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SNAPSHOT OFFSHORE Corporate Insolvency & Restructuring Annual Review 2018 Current Trends 2019 Jan-June

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SNAPSHOT OFFSHORE Corporate Insolvency & Restructuring Annual Review 2018 Current Trends 2019 Jan-June SNAPSHOT OFFSHORE Corporate Insolvency & Restructuring Annual Review 2018 Current Trends 2019 Jan-June ANALYSIS OF OFFSHORE PETITION FILINGS AND COURT ORDERS Tony Heaver-Wren Partner | Head of Insolvency & Restructuring Dispute Resolution | Cayman INSOLVENCY PETITIONS IN NUMBERS This Snapshot Report provides an overview of the CONTENTS 1 recent insolvency and restructuring petition filings 2018 2019 to date and resultant court orders in respect of companies Winding up Petitions in six* offshore jurisdictions. Throughout the year, The International Picture 3 Total number of companies in Bermuda, BVI, The Offshore Picture 4 744,255 764,765 2 we closely monitor company notices and petition Analysis of Filings by Jurisdiction Cayman, Guernsey, Isle of Man & Mauritius activity across our network of offshore offices in the Bermuda 5 British Virgin Islands 6 following categories: Cayman Islands 7 Compulsory winding-up Petitions submitted to the Mauritius 9 62 • Compulsory winding up, by shareholders or creditors; Guernsey 9 193 Offshore courts • Conversion of voluntary liquidation to court supervised liquidation; Isle of Man 10 • Schemes of arrangement; and Jersey 11 • Court requests for a reduction of share capital. Compulsory winding-up Orders made by the The key findings that emerge from our full-year, multi-jurisdictional 105 26 Offshore courts review and analysis for 2018 are highlighted and explored further over the following pages, together with commentary on the developments over 2019 to date. Petitions against Asian enterprises incorporated offshore have declined somewhat, although there are still a number of high-profile Average conversion rate of winding-up Petitions individual cases making their way through the offshore courts. 62% 28% to Orders across the region Petition filings and conversion rates in each of the jurisdictions analysed are also explored in more detail, and the trends are placed in a global context. Average Petition to Order conversion time We trust that you find our analysis over the following pages useful. 7 weeks 5 weeks Please don’t hesitate to get in touch with your usual Appleby contact should you wish to discuss anything in more detail. Fewer winding up Petitions than the previous year Tony Heaver-Wren -35% -11% or equivalent time period Partner | Dispute Resolution | Cayman * Jersey’s corporate insolvency regime is not Petition-based but a summary of its insolvency and restructuring options is also included. 1 January 1st - June 1st 2 The statistics quoted for the Offshore region in the report are based on these six jurisdictions SNAPSHOT Annual Review: 2018-2019 2 WINDING UP PETITIONS - THE INTERNATIONAL PICTURE OFFSHORE COMPULSORY WINDING UP PETITION TOTALS Across the six offshore jurisdictions reviewed, there were 193 compulsory winding up petitions presented to the local courts in the course of 2018 and a further 62 so far in 2019. Bermuda, Isle of Man and Guernsey all showed levels of activity in 2018 in line with previous years. Cayman petition filings in 2018 rose 50% relative to the previous year, in part due to seven local companies being liquidated after becoming 24,985 embroiled in real estate investment fraud in the United States. After an uptick in activity in 2017, Mauritius and the British 24,457 Virgin Islands (BVI) filings returned to previous levels in 2018. The early signs are that 2019 is going to continue this easing of filings, despite widespread anticipation of a global slow- 23,109 down during the period. Given 2019 filings to date, barring a late surge, 2019 filings are unlikely to overtake 2018 totals come year end. However, spikes in numbers are possible as the complex organisation of some corporate structures can mean that a cascade of insolvencies can result from a single troubled group. In Guernsey for example, the court 22,103 recently issued orders against a group of nine funds and sub-funds belonging to beleaguered investment firm Belvedere Management Group. Key THE UNITED KINGDOM 5,460 5,389 5,111 USA In 2018, the UK Gazette reported a little over 5,800 petitions to compulsory wind-up companies, as submitted by a 5,816 creditor, shareholder or director. Such petitions peaked at 8,300 in 2008 and have been declining steadily until last year UK when a significant reversal of this trend incurred with 700 more petitions than the previous year - 2019 is currently on 2,616 track to match it. 235 200 296 193 62 Offshore THE UNITED STATES 2015 2016 2017 2018 2019 to date There were almost 50,000 business bankruptcy petitions filed back in 2011 but this figure had halved by 2015. Since then the annual decline in bankruptcy court petitions published by the Administrative Office of the US Courts has been much more marginal. Business petitions fell 6% for the second year running, to 22,103. COMPANY REGISTER SIZE Latest figures available