GLOBAL PRACTICE GUIDE Defi niti ve global law guides off ering comparati ve analysis from top ranked lawyers Insolvency Cayman Islands Campbells chambers.com CAYMAN ISLANDS LAW AND PRACTICE: p.3 Contributed by Campbells The ‘Law & Practice’ sections provide easily accessible information on navigating the legal system when conducting business in the jurisdic- tion. Leading lawyers explain local law and practice at key transactional stages and for crucial aspects of doing business. LAW AND PRACTICE CAYMAN ISLANDS Law and Practice Contributed by Campbells Contents 1. Market Trends and Developments p.5 5. Unsecured Creditor Rights, Remedies and 1.1 The State of the Restructuring Market p.5 Priorities p.10 1.2 Changes to the Restructuring and Insolvency 5.1 Differing Rights and Priorities Among Market p.5 Classes of Secured and Unsecured Creditors p.10 5.2 Unsecured Trade Creditors p.10 2. Statutory Regimes Governing Restructurings, Reorganisations, Insolvencies and Liquidations p.6 5.3 Rights and Remedies of Unsecured Creditors p.10 2.1 Overview of the Laws and Statutory Regimes p.6 5.4 Pre-judgment Attachments p.10 2.2 Types of Voluntary and Involuntary Financial 5.5 Typical Timeline for Enforcing an Unsecured Restructuring, Reorganisation, Insolvency Claim p.10 and Receivership p.6 5.6 Bespoke Rights or Remedies for Landlords p.10 2.3 Obligation to Commence Formal Insolvency 5.7 Special Procedures or Impediments or Proceedings p.6 Protections That Apply to Foreign Creditors p.10 2.4 Procedural Options p.6 5.8 The Statutory Waterfall of Claims p.10 2.5 Liabilities, Penalties or Other Implications 5.9 Priority Claims p.11 for Failing to Commence Proceedings p.7 5.10 Priority Over Secured Creditor Claims p.11 2.6 Ability of Creditors to Commence Insolvency 6. Statutory Restructurings, Rehabilitations and Proceedings p.7 Reorganisations p.11 2.7 Requirement for Insolvency to Commence 6.1 The Statutory Process for Reaching and Proceedings p.7 Effectuating a Financial Restructuring/ 2.8 Specific Statutory Restructuring and Reorganisation p.11 Insolvency Regimes p.8 6.2 Position of the Company During Procedures p.12 3. Out-of-court Restructurings and Consensual 6.3 The Roles of Creditors During Procedures p.12 Workouts p.8 6.4 Modification of Claims p.13 3.1 Consensual and Other Out-of-court 6.5 Trading of Claims p.13 Workouts and Restructurings p.8 6.6 Using a Restructuring Procedure to 3.2 Typical Consensual Restructuring and Reorganise a Corporate Group p.13 Workout Processes p.8 6.7 Restrictions on the Company’s Use of or Sale 3.3 Injection of New Money p.9 of Its Assets During a Formal Restructuring 3.4 Duties of Creditors to Each Other, or of the Process p.13 Company or Third Parties p.9 6.8 Asset Disposition and Related Procedures p.13 3.5 Consensual, Agreed Out-of-court Financial 6.9 Release of Secured Creditor Liens and Restructuring or Workout p.9 Security Arrangements p.13 4. Secured Creditor Rights and Remedies p.9 6.10 Availability of Priority New Money p.13 4.1 Type of Liens/Security Taken by Secured 6.11 Statutory Process for Determining the Value Creditors p.9 of Claims p.13 4.2 Rights and Remedies for Secured Creditors p.9 6.12 Restructuring or Reorganisation Plan or 4.3 The Typical Timelines for Enforcing a Agreement Among Creditors p.13 Secured Claim and Lien/Security p.9 6.13 The Ability to Reject or Disclaim Contracts p.13 4.4 Special Procedures or Impediments That 6.14 The Release of Non-debtor Parties p.13 Apply to Foreign Secured Creditors p.10 6.15 Creditors’ Rights of Set-off, Off-set or Netting p.13 4.5 Special Procedural Protections and Rights for 6.16 Failure to Observe the Terms of an Agreed Secured Creditors p.10 Restructuring Plan p.13 3 CAYMAN ISLANDS LAW AND PRACTICE 6.17 Receive or Retain Any Ownership or Other 12. Duties and Personal Liability of Directors and Property p.13 Officers of Financially Troubled Companies p.21 12.1 Duties of Officers and Directors of a 7. Statutory Insolvency and Liquidation Proceedings p.14 Financially Distressed or Insolvent Company p.21 7.1 Types of Statutory Voluntary and Involuntary 12.2 Direct Fiduciary Breach Claims p.21 Insolvency and Liquidation Proceedings p.14 12.3 Chief Restructuring Officers p.21 7.2 Distressed Disposals as Part of Insolvency/ Liquidation Proceedings p.17 12.4 Shadow Directorship p.21 7.3 Implications of Failure to Observe the Terms 12.5 Owner/Shareholder Liability p.21 of an Agreed or Statutory Plan p.18 13. Transfers/Transactions That May Be Set Aside p.21 7.4 Investment or Loan of Priority New Money p.18 13.1 Grounds to Set Aside/Annul Transactions p.21 7.5 Insolvency Proceedings to Liquidate a 13.2 Look-back Period p.22 Corporate Group on a Combined Basis p.18 13.3 Claims to Set Aside or Annul Transactions p.22 7.6 Organisation of