Client Guide Cayman Islands Winding Up and Insolvency

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1 5 th Floor Genesis Building Genesis Close PO Box 446 Grand Cayman, KY Cayman Islands Client Guide Cayman Islands Winding Up and Insolvency Disclaimer: This memorandum is intended to provide basic information for our clients and it does not constitute legal advice.

2 Table of Contents Preface 3 Introduction 4 Compulsory Liquidation 4 Voluntary Winding Up 8 Court-supervision 11 Provisional Liquidation 12 Schemes of Arrangement 14 Claims and their ranking 15 Protection of creditors 18 Voidable transactions and offences of fraud 20 Directors duties 23 Continuing to do business 24 International Co-operation 25 About Samson & McGrath 27 2

3 Preface We are pleased to provide this guide for the use of existing and prospective clients. The information contained within these pages is based on the law and practice of the Cayman Islands on the date referred to below. Client briefings on other aspects of Cayman Islands law are available on our website. This guide is not intended to be, and is not, a substitute for legal advice. Should the reader wish to ask further questions, he or she may wish to contact one of our attorneys using the contact information on the final page of this document. Samson & McGrath November

4 Introduction The winding up regime in the Cayman Islands is modern, comprehensive and commensurate with the jurisdiction s status as a leading international financial center. A company may be wound up by one of three methods, namely: 1) Compulsorily by order of the Court; 2) Voluntarilya) by virtue of a special resolution; b) because the period, if any, fixed for the duration of the company by its articles of association has expired; or c) because the event, if any, has occurred, on the occurrence of which its articles of association provide that the company shall be wound up; or 3) Under the supervision of the Court. This guide will deal with each of these three modes of winding up. It will also provide the reader with a high level overview of topics such as creditors and members rights, directors duties, voidable transactions and international co-operation. Compulsory liquidation The objective of both compulsory and voluntary liquidations is to wind up the company and distribute its assets to its creditors and shareholders. Jurisdiction of the Court The Court has jurisdiction to make winding up orders in respect of- 1) an existing company; 2) a company incorporated and registered under the Companies Law; 4

5 3) a body incorporated under any other law; and 4) a foreign company whicha) has property located in the Islands; b) is carrying on business in the Islands; c) is the general partner of a limited partnership; or d) is registered under Part IX of the Companies Law. Circumstances in which a company may be wound up by the Court A company may be wound up by the Court if- 1) the company has passed a special resolution requiring the company to be wound up by the Court; 2) the company does not commence its business within a year from its incorporation, or suspends its business for a whole year; 3) the period, if any, fixed for the duration of the company by the articles of association expires, or whenever the event, if any, occurs, upon the occurrence of which it is provided by the articles of association that the company is to be wound up; 4) the company is unable to pay its debts; or 5) the Court is of opinion that it is just and equitable that the company should be wound up. Definition of unable to pay its debts A company shall be deemed to be unable to pay its debts if- 1) a creditor to whom the company is indebted in a sum exceeding one hundred dollars then due, has served on the company a demand under his hand requiring the company to pay the sum so due, and the company has for the space of three weeks succeeding the service of such demand, neglected to pay such sum, or to secure or compound for the same to the satisfaction of the creditor; 2) execution of other process issued on a judgment, decree or order obtained in the Court in favour of any creditor at law or in equity in any proceedings instituted by such creditor against the company, is returned unsatisfied in whole or in part; or 3) it is proved to the satisfaction of the Court that the company is unable to pay its debts. 5

6 In practice, the Grand court has made winding up orders on the balance sheet test as well as the cash flow test. Application for winding up An application to the Court for the winding up of a company shall be by petition presented either bya) the company; b) any creditor or creditors (including any contingent or prospective creditor or creditors); c) any contributory or contributories; or d) the Cayman Islands Monetary Authority ( CIMA ) pursuant to regulatory laws. Where expressly provided for in the articles of association, the directors of a company have the authority to present a winding up petition on its behalf without the sanction of a resolution passed at a general meeting. A winding up petition may be presented by CIMA in respect of any company which is carrying on a regulated business in the Islands upon the grounds that it is not duly licensed or registered to do so under the regulatory laws or for any other reason as provided under the regulatory laws or any other law. Powers of the court Upon hearing the winding up petition the Court maya) dismiss the petition; b) adjourn the hearing conditionally or unconditionally; c) make a provisional order; or d) make any other order that it thinks fit, but the Court shall not refuse to make a winding up order on the ground only that the company s assets have been mortgaged or charged to an amount equal to or in excess of those assets or that the company has no assets. The Court shall dismiss a winding up petition or adjourn the hearing of a winding up petition on the ground that the petitioner is contractually bound not to present a petition against the company. 6

