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. |
The High Court has rejected the argument that amounts owing to British Gas Trading Ltd (BGT) under post-administration, deemed contracts for the provision of gas and electricity are automatically classed as expenses of the administration. The court has reserved for consideration, however, whether and if so how an administrator’s conduct may give the liability super priority or bring the salvage principle into play.
Background and preliminary issue
Nearly three years after the High Court decision on the case of BNY Corporate Trustee Services Ltd v Eurosail UK 2007 – 3BL PLC and others was handed down, the case has run its course in the Supreme Court. The case, which considers the correct interpretation of the balance-sheet insolvency test in section 123(2) of the Insolvency Act 1986, is of importance to insolvency practitioners, financial institutions, legal advisers, company directors and companies.
Court of Appeal decision
The Bottom Line:
A facilitation payment to encourage creditors to vote through the restructuring proposals of creditors’ debts has been held by the High Court not to be an illegal bribe. The court had regard to the fact that the offer of payment was made openly to all relevant creditors, none of whom were prevented from voting on the proposal. As such, where a creditor consented and received the facilitation payment, this was not contrary to the pari passu principle.
The facts
The Court has heard another case dealing with a defective appointment of administrators under paragraph 22 of Schedule B1 Insolvency Act 1986 (“Schedule B1”)1. Following hot on the tail of a recent series of conflicting cases relating to defective appointments, the Court has held that: