Insolvency 2019

1. MARKET TRENDS AND DEVELOPMENTS

   1.1 The State of the Restructuring Market

   In 2017, a total of 17 restructuring petitions were filed in the Grand Court of the Cayman Islands. Of these, nine related to share capital reductions and eight related to schemes of arrangement. This compares to a total of 24 restructuring petitions filed in 2016.

   In addition, 40 insolvency petitions were also filed in 2017, of which 22 sought winding-up orders and the other 18 sought orders bringing voluntary liquidations under the supervision of the court. This compares to a total of 46 insolvency petitions filed in 2016.

   Ten of the insolvency petitions filed in 2017 did not proceed, whilst winding-up/supervision orders were made on 30 of the 40 petitions filed.

   Full data is not yet available for 2018, but so far, no distinct trends are discernible in terms of specific industry sectors or economic cycles.

   Legislative reforms have been proposed with a view to making it easier for directors of distressed Cayman companies to Commence restructuring proceedings, under the protection of a statutory moratorium, without first having to obtain shareholder approval. If and when those changes are enacted, it is generally anticipated that there will be an uptick in the number of court restructurings in Cayman, particularly in respect of groups with operating subsidiaries in China (the PRC).

   1.2 Changes to the Restructuring and Insolvency Market

   There have been no notable changes or new trends in this market over the last 12 months.

2. STATUTORY REGIMES GOVERNING RESTRUCTURINGS, REORGANISATIONS, INSOLVENCIES AND LIQUIDATIONS

   2.1 Overview of the Laws and Statutory Regimes

   Corporate insolvency in the Cayman Islands is governed by Part V of the Companies Law (2018 Revision – the Companies Law) and the Companies Winding-up Rules 2018 (the CWR). Those provisions apply both to the winding-up of companies – including certain foreign companies – as defined by the Companies Law and, pursuant to Section 36 of the Exempted Limited Partnership Law (2018 Revision), to the winding-up of exempted limited partnerships in the Cayman Islands.

   The Cayman Islands insolvency regime is based on many of the same underlying principles as the corresponding regime in England and Wales (and other Commonwealth countries), although there are some fundamental differences. These include the test for insolvency, which is assessed, on a winding-up petition, solely by reference to cash flow insolvency.

   The principal tool used for financial restructurings is the scheme of arrangement under Part IV of the Companies Law. Schemes procedure is governed by Grand Court Practice Direction No 2 of 2010.

   The doctrine of judicial precedent applies in the Cayman Islands, so case law is also relevant and important. Cayman Islands case law is developing but remains comparatively small in scope, however. Where there is no applicable Cayman Islands case law, the Cayman courts will look to English authorities. The latter's decisions are not binding, but as a general rule they will be followed...