7 Just and Equitable A petition on just and equitable grounds may include: Failure of the company s substratum Fraud Deadlock Justifiable loss of confidence in the company s management Exclusion from participation in a small private company where there was a relationship based on mutual confidence The categories are not closed however the burden, borne by the petitioner, is a high one. The Court shall have jurisdiction to make the following orders, as an alternative to a winding-up order, namelya) an order regulating the conduct of the company s affairs in the future; b) an order requiring the company to refrain from doing or continuing an act complained of by the petitioner or to do an act which the petitioner has complained it has omitted to do; c) an order authorising civil proceedings to be brought in the name and on behalf of the company by the petitioner on such terms as the Court may direct; or d) an order providing for the purchase of the shares of any members of the company by other members or by the company itself and, in the case of a purchase by the company itself, a reduction of the company s capital accordingly. Stay of proceedings When a winding up order is made or a provisional liquidator is appointed, no suit, action or other proceedings, including criminal proceedings, shall be proceeded with or commenced against the company except with the leave of the Court and subject to such terms as the Court may impose. 7

8 Official liquidator For the purpose of conducting the proceedings in winding up a company and assisting the Court therein, there may be appointed one or more than one person to be called an official liquidator or official liquidators. It is the function of an official liquidatora) to collect, realise and distribute the assets of the company to its creditors and, if there is a surplus, to the persons entitled to it; and b) to report to the company s creditors and contributories upon the affairs of the company and the manner in which it has been wound up. Dissolution following winding up by the court When the affairs of the company have been completely wound up, the Court shall make an order that the company be dissolved from the date of that order or such other date as the Court thinks fit, and the company shall be dissolved accordingly. The official liquidator shall file the order for dissolution with the Registrar. The effect of an order for dissolution in respect of a segregated portfolio is that its creditors claims against the company shall be extinguished, notwithstanding that the company has not been liquidated and dissolved. Voluntary winding up A solvent company s affairs may be wound up and its assets distributed on a voluntary basis free from court supervision. Circumstances in which a company may be wound up voluntarily A company may be wound up voluntarilya) when the period, if any, fixed for the duration of the company by its memorandum or articles of association expires; 8

9 b) if the event, if any, occurs, on the occurrence of which the memorandum or articles of association provide that the company is to be wound up; c) if the company resolves by special resolution that it be wound up voluntarily; or d) if the company in general meeting resolves by ordinary resolution that it be wound up voluntarily because it is unable to pay its debts as they fall due. Commencement of voluntary winding up A voluntary winding up is deemed to commencea) at the time of the passing of the resolution for winding up; or b) on the expiry of the period or the occurrence of the event specified in the company s memorandum or articles of association. Effect on business and status of company The company shall from the commencement of its winding up cease to carry on its business except so far as it may be beneficial for its winding up. Appointment of voluntary liquidator On the appointment of a voluntary liquidator all the powers of the directors cease, except so far as the company in a general meeting or the liquidator sanctions their continuance. Any person, including a director or officer of the company, may be appointed as its voluntary liquidator and no formal qualifications are necessary. Declaration of solvency and Supervision orders Where a company is being wound up voluntarily its liquidator shall apply to the Court for an order that the liquidation continue under the supervision of the Court unless, within twenty-eight days of the commencement of the liquidation, the directors have signed a declaration of solvency (see below). A person who knowingly makes a declaration under this section without having reasonable grounds for the opinion commits an offence. 9

