Cayman Islands Restructuring: Recent Common Law Insights For Directors When Entering The Zone Of Insolvency

• Published date: 29 July 2022
• Subject Matter: Corporate/Commercial Law, Insolvency/Bankruptcy/Re-structuring, Corporate and Company Law, Directors and Officers, Insolvency/Bankruptcy, Shareholders
• Law Firm: Conyers
• Author: Mr Jonathon Milne, Anna Lin and Rowana-Kay Campbell

Conyers partner Jonathon Milne and associate Rowana-Kay Campbell in the Cayman Islands, and partner Anna Lin in Hong Kong, explain why the new Cayman restructuring regime is likely to be a welcome addition to the legislative landscape for prudent directors - particularly in light of current macro-economic conditions and the difficulties many companies are facing.

A much-anticipated corporate restructuring regime will be enacted in the Cayman Islands later this year through amendments to Part V of the Cayman Islands Companies Act.

With that regime comes a new statutory power afforded to directors to petition the Cayman court for the appointment of a suitably-qualified restructuring officer when the relevant company is in financial distress and intends to present a proposal to its creditors.

This new power will be important for directors who are duty-bound to consider the interests of creditors.

By reference to very recent authorities, this article focuses on the duty of directors to consider the interests of creditors and in what circumstances that duty might be triggered.

For a brief note on some of the other changes taking effect under the new regime see: "A summary of the new restructuring officer regime".

Benefit of the restructuring regime

The new restructuring regime will permit a company that is or is likely to become insolvent to promote a restructuring under the supervision of a court-appointed restructuring officer and with the benefit of a statutory moratorium on claims against the company.

The new restructuring petition may be presented by directors without specific authorisation from shareholders or express powers in the company's articles of association. Consequently, the position at common law in Re Emmadart (see "case references" below) that, without express contractual authority, directors must seek shareholder approval before initiating insolvency proceedings, will cease to apply in the Cayman Islands from the date that the new regime becomes effective.

This will assist with avoiding the risk of unnecessary confusion, delay and expense. Importantly, it will enable directors to act decisively and in accordance with their overarching fiduciary duties.

Directors' duties

It is important to note that the duties of a director, generally speaking, are owed to the company. It is trite that directors are to, among other things, act in good faith and in the best interests of the company. An analysis of the interests of a company at a particular...