BVI, 402,907 UK 3,879,844 Offshore Mauritius, 192 972 USA 764,765 27,626,360 5 Cayman, 107,309 Isle of Man, 25,995 Guernsey, 19,253 Bermuda, 16,329 SNAPSHOT Annual Review: 2018-2019 3 WINDING UP PETITIONS - THE OFFSHORE PICTURE RATES OF CONVERSION SPEED OF CONVERSION The rate of winding up petitions converting into orders is generally high in the Offshore region. With plenty of Over the last year the time between filing and final hearing varied between four and eleven weeks. Judging from the 2018 restructuring options on the table, winding up a company is usually the option of last resort and frequently successful. conversion rate, petitions in Bermuda are resolved within one month, Mauritius and Cayman within two and BVI and Isle of Man within three months. Over the last year, Bermuda and BVI saw the highest rates of conversion of petitions to court orders appointing liquidators. Typically, a final hearing will occur within two months but there are always several outliers; cases that for reasons of complexity or multiple rescue attempts take considerably longer to reach the point of a court order. Guernsey petitions are not publicly available; it is only possible to review the number of winding up orders for the jurisdiction so conversion figures are unavailable. For Cayman, there are also separate figures available for the conversion rates of petitions for Schemes of Arrangement and Reduction of Capital. These follow a more intensive court process, a scheme typically requiring an initial filing, a directions hearing, advertisement, a scheme meeting, the filing of further evidence and then a sanction hearing. These can be completed in 8-10 weeks with the occasional outlier taking the average up to 13 weeks. Bermuda BVI Cayman Isle of Man Mauritius Conversion Conversion Rate in 2018 Rate 71% 86% 64% 63% 27% Lorem ipsum 5 5 5 Weeks Weeks to Convert in 2018 Convert to N.B. Guernsey petitions are not available, so calculations of conversion rates and speed are not possible. SNAPSHOT Annual Review: 2018-2019 4 ANALYSIS OF 2018-19 FILINGS BY JURISDICTION BERMUDA BERMUDA’S INSOLVENCY REGIME During the course of 2018, Bermuda witnessed 14 compulsory winding up petitions, ten of which converted into court orders. 2019 looks likely to achieve a similar level, with seven petitions recorded thus far in the year. Petitions in Bermuda The Companies Act 1981 and the Winding Up Rules 1982 govern insolvencies and that do convert generally do so in a swift and orderly fashion, with many being processed within a month, quicker than reorganisations in Bermuda. There are two types of insolvent liquidations - voluntary and anywhere else in the offshore region. compulsory. Petition levels have gradually declined as the years of economic turmoil have receded. Nevertheless, companies of all Compulsory liquidations are commenced by way of a petition presented to the Supreme Court ages and sectors are susceptible to downturns - 2019 has so far seen local retailer Bluck’s of Bermuda go into liquidation in Bermuda upon which the Court will be asked to make a winding up order. after 175 years, citing lifestyle changes, while 80-year-old Hong Kong construction company Hsin Chong recently filed for provisional liquidation with the Bermuda court, after over expansion on the mainland over the past few years has led to a Creditors may petition for a winding up order or the company may resolve to petition to wind bond default. itself up under this procedure. One of the most notable cases from 2018 concerned Noble Group, which completed a USD$3.5 billion restructuring by Voluntary liquidations, usually referred to as a ‘creditors voluntary’ or CVL, occur where using a provisional liquidation program approved by the Bermuda court in order to emerge as smaller, unlisted coal- members of a company decide to wind up the company deemed insolvent. A meeting of trading business having once been Asia’s biggest commodity trader. creditors is then convened to decide on the appointment of a liquidator. As CVL’s do not require the involvement of the courts, they are not measured in this report. Notices of the reduction of share capital remained at a typical level in 2018 in the mid-thirties, but 2019 looks to be much busier, with 25 already reported so far. A winding up petition to the court sets out the basis for the winding up order and the appointment of a provisional liquidator. Court-supervised liquidation usually commences with the making of a winding up order after the hearing of the petition. The winding up order sets the date for evaluation of claims and appoints either a liquidator or the Official Receiver. BERMUDA WINDING UP PETITIONS AND RESULTING ORDERS Restructuring Options 25 A scheme of arrangement is a compromise or arrangement between a company and its members or its creditors. An application to, and sanction of, the court is required. 20 A company may want to reduce its share capital in order to create distributable reserves and/ or eliminate losses, return surplus capital to shareholders, assist a buyback or redemption 15 of shares, or distribute assets to shareholders.
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