The Grand Court of the Cayman Islands (the "Grand Court") recently considered the statutory moratorium against commencing proceedings against a Cayman Islands company which has been placed into liquidation. In the case of BDO Cayman Ltd. and BDO Trinity Ltd. v Ardent Harmony Fund Inc.
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The Court’s decision provides greater certainty for creditors who passively retain estate property that they obtained pre-petition.
Rumours that a company is in the zone of insolvency may create a race to the assets, with potential creditors or interested parties commencing proceedings in an attempt to secure payment from the company before its assets are fully dissipated or tied up in the insolvency process. This can destroy the collective value in the enterprise or scupper a restructuring and result in significant duplicative costs.
Going forward, lenders must take precautionary measures to protect themselves. Anticipating the risk of a U.S. bankruptcy case is a crucial first step.
The court noted that the DOJ might prosecute cannabis-related businesses under the CSA, notwithstanding plan confirmation. Thus, Garvin may have foreclosed any future DOJ CSA-based noneconomic objections to cannabis reorganizations.
Contrary to the Bankruptcy Court’s ruling, the District Court concluded that California's liquidated damages statute does not apply to the default interest rate provision.