Insolvent Cayman Companies: Will The Court Wind Up Or Allow An Opportunity To Restructure?

• Published date: 31 January 2022
• Subject Matter: Corporate/Commercial Law, Insolvency/Bankruptcy/Re-structuring, Financial Restructuring, Corporate and Company Law, Insolvency/Bankruptcy
• Law Firm: Ogier
• Author: Mr Michael Snape and Gemma Lardner

Introduction

In its January 2022 decision of In the matter of Evergreen International Holdings Limited, ¹ the Grand Court of the Cayman Islands (the Court) ordered the immediate winding up of Evergreen International Holdings Limited. Evergreen is a Cayman Islands holding company listed on the Hong Kong Stock Exchange that operates a manufacturing and retail clothing business through its subsidiaries in both Mainland PRC and Hong Kong SAR. In making an immediate winding up order, the Court refused Evergreen's last-minute application to appoint restructuring provisional liquidators and adjourn the winding up petition on the basis that there was insufficient evidence before the Court to demonstrate that the restructuring was viable or in the best interests of creditors.

Background

The petitioner originally acted as Evergreen's placing agent for two bond issues and was the registered holder of some of the bonds. In 2019 and 2021, Evergreen defaulted on both interest and principal payments due on the bonds held by the petitioner. The amounts due were not fully repaid and, in September 2021, the petitioner served a statutory demand on Evergreen for HK$67 million. Evergreen failed to comply with the statutory demand and, in December 2021, the petitioner presented a winding up petition against Evergreen on the ground that it was unable to pay its debts as and when they fall due.

Evergreen did not dispute that the debt to the petitioner was owing, but instead (on the eve of the hearing of the winding up petition) applied to appoint provisional liquidators and adjourn the winding up petition so that it could explore the possibility of restructuring its debts. The application was made on the basis that Evergreen was balance sheet solvent, and had valuable real estate assets in the PRC that could be sold to pay its debts and return Evergreen to trading profitably.

The petitioner opposed Evergreen's application and sought an immediate winding up order on the basis that Evergreen was cash flow insolvent, and further that:

• The petitioner had serious concerns about Evergreen's management - two of Evergreen's current directors had previously approved a spurious loan transaction which caused Evergreen's then auditors to resign and which was subject to an independent investigation (which remained ongoing after more than a year), the preliminary findings of which included that the loan appeared to have no proper commercial purpose
• Evergreen, in breach of HKSE rules, had...