at present, directors may present a winding-up petition on the company’s behalf without the sanction of a special resolution passed at a general meeting only if such power is expressly provided for in the company’s articles of association and the company was incorporated after 1 March 2009. The new bill, however, grants directors this authority without either of the restrictions. It will be necessary for provisions to be included in the company’s articles to either expressly remove or modify the directors’ authority in this regard, should the stakeholders wish to depart from this statutory right.
Implications for the client
The client as creditor. The interests of creditors of a company intending to appoint a restructuring officer are well protected under the regime introduced in the bill. Among other things, the petition for the appointment of a restructuring officer must be heard on an inter partes basis unless the company can otherwise satisfy the court that there are grounds justifying an ex parte application.
In addition, creditors of the company, including contingent or prospective creditors, may apply to the court to seek either a variation or discharge of the order appointing a restructuring officer, or for that officer’s removal or replacement. Thus, for example, if the creditor has concerns about the independence of the restructuring officer proposed by the company, they will have an opportunity to nominate their own candidate.
If the restructuring under the guidance of a restructuring officer fails, and the company is subsequently wound up, the winding-up will be deemed to have commenced from the presentation date of the petition for the appointment of a restructuring officer. This will affect, inter alia, the scope of the official liquidators’ powers to claw back any preference payments made to creditors within the relevant period.
The bill presents a welcome approach to facilitate company restructurings in the Cayman Islands. The benefits of the “light touch” provisional liquidation under the current regime are retained, while the negativity and stigma associated with a winding-up petition are no longer present with the establishment of a standalone restructuring process. It is anticipated that this will present a more collaborative and cohesive approach in cross-border restructurings.
Carey Olsen Singapore
10 Collyer Quay #29-10
Ocean Financial Centre
Tel: +65 6911 8310