10 Avoidance of share transfers Any transfer of shares, not being a transfer with the sanction of the liquidator, and any alteration in the status of the company s members made after the commencement of a voluntary winding up is void. Reference of questions to Court The voluntary liquidator or any contributory may apply to the Court to determine any question arising in the voluntary winding up of a company or to exercise, as respects the enforcing of calls or any other matter, all or any of the powers which the Court might exercise if the company were being wound up under the supervision of the Court. Protection from creditors There is no protection from the company s creditors as there would be in a court ordered liquidation. Final meeting prior to dissolution As soon as the company s affairs are fully wound up, the liquidator shall make a report and an account of the winding up. He shall call a general meeting of the company for the purpose of laying before it the account. The liquidator shall, no later than seven days after the meeting, make a return to the Registrar specifyinga) the date upon which the meeting was held; and b) if a quorum was present, particulars of the resolutions, if any, passed at the meeting. Dissolution following voluntary winding up The Registrar shall, within three days of receiving a liquidator s return, register such return. Upon the expiration of three months from the registration of the return the company is deemed to be dissolved. 10

11 Court Supervision A liquidation which starts life on a voluntary basis, may be brought under the court s supervision. Application for supervision order The voluntary liquidator must apply to the court for an order that the liquidation continues under the courts supervision if the directors fail to sign, within 28 days of the liquidation commencing, a declaration that the company will be able to pay its debts in full (with interest) within a period of 12 months of the liquidation commencing. In addition, notwithstanding that the declaration of solvency has been made, the liquidator or any contributory or creditor may apply to the Court for an order for the continuation of the winding up under the supervision of the Court on the grounds thata) the company is or is likely to become insolvent; or b) the supervision of the Court will facilitate a more effective, economic or expeditious liquidation of the company in the interests of the contributories and creditors. Appointment of official liquidator When making a supervision order the Court shall appoint one or more qualified insolvency practitioners as liquidator or liquidators of the company. The voluntary liquidator, unless appointed as the official liquidator, shall prepare a final report and accounts within twenty-eight days from the date of the supervision order. The prior actions of the voluntary liquidator shall be valid and binding upon the company and its official liquidator. 11

12 Provisional liquidation The Court may, at any time after the presentation of a winding up petition but before the making of a winding up order, appoint a liquidator provisionally. Application for appointment An application for the appointment of a provisional liquidator may be made by a creditor or contributory of the company or, in certain circumstances, CIMA, on the grounds that- a) there is a prima-facie case for making a winding up order; and b) the appointment of a provisional liquidator is necessary in order to- (i) prevent the dissipation or misuse of the company s assets; (ii) prevent the oppression of minority shareholders; or (iii) prevent mismanagement or misconduct on the part of the company s directors. In such circumstances, provisional liquidation is used to preserve and protect assets pending the hearing of the winding up petition and the appointment of official liquidators by the court. The period of provisional liquidation in this scenario is likely to be fairly short. Application by company itself An application for the appointment of a provisional liquidator may be made by the company ex-parte on the grounds thata) the company is or is likely to become unable to pay its debts; and b) the company intends to present a compromise or arrangement to its creditors. In this way, the appointment of the provisional liquidator can be used to avoid the harmful consequences of the company being forced into liquidation while taking advantage of the benefits resulting from the statutory stay on enforcement that results from the appointment of provisional liquidators. The hearing 12

13 of the winding up petition is usually adjourned to allow sufficient time to achieve these aims, which can be a lengthy process. Powers and functions of provisional liquidator Provisional liquidators are appointed by the court and the consent of stakeholders is not a pre-requisite. By virtue of their appointment, the provisional liquidator shall carry out only such functions as the Court may confer on him. The scope of his powers will be contingent upon the reason for his appointment. Protection from creditors When a provisional liquidator is appointed, no suit, action or other proceedings, including criminal proceedings, shall be proceeded with or commenced against the company except with the leave of the Court and subject to such terms as the Court may impose. Secured creditors, however, may take steps to enforce their security notwithstanding this stay. Termination of appointment Stakeholders such as the petitioner, the company, a creditor, a shareholder or, indeed, the provisional liquidator may apply to the court for early termination of the appointment. The court s decision to appoint the provisional liquidator is also potentially appealable. Provisional liquidation terminates by court order when the winding up order is made (resulting in the dissolution of the company at the conclusion of the liquidation proceedings) or the winding up petition is either dismissed or withdrawn (in which case the company survives). 13

