The following briefing provides a round-up of the Cayman legal and regulatory developments during the third quarter of 2022 that may be of interest to funds clients. We are pleased to note that there is nothing critical or requiring immediate action at this time.
Summary of recent legal and regulatory developments
Over the past two or three years, we have seen an increasing number of cases where a client holds and wishes to sell or transfer shares in a Cayman Islands company which is in liquidation, or is seeking to purchase shares in such a company from another party. In those circumstances, the transfer of the shares would be void absent the validation of the Grand Court of the Cayman Islands, as a result of section 99 of the Companies Law (2013 Revision) ("Section 99"). Section 99 is in the following terms:
The liquidity crisis has increased the need for creative procedures to avoid sudden death bankruptcy in order to salvage existing value.
A Jersey company or a company incorporated elsewhere but administered in Jersey may become involved in insolvency procedures under Jersey law or the law of a jurisdiction outside Jersey.
The role of Jersey as a financial centre means that on occasions there will be a requirement for a foreign liquidator or an office-holder under bankruptcy legislation to obtain information or documentation from persons or companies located in the Island. There have been a series of recent court decisions establishing the appropriate levels of co-operation with other jurisdictions.
The Royal Court of Jersey can receive requests from outside Jersey by courts prescribed under the Bankruptcy (Désastre) (Jersey) Law 1990 or based on principles of comity. This will commonly involve a Jersey company or any other company with assets or information situated in Jersey. Insolvency practitioners appointed under a law or by a court outside Jersey will have no authority, as a matter of Jersey law to act in Jersey. It is normal therefore for an application to be made for recognition of the appointment and authority to exercise powers in Jersey.
Introduction
There are two principal regimes for corporate insolvency in Jersey: désastre and winding-up. This Briefing seeks to highlight the major features of each and some of the differences between the two.
Désastre
The law of désastre arose out of the common law of Jersey, although since 1991 the common law has only applied to the extent that express provision is not made in the Bankruptcy (Désastre) (Jersey) Law 1990 (the "Désastre Law").
Who may commence the process?
A Jersey company or one of its creditors may wish the company to be placed into administration in England under Schedule B1 of the UK's Insolvency Act 1986 (the "Act").
The liquidity crisis has increased the need for creative procedures to avoid sudden death bankruptcy in order to salvage existing value.
A Jersey company or a company incorporated elsewhere but administered in Jersey may become involved in insolvency procedures under Jersey law or the law of a jurisdiction outside Jersey.
The Royal Court of Jersey can receive requests from outside Jersey by courts prescribed under the Bankruptcy (Désastre) (Jersey) Law 1990 or based on principles of comity. Such requests may involve a Jersey company or any other company with assets or information situated in Jersey. Insolvency practitioners appointed under a law or by a court outside Jersey will have no authority, as a matter of Jersey law, to act in Jersey. It is normal, therefore, for an application to be made for recognition of the appointment of such practitioners and to authorise them to exercise powers in Jersey.
A Jersey company or one of its creditors may wish the company to be placed into administration in England under Schedule B1 of the UK's Insolvency Act 1986 (the "Act").