Good News For Debtors Seeking Access To The Cayman Islands Restructuring Regime

• Published date: 01 August 2022
• Subject Matter: Corporate/Commercial Law, Insolvency/Bankruptcy/Re-structuring, Financial Restructuring, Corporate and Company Law, Insolvency/Bankruptcy, Shareholders
• Law Firm: Maples Group
• Author: Mr Aristos Galatopoulos, Nick Herrod, Caroline Moran and James Eldridge

The Cayman Islands Government has confirmed that the long awaited reforms to Cayman Islands restructuring laws will now come into effect on 31 August 2022.

Debtors seeking to restructure their debt in the Cayman Islands, with the protection of a stay on unsecured creditor action, will be able to do so without needing to file a winding up petition. While the Cayman Islands has always been receptive to international restructurings, the prior position was that, debtors seeking the protection of a restructuring stay in the Cayman Islands had to file a winding up petition and seek the appointment of provisional liquidators. Although the current regime has been effective in practice, filing a winding up petition in order to restructure is counterintuitive and unpalatable for some debtors.

The new regime, provides for a new stand-alone global restructuring stay on unsecured creditor action, outside the winding up procedure. The debtor will apply to the Cayman Islands court (the "Court") for the appointment of restructuring officers who, while the company's management will ordinarily be left in control of the company, will help facilitate a restructuring. A global stay will arise immediately upon filing the application, similar to a Chapter 11 or administration stay, and the restructuring takes place within the breathing space created by the stay. How the restructuring is implemented is flexible and could involve a consensual deal with creditors, a Cayman Islands scheme of arrangement or a restructuring proceeding in another jurisdiction (for example, Chapter 11 in the United States or an English or Hong Kong scheme of arrangement).

These new proceedings, while retaining all that is positive with the prior law, significantly enhance the Cayman Islands restructuring regime by:

• Removing the need to file a winding up petition in order to obtain a stay on creditor action.
• Providing for the stay (although not the appointment of restructuring officers) to arise automatically on filing the Court papers without the need for any Court hearing (in the prior law the moratorium only kicked in on the appointment of the provisional liquidators).
• Providing that, as a matter of Cayman Islands law, the stay will have extraterritorial effect.
• Including provisions which provide the potential for Cayman Islands schemes of arrangement to compromise debt governed by English law (an important consideration in light of challenges arising from Brexit) thereby broadening the circumstances in which Cayman Islands restructuring proceedings may provide the best fit.

The restructuring moratorium does not change important creditor protections under Cayman Islands law. There remains no stay in any Cayman Islands insolvency or restructuring proceeding on the enforcement of security by secured creditors. Further, specific legislative provisions have been included to ensure that the Cayman Islands remains a preeminent jurisdiction for bankruptcy remote finance vehicles.

Restructuring Moratorium - FAQs

What is the restructuring moratorium?

The restructuring moratorium is a stand-alone regime where a company (including, in certain circumstances, a foreign company) can apply to the Court for the appointment of restructuring officers. On the filing of the application, the company obtains a moratorium (stay) on legal proceedings being continued or commenced by unsecured creditors against the company. This results in breathing space for a company that is in financial distress to pursue a restructuring. The restructuring moratorium is also available to exempted limited partnerships ("ELPs") and limited liability companies ("LLCs").

The restructuring moratorium can be used in support of a scheme of arrangement, a formal foreign restructuring proceeding (such as Chapter 11) or...