Appointing An Inspector: A Viable Alternative To Liquidation In The Cayman Islands?

A provision in the Cayman Islands Companies Law (2013 Revision) (the Law) affords the Grand Court (the Court) the power to appoint "one or more competent inspectors to examine into the affairs of any company (incorporated in the Cayman Islands) and to report thereon" on the application of the company's shareholder(s). In this article, we will review the different circumstances under which it might be appropriate for a shareholder to apply for the appointment of an inspector (or joint inspectors, where appropriate); how to make such an application; what powers the inspector might be afforded by the Court; and the respective advantages and disadvantages of seeking such an appointment.

The attractions of incorporating a company in the Cayman Islands, the fifth-largest banking centre in the world, are numerous: no direct taxes, political and economic stability, and a reliable legal system to name a few. However, the means of redress available to a shareholder who feels he is not being treated fairly are limited: litigation is the main form of dispute resolution used in the Cayman Islands. In some instances a more timely and cost-effective solution would be to apply for the appointment of an inspector.

The Law

The application must be made by a shareholder holding at least one-fifth of the issued shares of the company (or, in the case of a company not having a capital divided into shares, on application by shareholders accounting for not less than one-fifth of their total number). This means that a shareholder who needs protection can easily look to this provision in the Law for assistance.

A "competent inspector" is not defined but a qualified insolvency practitioner with relevant experience would make for a suitable appointment.

The main reason a shareholder might want to use this provision in the Law is if they are being denied key information relating to the finances and records of the company: the Law specifies that it shall be the duty of all officers and agents of the company to produce all books and documents in their custody or power to an appointed inspector, and the inspector has the power to examine any officer or agent of the company under oath.

As a Court appointed officer, an inspector is obliged to complete his investigation within a reasonable timeframe. On conclusion of his investigation, the inspector is required to file his findings and opinions with the Court. Although not usually open to public inspection, importantly, any...