14 Scheme of arrangement The purpose of a scheme of arrangement is to allow the company to enter into an agreement with its shareholders (members) and/or creditors to either: Restructure its affairs while solvent so that it can continue to trade and avoid liquidation; or Reach a compromise or arrangement with creditors or shareholders after liquidation has commenced. Person who may initiate the process An application to Court is required to initiate the process. Such an application may be made by the company, a creditor, a member or the liquidator (where the company is being wound up) however there is no statutory obligation on a company or its directors to propose such a scheme. Sanction of the court Upon such application being made, the Court will decide whether or not to order a meeting of the creditors or members of the company, as the case may be. The Court will consider whether to convene such a meeting and, if so, which classes of creditors or members should be represented. There is no statutory test governing the exercise of the court s discretion however the court will need to be satisfied that the creditors and/or members are in a position to make an informed decision. Meeting of creditors/members If a majority in number representing 75% in value of the creditors or members, as the case may be, vote in favour of the compromise or arrangement, the compromise or arrangement shall, if sanctioned by the Court, be binding. 14

15 Provisional liquidation and protection from creditors If the company has not been put into liquidation, there is no protection available. It is for this reason that provisional liquidation is often used since the commencement of the liquidation process triggers an automatic stay which prevents the commencement or continuation of any proceedings against the company unless the leave of the court is obtained. This stay does not prevent enforcement by secured creditors. Conclusion of scheme There is no statutory time frame for completion. The scheme terminates when all of its terms have been complied with. When this occurs, a company which has been subject to such a scheme outside of liquidation continues to exist whereas a company in liquidation, is dissolved. Claims and their ranking Secured creditors Notwithstanding that a winding up order has been made, a creditor who has security over the whole or part of the assets of a company is entitled to enforce his security without the leave of the Court and without reference to the liquidator. Proof of debt Unsecured creditors (or secured creditors with claims in excess of their security) must lodge a proof of debt for the amount of their claim. All debts payable on a contingency and all claims against the company whether present or future, certain or contingent, ascertained or sounding only in damages, shall be admissible to proof against the company. The liquidator will consider whether to admit or reject the proof. Creditors have 21 days to appeal any rejection to the Grand Court. 15

16 Expenses of the liquidation The expenses of the liquidation are payable out of the company s assets in priority to all other claims. The various different expenses (which include the costs of the petitioner, the costs of the liquidator, the remuneration of the liquidator and the remuneration of the liquidation committee) are themselves ranked in order. Preferential debt The categories of categories of preferred debts are: 1. Debts due to employees 2. Debts due to bank depositors and 3. Taxes due to the Government. After the expenses of the liquidation are paid in full, these debts shall be paid in priority to all other debts. Such preferential debts shall rank equally amongst themselves and be paid in full unless the assets available, after having exercised any rights of set-off or netting of claims, are insufficient to meet them in which case they shall abate in equal proportions. So far as the assets of the company available for payment of general creditors are insufficient to meet them, the preferential debts have priority over the claims of holders of debentures secured by, or holders of any floating charge created by the company, and be paid accordingly out of any property comprised in or subject to that charge Unsecured debts and creditors Third in line (after the expenses of the liquidation and preferential creditors) are the remaining unsecured creditors of the company. Their debts rank equally between themselves. After the preferential debts, they shall be paid in full unless the assets are insufficient for meeting them, in which case they shall abate in equal proportions between themselves. However, should certain debt holders subordinate their debts below other creditors, the liquidator should respect the subordination. 16