Creditors p.18 7.7 Conditions Applied to the Use of or Sale of 14. Intercompany Issues p.22 Assets p.18 14.1 Intercompany Claims and Obligations p.22 8. International/Cross-border Issues and Processes p.18 14.2 Off-set, Set-off or Reduction p.22 8.1 Recognition or Other Relief in Connection 14.3 Priority Accorded Unsecured Intercompany with Foreign Restructuring or Insolvency Claims and Liabilities p.22 Proceedings p.18 14.4 Subordination to the Rights of Third-party 8.2 Protocols or Other Arrangements with Creditors p.22 Foreign Courts p.19 14.5 Liability of Parent Entities p.22 8.3 Rules, Standards and Guidelines to 14.6 Precedents or Legal Doctrines That Allow Determine the Paramountcy of Law p.19 Creditors to Ignore Legal Entity Decisions p.22 8.4 Foreign Creditors p.19 14.7 Duties of Parent Companies p.22 14.8 Ability of Parent Company to Retain 9. Trustees/Receivers/Statutory Officers p.19 Ownership/Control of Subsidiaries p.22 9.1 Types of Statutory Officers Appointed in Proceedings p.19 15. Trading Debt and Debt Securities p.22 9.2 Statutory Roles, Rights and Responsibilities 15.1 Limitations on Non-banks or Foreign of Officers p.19 Institutions p.22 9.3 Selection of Statutory Officers p.19 15.2 Debt Trading Practices p.23 9.4 Interaction of Statutory Officers with 15.3 Loan Market Guidelines p.23 Company Management p.19 15.4 Enforcement of Guidelines p.24 9.5 Restrictions on Serving as a Statutory Officer p.19 15.5 Transfer Prohibition p.24 10. Advisers and Their Roles p.19 15.6 Navigating Transfer Restrictions p.24 10.1 Types of Professional Advisers p.19 16. The Importance of Valuations in the Restructuring 10.2 Authorisations Required for Professional and Insolvency Process p.24 Advisers p.20 16.1 Role of Valuations in the Restructuring and 10.3 Roles Typically Played by the Various Insolvency Market p.24 Professional Advisers p.20 16.2 Initiating Valuation p.24 11. Mediations/Arbitrations p.20 16.3 Jurisprudence Related to Valuations p.24 11.1 Use of Arbitration/Mediation in Restructuring/Insolvency Matters p.20 11.2 Parties’ Attitude to Arbitration/Mediation p.20 11.3 Mandatory Arbitration or Mediation p.20 11.4 Pre-insolvency Agreements to Arbitrate p.20 11.5 Statutes That Govern Arbitrations and Mediations p.20 11.6 Appointment of Arbitrators/Mediators p.20 4 LAW AND PRACTICE CAYMAN ISLANDS Campbells advises on Cayman Islands and British Virgin nance entities. Lawyers have specific experience of co-or- Islands Law, and has offices in Cayman (head office), the dinating cross-border appointments, obtaining injunctions, BVI and HK. The group acts for local and overseas insol- assisting with gathering evidence and obtaining recognition vency professionals, creditors, investors, directors and and assistance from overseas courts. The team is involved in other professional service providers in connection with all many of the jurisdiction’s most high-profile disputes, liqui- aspects of the restructuring and winding-up of companies, dations and restructurings. investment funds, limited partnerships and structured fi- Authors Guy Manning is head of Campbells’ enforcement actions. He has significant experience of all Litigation, Insolvency & Restructuring insolvency procedures under Cayman law, and has Group and acts on behalf of creditors, appeared before the Grand Court’s specialist Financial shareholders, provisional and official Services Division and the Cayman Islands’ Court of liquidators, directors, managers and other Appeal on numerous occasions. He is a fellow of INSOL professional service providers in relation International. to the restructuring and liquidation of Cayman companies and other entities. He also has an active general litigation Mark Goodman is a partner in the practice involving widely varying commercial contexts and Litigation, Insolvency & Restructuring structures, but with a particular emphasis on shareholder Group and specialises in insolvency, and investment fund disputes. restructuring and investment fund litigation. He advises and appears in the Guy Cowan’s primary area of practice and Cayman Islands Courts on behalf of expertise is solvent and insolvent liquida- provisional and official liquidators, creditors, shareholders, tions, often with significant cross-border directors, managers and other professional service aspects. He acts for distressed hedge providers in relation to a broad range of pre- and post- funds, insolvency practitioners, stakehold- liquidation disputes. He has acted in litigation involving ers and financial institutions, and regularly widely varying commercial contexts and structures, but his advises in relation to creditor and/or shareholder disputes practice principally involves distressed and failed invest- and remedies, antecedent transactions, contentious ment funds.