In a comprehensive judgment published on 23 April 2020, the Cayman Islands Court of Appeal, comprising Moses JA, Martin JA and Rix JA, has provided welcome clarification of the interplay between a contractual agreement to arbitrate disputes arising between shareholders and the exclusive jurisdiction of the Court to determine whether a company should be wound up on the just and equitable ground.
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. |
Key points
Where the underlying liability on which a bankruptcy order is made is subsequently set aside, the correct remedy is rescission under s.375(1) of the Insolvency Act 1986.
Annulment under s.282(1)(a) is the appropriate remedy when, on grounds existing at the time of making the bankruptcy order, the order ought not to have been made.
The facts
Key point
In certain circumstances the court will look to parallel statutory provisions where existing applicable statute does not accommodate the situation, as long as the latter is not offended, expanded or altered by doing so.
The facts
This application for directions was brought by the administrators of Lehman Brothers Europe Ltd (the “Company”) on:
Key Points
- Statutory powers are to be exercised in accordance with a company’s articles of association
- The Duomatic principle cannot simply be used as a bandage to cure a company’s procedural errors
The Facts
This appeal considered whether the sole director of a company, whose articles required two directors for its board meeting to be quorate, could validly appoint administrators under paragraph 22 Schedule B1 of the Insolvency Act 1986.
Key points
- The dismissal of the appellant’s previous application for an annulment of a bankruptcy order was a serious procedural irregularity
- A court may annul a bankruptcy order under s 282 IA 1986 if it is satisfied that the order ought not to have been made based on grounds existing at the time the order was made
- In relation to appeals made pursuant to s 375 IA 1986 to review or rescind the decision of a lower court, the court may consider fresh material.
The facts
Key points
- A practical approach was adopted by the court in respect of deadlines for submitting administration expense claims that were otherwise holding up the making of distributions to unsecured creditors.
- In the absence of a suitable statutory mechanism, the court allowed for a cut-off date by which expense claims must be submitted.
The administrators of 18 of the Nortel companies applied to court for directions on how to deal with potential claims for administration expenses.