17 Interest Any surplus remaining after payment of the above mentioned debts is used to pay interest accruing on those debts since the start of the liquidation at the greater of the contractual rate of interest or the rate prescribed by the Judgment Debts (Rates of Interest) Rules. All interest under this section ranks equally, whether or not the debts on which it is payable ranked equally. No interest shall be payable if the liquidation is concluded in less than six months or the accrued amount is less than five hundred dollars. Preferred shareholders Next in line are the preferred shareholders which are any shareholders whose shares carry rights relating to capital or income which are preferred under the company s articles of association to the rights of the other classes of shareholders. Redeeming shareholders Debts payable by the company in relation to the redemption or purchase of its own shares rank next, provided, amongst other things, that under the applicable terms the redemption or purchase was to have taken place before the liquidation commenced. The status of such redeeming shareholder is effectively therefore that of a second-class unsecured creditor. Shareholders Whatever remains after payment of the above categories of creditor belongs to the remaining shareholders. Any surplus will be distributed between the shareholders of the company in accordance with their respective shareholding, the articles of association and/or any shareholders agreement. Cases such as Culcross Global SPC Limited v Strategic Turnaround Master Partnership Limited [2010] UKPC 33 underline the importance of a careful examination of the fund s contractual documents. 17

18 Protection of creditors Creditors are treated equally regardless of location or domicile. Wishes of creditors or contributories The Court shall, as to all matters relating to the winding up, have regard to wishes of the creditors or contributories and for that purpose it may direct reports to be prepared by the official liquidator and meetings of creditors or contributories to be summoned. Meetings may also be requisitioned by creditors, if the company is insolvent, or by contributories if the company is solvent. Application for stay At any time after the presentation of a winding up petition and before a winding up order has been made, the company or any creditor or contributory maya) where any action or proceeding against the company, including a criminal proceeding, is pending in a summary court, the Court, the Court of Appeal or the Privy Council, apply to the court in which the action or proceeding is pending for a stay of proceedings therein; and b) where any action or proceeding is pending against the company in a foreign court, apply to the Court for an injunction to restrain further proceedings therein, and the court to which application is made may, as the case may be, stay or restrain the proceedings accordingly on such terms as it thinks fit. Automatic stay When a winding up order is made or a provisional liquidator is appointed, no suit, action or other proceedings, including criminal proceedings, shall be proceeded with or commenced against the company except with the leave of the Court and subject to such terms as the Court may impose. When a winding up order has been made, any attachment, distress or execution put in force against the estate or effects of the company after the commencement of the winding up is void. 18

19 Secured creditors Notwithstanding that a winding up order has been made, a creditor who has security over the whole or part of the assets of a company is entitled to enforce his security without the leave of the Court and without reference to the liquidator. No stay in voluntary liquidation The appointment of a voluntary liquidator does not prevent actions or enforcement measures from being taken by unsecured creditors of the company unless the voluntary liquidation becomes court-supervised. Mutual credits and set-offs Contractual rights of set-off or netting of claims between the company and any person or persons (including without limitation any bilateral or any multi-lateral set-off or netting arrangements between the company and any person or persons) are applicable in the Cayman Islands. Liquidation committees Unless the Court otherwise directs, a liquidation committee shall be established in respect of every company which is being wound up by the Court. The liquidation committee shall comprise not less than three nor more than five creditors (if the official liquidator has determined that the company should be regarded as insolvent) or contributories (if the official liquidator has determined that the company should be regarded as solvent). Any creditor of the company (other than one whose debt is fully secured) is eligible to be a member of a liquidation committee, so long as (a) he has lodged a proof of his debt; and (b) his proof has neither been wholly disallowed for voting purposes nor wholly rejected for purposes of distribution or dividend. The committee has a right to information and reports. Its members must be given notice of, and may appear at, any application by the liquidator for the court s sanction. The committee can appoint its own counsel. The legal fees and expenses reasonably and properly incurred by the liquidation committee shall 19

20 be paid out of the assets of the company as an expense of the liquidation. Creditor schemes Not infrequently, the company will apply to put itself into provisional liquidation in order to obtain the benefit of the automatic stay of proceedings discussed above. This prevents unsecured creditors from enforcing their claims unless leave of the court is obtained. The rights of creditors in schemes of arrangement will necessarily be dependent upon the agreed terms of the particular scheme in question. Protection from fraud Provisions of the law dealing with fraud are dealt with below. Voidable transactions and offences of fraud Avoidance of property distributions When a winding up order has been made, any disposition of the company s property and any transfer of shares or alteration in the status of the company s members made after the commencement of the winding up is, unless the Court otherwise orders, void. Voidable preference Every conveyance or transfer of property, or charge thereon, and every payment obligation and judicial proceeding, made, incurred, taken or suffered by any company in favour of any creditor at a time when the company is unable to pay its debts with a view to giving such creditor a preference over the other creditors shall be invalid if made, incurred, taken or suffered within 6 months immediately preceding the commencement of a liquidation. 20

