The Cayman Islands Restructuring Regime: A New Dawn?

• Published date: 02 August 2022
• Subject Matter: Corporate/Commercial Law, Insolvency/Bankruptcy/Re-structuring, Financial Restructuring, Corporate and Company Law, Directors and Officers
• Law Firm: Carey Olsen
• Author: Mr Peter Sherwood and Tim Baildam

The Cayman Islands restructuring regime is poised to undergo a significant development that will allow companies to explore restructurings under the supervision of a Court-appointed company restructuring officer (CRO), rather than under a provisional liquidation proceeding which is the usual approach currently. The change is expected to make it easier for companies to obtain breathing room to explore a restructuring with the protection of a moratorium on claims compared to the current regime, and is designed to be more user-friendly than the current regime. Importantly, the current requirement for a winding up petition to be issued against the company to commence a provisional liquidation proceeding will not apply for the appointment of CROs, and companies themselves will be able to bring the application for CROs to be appointed.

THE CURRENT REGIME

Under the current regime in the Cayman Islands, the only option for a company to obtain a moratorium on claims, and to benefit from what is often seen as necessary breathing room to explore a restructuring, is for a winding up petition to be issued against the company and for the company to be placed into provisional liquidation, with provisional liquidators (JPLs) appointed over the company on a light-touch basis with the mandate to explore a restructuring of the company's liabilities.

The provisional liquidation regime is generally seen as effective and flexible, and is frequently used by companies seeking to pursue a restructuring in the Cayman Islands. It has, in particular, been effectively used by Cayman Islands companies facing winding up petitions in other jurisdictions, and there is a strong track record of JPLs appointed in the Cayman Islands being recognised in other key jurisdictions such as the UK, the US, and Hong Kong. Provisional liquidation can also be used to support a restructuring taking place in another jurisdiction, such as Chapter 11 proceedings in the US.

However, there are certain issues that companies in financial distress face with the provisional liquidation regime. The main difficulty under the current regime is that a winding up petition must be issued against the company in order for the company to then bring an application for JPLs to be appointed, in effect piggy- backing on the petition. However, directors of Cayman Islands companies are typically precluded from issuing a winding up petition against the company itself, unless they are expressly authorised to do so in the...