The Court interpreted the terms of a Termination Agreement and found that the Applicant, Europa, was entitled to €1.3 million from the Defendant, AII, in relation to funds invested on Europa's behalf, which had been paid out and held by AII. As a matter of construction, it could not have been intended that AII should be left with sums owing to an investor following a Termination Agreement.

In a "jurisprudentially unattractive" decision, the Supreme Court of the Commonwealth of the Bahamas has refused the liquidators of Caledonian Bank (in official liquidation under the supervision of the Grand Court of the Cayman Islands) recognition in the Bahamas, where assets in the region of $16 million are held.

Facts

Introduction

Why segregated portfolio companies are thriving in Cayman? Loeb Smith’s corporate Partner Gary Smith talks to HFM Week about SPCs.

HFMWeek (HFM):How versatile are SPCs? What makes them this way?

A Cayman Islands company can be dissolved by the appointment of a liquidator or it can be dissolved without such appointment if the company is struck off the register as a result of an application to the Registrar of Companies for the purpose.

Voluntary liquidation

In circumstances where the company has been active and has substantial assets and liabilities, it is normal and recommended for the company to be liquidated.

In a recent judgment,[1] the Cayman Islands Court of Appeal (the “Court”) has upheld the decision of the Grand Court which found that investors who have redeemed their shares but remain unpaid at the commencement of a company’s liquidation are entitled to prove in the liquidation for their redemption proceeds as a creditor. This is the case irrespective of whether or not the company could lawfully have distributed the redemption proceeds to them prior to the commencement of the liquidation.

When Cayman Islands funds undergo liquidity stress on their balance sheet due to holding illiquid assets or irregular large redemption requests, directors of Cayman Islands funds generally consider mechanics to provide for an orderly restructure to meet redemption requests which arise. Common arrangements are to implement a “redemption gate” which limits redemptions to a certain percentage of shares in the fund or a stronger response such as a suspension of all redemptions.

The Grand Court of the Cayman Islands has held that depositor protection provisions in Cayman Islands law only apply in respect of depositors with deposits of CI$20,000 (US$24,400) or less.¹  Depositors with more than CI$20,000 on deposit do not benefit from such provisions at all, even for their first CI$20,000.  This means that, for persuasive policy reasons, the position in the Cayman Islands differs from the position in the EU under the deposit guarantee scheme.

The U.S. Bankruptcy Court for the District of New Jersey recently held that a Cayman Islands collateralized-debt obligation issuer (“CDO”) could be a debtor under Chapter 11 of the U.S. Bankruptcy Code (the “Bankruptcy Code”) and declined to dismiss an involuntary case commenced against the CDO by certain noteholders on the grounds that the notes held by such noteholders were “non-recourse” notes. Below is a discussion of the court’s decision and its potential implications. The decision is currently being appealed.

WHAT IS FATCA?