21 A payment made as aforesaid to a related party of the company shall be deemed to have been made with a view to giving such creditor a preference. For the purposes of this section a creditor shall be treated as a related party if it has the ability to control the company or exercise significant influence over the company in making financial and operating decisions. Fraud in anticipation of winding up Where a company is ordered to be wound up by the Court, or passes a resolution for voluntary winding up, any person, who is or was an officer 1, professional service provider, voluntary liquidator or controller of the company and who, within the 12 months immediately preceding the commencement of the winding up, hasa) concealed any part of the company s property to the value of ten thousand dollars or more or concealed any debt due to or from the company; b) removed any part of the company s property to the value of ten thousand dollars or more; c) concealed, destroyed, mutilated or falsified any documents affecting or relating to the company s property or affairs; d) made any false entry in any documents affecting or relating to the company s property or affairs; e) parted with, altered or made any omission in any document affecting or relating to the company s property or affairs; or f) pawned, pledged or disposed of any property of the company which has been obtained on credit and has not been paid for (unless the pawning, pledging or disposal was in the ordinary way of the company s business), with intent to defraud the company s creditors or contributories commits a criminal offence and is liable on conviction to a fine and to imprisonment for five years. 1 The term includes a shadow director 21

22 Transactions in fraud of creditors Where a company is ordered to be wound up by the Court or passes a resolution for voluntary winding up, any officer or professional service provider of the company whoa) has made or caused to be made any gift or transfer of, or charge on, or has caused or connived at the levying of any execution against, the company s property; or b) has concealed or removed any part of the company s property, with intent to defraud the company s creditors or contributories commits an offence and is liable on conviction to a fine and to imprisonment for five years. Avoidance of dispositions made at an undervalue Every disposition of property made at an undervalue by or on behalf of a company with intent to defraud its creditors shall be voidable at the instance of its official liquidator. The burden of establishing an intent to defraud for the purposes of this section shall be upon the official liquidator. No action or proceedings shall be commenced by an official liquidator under this section more than 6 years after the date of the relevant disposition. In the event that any disposition is set aside under this section, then if the Court is satisfied that the transferee has not acted in bad faitha) the transferee shall have a first and paramount charge over the property, the subject of the disposition, of an amount equal to the entire costs properly incurred by the transferee in the defence of the action or proceedings; and b) the relevant disposition shall be set aside subject to the proper fees, costs, pre-existing rights, claims and interests of the transferee (and of any predecessor transferee who has not acted in bad faith). 22

23 Fraudulent trading If in the course of the winding up of a company it appears that any business of the company has been carried on with intent to defraud creditors of the company or creditors of any other person or for any fraudulent purpose the liquidator may apply to the Court for a declaration. The Court may declare that any persons who were knowingly parties to the carrying on of the business in the manner mentioned above are liable to make such contributions, if any, to the company s assets as the Court thinks proper. Insolvent trading There is no direct statutory prohibition in respect of insolvent trading however directors will need to consider their liability for breach of their fiduciary duties in circumstances where the company continues to incur liabilities when it is unable to service its debts. These fiduciary duties are addressed in more detail below. Directors duties In statute In addition to the duties and liabilities outlined above, directors are subject to various statutory requirements which compel them to give full co-operation to the liquidator in Court supervised and voluntary liquidations. Failure to do so can result in criminal penalties for misconduct in the court of winding up. Directors must also provide accurate information regarding the company s affairs or else risk prosecution for making material omissions. Common law: Fiduciary duty Separate and apart from any statutory duties, a director is subject to an obligation at common law to act in the best interests of the company (which is most often judged by the best interests of its members). This fiduciary duty includes: 23

