Overview Of The New Cayman Islands Restructuring Officer Regime

• Law Firm: Conyers
• Subject Matter: Corporate/Commercial Law, Insolvency/Bankruptcy/Re-structuring, Financial Restructuring, Corporate and Company Law, Directors and Officers, Insolvency/Bankruptcy
• Author: Mr Jordan McErlean
• Published date: 15 August 2023

After a substantial industry consultation process, the Cayman Islands has introduced the concept of a Court-appointed Restructuring Officer into Part V of the Cayman Islands Companies Act (the 'Companies Act') with effect from 31 August 2022. The reforms seek to improve on the existing system for restructuring companies in financial difficulty that involved the court-appointment of 'soft-touch' provisional liquidators. This article will be of interest to anyone involved in restructurings, corporate transactions and insurance or reinsurance involving Cayman Islands incorporated entities, and also to corporate entities incorporated elsewhere, which may be interested in re-domiciling to the Cayman Islands for restructuring purposes to take advantage of the new regime.

The Cayman Islands has always been known for a few things other than its white sandy beaches. It has a well-earned reputation as a global financial hub. Many global businesses restructure through the Cayman Islands due to its tax neutrality and sophisticated restructuring legal framework.

The new reforms make the process more user-friendly by allowing a company to petition for theappointment of restructuring officers and take advantage of an automatic moratorium from the date of filing the petition, which is similar to the United States Chapter 11 stay or the English administrationmoratorium.

With the benefit of the breathing space under the new regime, it allows corporate entities to promoteand implement a restructuring, for example, via a scheme of arrangement, a parallel process in a foreignjurisdiction or a consensual compromise. Having the benefit of the breathing space offeredby the new reforms will make the regime attractive to any companies that are seeking breathing spaceto restructure due to the tumultuous global macroeconomic climate arising from issues such as currency fluctuations, supply chain issues, the war in Ukraine, inflation and skyrocketing interest rates.¹

This article provides: (1) an overview of the new regime; (2) some practical takeaways from the first appointment of restructuring officers on 11 November 2022; and (3) an analysis of the consequential cross-border considerations arising from these reforms.

Overview of the new regime

The following are the key features of the new Cayman Islands restructuring regime:

1. A company may seek the appointment of restructuring officers on the grounds that: (i) thecompany is or is likely to become unable to pay its debts; and (ii) intends to present a compromiseor arrangement to its creditors.
2. Directors will be expressly permitted to present petitions to appoint restructuring officers: (i)without, in the first instance being required to present a winding up petition; (ii) and without ashareholder resolution and/or an express power to present a winding up petition in its articlesof association. Under the old regime, in order to restructure through provisional liquidation,a prerequisite was first to present a winding up petition before an application could be made to place the company into provisional liquidation. This was compounded by the fact that the defaultposition due to the rule in Emmadart was that directors of Cayman Islands companies were not permitted to present a petition to wind up a company unless expressly authorised by thearticles.² If such a power was not provided, it required that companies obtain approval fromshareholders to file a winding up petition.³ Although this was beneficial for the well-earnedreputation of Cayman companies being generally considered insolvency remote from the point of view of lenders, it made it difficult for certain Cayman Islands companies, such aspublicly listed companies with large groups of disinterested shareholders, to take pro-activesteps to restructure.
3. From the date of filing a petition to appoint restructuring officers until it is withdrawnor dismissed, section 91G of the Companies Act provides that there is a worldwide stay oncivil claims against the company, which gives the company breathing room to...