Grand Court Further Develops Insolvency Test For Cayman Islands Segregated Portfolio Companies

• Published date: 30 August 2022
• Law Firm: Ogier
• Author: Ms Gemma Lardner and Max Galt

Introduction

By virtue of the special nature of Cayman Islands segregated portfolio companies, ¹ where one portfolio of the company is in financial distress but the others (and their investors) remain unaffected, the Cayman Islands Companies Act (2022 Revision) provides for the appointment of a receiver to the relevant portfolio, without needing to wind up the company in its entirety. To engage the Court's jurisdiction to make a receivership order over a segregated portfolio, it must be "insolvent" within the meaning of 224(1) of the Companies Act. This raises the question: what's the appropriate test for insolvency to be applied by the Court?

In a recent decision, the Grand Court in In the Matter of Green Asia Restructure Fund SPC, ² building on the earlier decision of Parker J in Obelisk Fund SPC³ clarified that the section gives rise to a flexible variation of the balance sheet test.

Background

Applied Investment (Asia) Limited (the Petitioner) was the sole participating shareholder in portfolios managed by Green Asia Restructure Fund SPC. Having submitted redemption requests which went unpaid, it was also a redemption creditor. The Petitioner sought to appoint receivers over the segregated portfolio it had invested in on the basis that it was insolvent. ⁴

The Law

For a receivership order to be made, section 224(1) of the Companies Act requires the Court to be satisfied that the segregated portfolio's assets "are or are likely to be insufficient to discharge the claims of creditors in respect of that segregated portfolio". The test is not on all fours either with the classic formulation of the balance sheet test, or the traditional cash flow test...