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Court of Appeal validates test under Section 99 of Companies Law

Legal issue of principle
Facts
First-instance decision
Court of Appeal decision
Decision's relevance

Cayman Islands, Insolvency & Restructuring, Ogier
Court of Appeal validates test under Section 99 of Companies Law

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).

Cayman Islands, Company & Commercial, Insolvency & Restructuring, Litigation, Private Client & Offshore Services, Ogier
Cayman Islands Court of Appeal validates test under section 99 of the Companies Law

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

Cayman Islands, Company & Commercial, Insolvency & Restructuring, Litigation, Ogier
Restructuring and Corporate Recovery Jurisdiction Guide: Cayman

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.

British Virgin Islands, Cayman Islands, Insolvency & Restructuring, Litigation, Ogier
Are Power Purchase and Similar Agreements Excluded from the Automatic Stay under the Safe Harbor for Forward Contracts? Recent US Utility Bankruptcies Raise This and Other Important Questions

Both the First Energy Solutions and PG&E bankruptcies have seen proceedings regarding power purchase and similar agreements (PPAs) that raise this question.

Background

Contracts often contain provisions that enable a party to terminate or modify the contract based on the other party's bankruptcy filing, insolvency or deteriorating financial condition. In general, the Bankruptcy Code renders these types of provisions (sometimes referred to as "ipso facto" clauses) ineffective. Specifically, under section 365(e)(1) of the Bankruptcy Code (emphasis added):

USA, Derivatives, Insolvency & Restructuring, Litigation, Mayer Brown, Title 11 of the US Code, United States bankruptcy court
US FDIC and SEC Propose Rules to Govern the Orderly Liquidation of Covered Broker-Dealers under Title II of the Dodd-Frank Act

On February 17, 2016, the Federal Deposit Insurance Corporation (“FDIC”) and the Securities and Exchange Commission (“SEC”) (collectively, the “agencies”) jointly proposed a rule to supplement the statutory provisions of Title II of the Dodd-Frank Act (the “Orderly Liquidation Authority” or “OLA”) that govern the orderly liquidation of a “covered broker or dealer”—i.e., an SEC-registered broker or dealer that is a member of the Securities Investor Protection Corporation (“SIPC”) and for which a systemic risk determination to trigger the application of the OLA has been made.

USA, Banking, Capital Markets, Insolvency & Restructuring, Mayer Brown, US Securities and Exchange Commission, Federal Deposit Insurance Corporation (USA), Securities Investor Protection Corporation, Dodd-Frank Wall Street Reform and Consumer Protection Act 2010 (USA)