The Debate On When A Cayman Islands Company Can Seek The Appointment Of Restructuring Provisional Liquidators Continues

A January 2017 decision of Justice McMillan in the Grand Court of the Cayman Islands in CHC Group Ltd (unreported) has concluded that a Cayman company may apply for the appointment of joint provisional liquidators ("JPLs") to the company in circumstances where a creditor has filed a winding up petition.

The use of provisional liquidation as a means of restructuring Cayman companies has long been accepted in the jurisdiction, where no alternative regime specifically designed to facilitate corporate restructuring (e.g. US Chapter 11 proceedings or UK administration) has been established by legislation. A difficult paradox has always existed, however, with the use of provisional liquidation as a restructuring tool: in order to access the provisional liquidation regime to rescue a company, a petition to wind up the company must first be filed.

The Grand Court's 2015 decision in China Shanshui1 determined that, absent a special resolution passed by shareholders or an authorisation to do so in the company's articles of association, a Cayman company may not petition for its own winding up. It is therefore unable to take the first required step that would then permit an application to be made for the appointment of JPLs for the purpose of effecting a restructuring of the company. China Shanshui was an explicit approval of the English common law test as set out in Re Emmardart Ltd,2 and a rejection of the 2011 decision in China Milk3 where the Grand Court held that directors of insolvent companies could petition for winding up orders without the approval of shareholders or authorisation in the company's articles.

While the decision in CHC does not resolve the difficulty that was made clear in China Shanshui, it does confirm the availability of a much discussed means of bypassing that difficulty: having a "friendly" creditor file a winding up petition so that an application for the appointment of JPLs may follow.

In CHC, the company was seeking to have JPLs appointed in order to assist with the implementation of its US Chapter 11 plan. Recognising that following China Shanshui it would not be able to petition for its own winding up, the company had a related entity creditor commence the winding up proceeding, and then immediately filed its own application in that proceeding under section 104(3) of the Companies Law (2016 Revision) for the appointment of restructuring JPLs.

In hearing the company's application, Justice McMillan was invited to review...