A new restructuring regime will be available in the Cayman Islands when the amendments to Part V of the Companies Act (2022 Revision) take effect as of August 31, 2022. Among other changes, this new regime will allow a debtor company to restructure under the supervision of a restructuring officer and provide for a worldwide automatic stay. With the present state of the global economy and the likely increase in insolvencies, these amendments will provide a significant benefit to companies seeking to restructure in the Cayman Islands.
The amendments will replace the current regime where restructurings are effected through the presentation of a winding-up petition, the appointment of provisional liquidators under section 104 of the Companies Act and the promotion of a scheme of arrangement under section 86 of the Companies Act – thereby eliminating the stigma associated with the use of winding up and liquidation terminology. This article outlines the key features of the new restructuring regime.
Appointment of Restructuring Officer
A company will be able to present a petition to the court to appoint a restructuring officer on the grounds that the company:
- is or is likely to become unable to pay its debts within the meaning of section 93 of the Companies Act; and
- intends to present a compromise or arrangement to its creditors (or classes thereof), either pursuant to the Companies Act or the law of a foreign country (i.e., Chapter 11), or by way of a consensual restructuring.
The hearing of a petition will, by default, be held on notice to the relevant stakeholders. Pending the hearing of that petition, the debtor company would also be able seek the appointment of an interim restructuring officer by ex parte application to the court.
A petition may be presented by the company acting by its directors without a resolution of its members or an express power under the company’s articles of association. This is a welcome change from the current position, which limits the ability of directors to seek the appointment of a provisional liquidator for restructuring purposes (i.e., without express authority in the articles, a member’s resolution, or a winding-up petition having already been presented by another stakeholder).
Restructuring officers must be qualified insolvency practitioners and are considered officers of the court. The restructuring officer’s powers and duties will be set out in the appointment order. A restructuring officer’s role can be limited to a “light touch” advisory and oversight role like in debtor-in-possession proceedings, or the role can be more expansive if the circumstances warrant more control and management.
Two or more restructuring officers may be appointed and may act jointly and severally. And a foreign practitioner can be appointed by the Grand Court to act as a restructuring officer in addition to a Cayman Islands-qualified insolvency practitioner, but cannot act as the sole restructuring officer of the company.
Worldwide Automatic Stay
Similar to chapter 11 proceedings, the new restructuring regime in the Cayman Islands will provide a worldwide automatic stay of proceedings immediately upon the presentation of a petition for the appointment of a restructuring officer. This will prevent other parties from commencing or proceeding with suits or actions against the debtor company, as well as prevent other parties from seeking to wind up the debtor company without leave of the Grand Court.
However, a secured creditor will remain entitled to enforce its security over the whole or part of the assets of the debtor company without leave of the Grand Court and without reference to the restructuring officer or interim restructuring officer.
Enhanced Viability of Cross-Border Recognition and Enforcement
The implementation of a Cayman Islands restructuring officer-driven scheme of arrangement  is intended to enhance the viability of the cross-border recognition of such schemes. This will, of course, be subject to the laws of the jurisdiction where recognition is sought.
Since the amendments enhance the current restructuring regime, we do not expect that the new regime will alter the ability to compromise U.S. law-governed debt through a Cayman Islands scheme of arrangement and chapter 15 recognition, which Bankruptcy Judge Martin Glenn recently reaffirmed in In re Modern Land (China) Co. Ltd .
It is anticipated that the new scheme of arrangement provisions within the restructuring officer appointment regime will open the gateway to compromise English law-governed debt, which is not currently possible in light of the “rule in Gibbs .” This gateway may be available if the English courts determine that a Cayman restructuring officer scheme falls within certain English legislation provisions enabling recognition and enforcement of the scheme under Section 426 of the English Insolvency Act 1986.
Removal of “Head Count” Test
The amendments also alter the requirement for the approval of a shareholder scheme of arrangement, removing the current “head count” requirement of having the majority in number of members or class of members present and voting in person or by proxy at a meeting. The threshold requirement from Aug. 31, 2022, onward will be to obtain approval of 75% in value of the members or class of members present and voting in favor of the proposed scheme.
While the Cayman Islands restructuring regime would have benefited from other helpful additions, including a worldwide stay against all creditors (not just unsecured creditors) and the ability to utilize a cross-class cramdown (like under Part 26A of the English Companies Act 2006), the long-awaited amendments to the Companies Act are a positive development and will help bolster the Cayman Islands as a leading restructuring jurisdiction.
 The restructuring officer scheme of arrangement provisions will be separate from the existing scheme provisions under section 86 of the Companies Act, which will remain in effect after 31 August 2022.
 Judge Glenn held that a decision of a foreign court approving a scheme or a plan that modifies or discharges New York law-governed debt is enforceable, provided the foreign court “properly exercises jurisdiction over the foreign debtor in an insolvency proceeding, and the foreign court’s procedures comport with broadly accepted due process principles….” In re Modern Land (China) Co. Ltd. (Bankr. S.D.N.Y.), Case No. 22-10707 (MG).
 The “rule in Gibbs” comes from the English Court of Appeal’s ruling in Antony Gibbs & Sons v La Société Industrielle et Commerciale des Métaux (1890), 25 QBD 399, and is an English common law rule that effectively prevents the modification and discharge of English-governed debt under the laws of a foreign jurisdiction.