24 A duty to act in good faith; A duty to exercise powers in the company s best interests; A duty to avoid conflicts of interest; and A duty to secretly profit from his position (subject to the articles of association) When a company is insolvent or on the verge of insolvency, the director owes a duty to the company s creditors to minimize further loss. The director may be liable for losses which result from any such breach of duty. Common law: Duty of care and skill A director is also expected to exercise reasonable care, skill and diligence. This means that a director should exercise the care, skill and diligence that would be exercised by a reasonable and diligent person with the general knowledge, skill and experience that may reasonably be expected of a person in his position with the general knowledge, skill and experience that the director actually has. When to wind up Once the director realises that there is no reasonable prospect that the company can avoid insolvency, he should take action forthwith and professional advice should be sought. Failure to do so may render a director personally liable for losses subsequently incurred. Continuing to do business during insolvency Voluntary liquidation Liquidators may continue to do business to the extent it is beneficial to the winding-up of the company. Scheme of arrangement If the company is not in liquidation, the business may be carried on by its directors. If the company is in liquidation, the liquidators may carry on business to the extent it is beneficial to the winding-up. Provisional liquidation Liquidators may continue to do business to the extent it is beneficial to the winding-up of the company. 24

25 This is more likely to occur in circumstances where the appointment of the provisional liquidator is designed to allow a restructuring of the business as opposed to preserving the assets in anticipation of the hearing of the winding up petition. Compulsory liquidation Liquidators may continue to do business to the extent it is beneficial to the winding-up of the company. International Co-operation The Cayman Islands is not signatory to any international treaties relating to insolvency however it does, in practice, tend to implement many of the principles enshrined in the UNCITRAL Model Law on Cross Border Insolvency. The Grand Court regularly exercises its power to recognize and make orders in aid of foreign proceedings. Ancillary orders Upon the application of a foreign representative the Court may make orders ancillary to a foreign bankruptcy proceeding 2 for the purposes ofa) recognising the right of a foreign representative 3 to act in the Islands on behalf of or in the name of a debtor 4 ; b) enjoining the commencement or staying the continuation of legal proceedings against a debtor; c) staying the enforcement of any judgment against a debtor; d) requiring a person in possession of information relating to the business or affairs of a debtor to be examined by and produce documents to its foreign representative; and e) ordering the turnover to a foreign representative of any property belonging to a debtor. 2 foreign bankruptcy proceeding includes proceedings for the purpose of reorganising or rehabilitating an insolvent debtor 3 foreign representative means a trustee, liquidator or other official appointed in respect of a debtor for the purposes of a foreign bankruptcy proceeding. 4 debtor means a foreign corporation or other foreign legal entity subject to a foreign bankruptcy proceeding in the country in which it is incorporated or established; 25

26 Criteria upon which the Court s discretion shall be exercised In determining whether to make an ancillary order, the Court shall be guided by matters which will best assure an economic and expeditious administration of the debtor s estate, consistent witha) the just treatment of all holders of claims against or interests in a debtor s estate wherever they may be domiciled; b) the protection of claim holders in the Islands against prejudice and inconvenience in the processing of claims in the foreign bankruptcy proceeding; c) the prevention of preferential or fraudulent dispositions of property comprised in the debtor s estate; d) the distribution of the debtor s estate amongst creditors; e) the recognition and enforcement of security interests created by the debtor; f) the non-enforcement of foreign taxes, fines and penalties; and g) comity. In the case of a debtor which is registered under Part IX, the Court shall not make an ancillary order under section 241 without also considering whether it should make a winding up order under Part V in respect of its local branch. Publication of foreign bankruptcy proceedings Where a company incorporated or registered in accordance with the Companies Law is made the subject of a foreign bankruptcy proceeding, notice of this fact shall be filed with the Registrar and published in the Gazette. 26

27 About Samson & McGrath Samson & McGrath is one of the leading providers of legal services in the Cayman Islands. Should you have any queries, please do not hesitate to contact us at the address below. Address: 5th Floor Genesis Building, P.O. Box 446, Grand Cayman KY1-1106, Cayman Islands Telephone: +1 (345) (345) Disclaimer: This memorandum is intended to provide basic information for our clients and it does not constitute legal advice. 27

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