The Court of Appeal has provided much needed clarification of the test for validating certain transactions by companies that are subject to a winding-up petition, pursuant to Section 99 of the Companies Law (2020 Revision).
The Cayman Islands Court of Appeal has provided much needed clarification of the test for validating certain transactions by companies that are subject to a winding up petition, pursuant to section 99 of the Companies Law (2020 Revision) (the "Companies Law").
The Legal Issue of Principle
Domestic Procedures
What are the principal insolvency procedures for companies in your jurisdiction? | Liquidation: voluntary and official. Cayman does not have an equivalent to the English concept of the company administration or to the Chapter 11 process in the United States. Schemes of Arrangement/“Soft Touch Liquidations” allow the company to enter into an agreement with its shareholders and/or creditors. |
In Short
The Situation: Should liquidators be personally liable for the costs of unsuccessful appeals, without an entitlement to reimbursement by the company or its creditors in relation to those costs?
The Conclusion: The general rule providing a liquidator immunity from personal costs orders and entitling a liquidator to be indemnified from the assets of the company for their own costs, and for the costs of the other party, does not apply when a liquidator initiates an unsuccessful appeal.
In Short
The Situation: Should liquidators be removed under section 90-15 of the Insolvency Practice Schedule (Corporations) in circumstances where they engaged in preappointment discussions with a secured creditor, allegedly failed to investigate the company's affairs promptly, and retained the company's preappointment solicitors?
In Short
The Situation: A liquidator can reject a "double proof" for what is, in substance, the same debt as another accepted proof of debt.
The Question: When are liquidators justified in rejecting what could arguably be a double proof?
The Federal Court of Australia rules that receivers appointed to a company in liquidation are entitled to pay employee entitlements and fees.
In Short
The Situation: Section 553C of the Corporations Act 2001 (WA) ("Act")provides that if a creditor and a company in liquidation have mutual dealings, the creditor must offset any sum the creditor owes to the company in liquidation against debt owed by the company.
The Question: Does the existence of a third party security interest over circulating assets (floating charge) which are intended to be set off against other debts prevent the dealings from being "mutual"?
In Short
The Situation: The statutory moratorium period for voluntary administrators to restructure an insolvent company often is too short to find a solution. Administrators frequently utilise "holding" deeds of company arrangement ("DOCAs") to extend the moratorium and "buy" time to investigate potential restructuring opportunities. A creditor challenged this practice by arguing that holding DOCAs are invalid.
The Question: Are holding DOCAs valid under the Corporations Act 2001(Cth)?