The Cayman Court recently recognised joint provisional liquidators appointed by the
Part One of this case report discusses some of the key issues considered by the Cayman Court on its scope and jurisdiction to recognise and assist foreign officeholders appointed over a Cayman company.
Part Two, found here, discusses the principles relevant to the Cayman court sanctioning a scheme of arrangement particularly in circumstances where, as was the case here, the scheme purported to compromise debt which was not governed by Cayman (or
PART ONE
Background
The Company is an investment holding company and part of a group of companies whose subsidiaries are principally engaged in the provision of financial services to customers in
Following the presentation of the petition,
The JPLs were of the opinion that an immediate winding up of the Company would not maximise creditor returns and that the interests of creditors would be best served by facilitating a restructuring of the Company's indebtedness. The JPLs therefore obtained an order from the
Recognition
In order for the restructuring to be implemented, the JPLs needed to take certain steps in the
Had the Company been incorporated in
The Cayman Court has previously considered the scope of its common law jurisdiction to recognise and assist foreign officeholders of a Cayman incorporated company in circumstances where there are no parallel insolvency proceedings in Cayman in the matter of China Agrotech Holdings Limited [2017] 2 CILR 526 (affirmed in Changgang Dunxin Enterprise Company Limited (unreported,
Further, the well-reasoned decision of Mr
Jurisdiction
The general principles relevant to jurisdiction at common law, which can be taken from the majority speeches in Singularis (drawing on both HIH and Rubin), are as follows:
- Courts have for over a century exercised a power to assist foreign officeholders appointed by a foreign court in the place of a company's incorporation. The power to do so is drawn from ordinary principles of private international law and does not require fresh or further winding up proceedings;
- Whether or not the court ought to provide assistance to a foreign officeholder depends on the nature of the power the court is being asked to exercise;
- Modified universalism is part of English common law; however, it is subject to local law and local public policy;
- The power of assistance exists for the purpose of surmounting the problems posed for a worldwide winding up of a company's affairs and the territorial limits of each court's powers; and
- Assistance cannot be given to permit the officeholder to do something which they are not permitted to do under the laws by which they were appointed, nor to do anything which is inconsistent with the substantive law and public policy of the assisting court.
Although the English cases (and therefore the analysis above) were all concerned with assisting officeholders appointed by a foreign court in the place of the company's incorporation, the Cayman Court determined in
"it seems to me that the power to recognise and assist arises and applies even in a case where the foreign liquidator has been appointed in a place other than the country of incorporation."
The JPLs of the Company in this case sought the precise relief which was granted in
Discretion
Having satisfied itself as to jurisdiction, it was then necessary for the Cayman court to satisfy itself of various matters relevant to the exercise of its discretion to recognise foreign officeholders at common law. Going through each of the matters identified in
- The court was in substance dealing with a governance question: whether the JPLs should be permitted to present the petition on behalf of the company and consent to the scheme on its behalf;
- The steps the JPLs wished to take did not give rise to competing claims by creditors which would result in different levels of recovery or returns depending on whether the relief was granted;
- The Company's board and its directors were unable or unwilling to act and had shown no sign that they would take steps to support or oppose the JPLs' plans. In fact, the three executive directors had resigned, leaving only non-executive directors in office that had no power to commence winding up proceedings in the name of the Company and had taken no steps since the appointment of the JPLs;
- It would be impracticable and prejudicial to the interests of all stakeholders to delay matters by requiring shareholder approval for the JPLs' application, which would have proved logistically challenging, time consuming and costly;
- There was no likelihood of an application being made for a winding up order in Cayman in circumstances where no creditor had taken any steps in Cayman since the appointment of the JPLs 18 months prior and the majority creditors were fully participating in the
Hong Kong proceedings; - The Company had substantial connections to
Hong Kong , including all shareholders (save for one) having an address inHong Kong , the Company's principal place of business being inHong Kong , its licenses having been issued byHong Kong regulators and the majority of its customers being based inHong Kong (or the PRC); - There appeared to be no reason why stakeholders would benefit by a liquidation of the company in the
Cayman Islands in circumstances where any appointee would be tasked with the same mandate as the JPLs and where parallel schemes of arrangement would still be necessary givenHong Kong was the jurisdiction in which the majority of the Company's debt was governed.
The Cayman court concluded that separate winding up proceedings in the
Stay
It was accepted in this case that the Company could not obtain a statutory stay of proceedings in accordance with section 97 of the Companies Act, which operates only in circumstances where liquidation proceedings are commenced in Cayman pursuant to the Companies Act. Granting such a stay would amount to an impermissible exercise of the common law power identified by
The JPLs did not ask the court to recognise the JPLs "as if" they were appointed by the Cayman Court and did not apply for a statutory stay. However, they sought and obtained an order from the Cayman court, using its case management powers, that any proceedings issued by or against the Company in the
Discussion
We are seeing an increasing number of instances of liquidators being appointed over Cayman companies by the
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
Mr
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